Part time business growing too fast

[cardude]

As some of you may know, I quit the new car biz back in 2009 and retired for a couple of years. I thought I was done for good, but my plan for what to do in retirement was a little bit lacking to say the least, and with DW still working and kids still in school I got a little stir crazy. One of my old car biz employees started talking to me about starting a used car lot here in town, and I eventually agreed to give it a shot.

We have been open about 1.5 years, and it has gone from a simple little lot with a few cars and just three guys working it (including me) to a full blown used car operation with 60 vehicles on the lot, three full time salespeople, two managers, a title clerk and a dedicated auction buyer.

The managers who run the store are young, hungry and aggressive (like they need to be in the car biz) and they want to continue to grow-- we even talked about opening a second store, although I'm regretting I didn't nip that in the bud when it came up. I'm working 15-20 hours a week, and that's about all I want to put in. I don't want to lose all my personal time, and I know if we continue to grow I'll have to spend more time overseeing things, and have to start managing employees again (already am actually). However, I don't want to kill my managers enthusiasm either, and I have to admit I'm getting a little greedy again like I used to be back in the day as I watch the money flow in. This lot is now generating as much profit as my new car dealership did at its peak-- it is paying all our expenses, plus I'm saving about 30% of the profit.

My initial thought when I started this thing was it would be fun to have a little car lot-- it would give me a place to go during the day, and the extra money coming in would make me feel better about our portfolio success going forward (under 3% at current exp level). I planned on just shutting it down or selling it after the kids go off to college in 5 years and pulling the money out of it, but the bigger it grows the harder it will be for me to shut it down.

I've thought about trying to sell it to the current managers in a few years, but I don't think they would be able to get the financing to floorplan the inventory (unless the banks loosen up), and I'm not interested in letting them use my money if I'm not around to watch it. I currently have one million invested in it in inventory and working capital.

Any bright ideas on how to either a) slow this thing down? b) grow it then sell it? c) grow it and let the kids run it (yuck)? d) sell it now while it's hot and bail out?

Help me brainstorm........

 

[Meadbh]

Or start a franchise and become Chairman of the Board.....

Let it grow, but elevate yourself to the next level and enjoy the profits!

 

[REWahoo]

See if Red McCombs is interested in a purchase.

 

[Texas Proud]

A business only grows if you want it to grow....

You have allowed things to happen probably because deep down you want them to happen... otherwise, you would have said no...

 

[JPatrick]

As in any business--If the business is at all successful, (yours is) you have two choices--Growth or slow death, there is no standing still.
OTOH, most of the options you've provided are about your personal lifestyle.
Nothing wrong with that, but that may be independent of what is good for the business.
It probably is worth keeping in mind that the economy seems to be improving somewhat, so as those record old cars people are driving get even older, it can't help but bring even more business your way.

 

[W2R]

As some of you may know, I quit the new car biz back in 2009 and retired for a couple of years. I thought I was done for good, but my plan for what to do in retirement was a little bit lacking to say the least, and with DW still working and kids still in school I got a little stir crazy. One of my old car biz employees started talking to me about starting a used car lot here in town, and I eventually agreed to give it a shot.
[...]
Any bright ideas on how to either a) slow this thing down? b) grow it then sell it? c) grow it and let the kids run it (yuck)? d) sell it now while it's hot and bail out?

Help me brainstorm........

I have some comments that are meant in the kindest of ways so here they are.

Instead of brainstorming on the questions you ask, I have another idea. Why not spend a year or so doing considerable introspection, and thinking about what you really, really, really want in life. What direction should you take in order to be truly happy?

Then use your extensive business skills and experience to make the necessary plans to transition to that from what you are presently doing (if it is even different from what you are doing right now). You can do it! Plus, you know more about the car business than random internet posters so you also know more about what your options are. But what you don't yet know (I think?) is what you really want to be doing at this stage in life. It's not as easy to figure out as it sounds, sometimes. The idea is that if you work on this, then you won't end up having successfully ditched your present business but wishing that you hadn't.

 

[Bestwifeever]

I vote (d) SELL!

You can then start another business your kids might want to take over one day.

 

[Amethyst]

Cardude, I honestly think you cannot stay away from cars. It is how you are wired. If you got rid of the business entirely, you would start hanging around other people's showrooms with your nose pressed up against the window.

I like the "chairman of the board" idea. It would let you walk in and kick tires any time you want.

You said letting the kids run it would be a "yuck," which I guess means they would require too much management and you'd be back where you started. Can you put the whole business up for sale, and maybe the current managers, whom you obviously like, could become part owners even if they can't put up the whole price themselves? And you would stay as Chairman of the Board.

Amethyst

 

[MasterBlaster]

Any bright ideas on how to either a) slow this thing down? b) grow it then sell it? c) grow it and let the kids run it (yuck)? d) sell it now while it's hot and bail out?

Here's what I would do...

I would account for the $$ you have now invested in the business and benchmark that number. Then I woiuld continue to work untill all of that investment was paid off (after taxes) as profit. After that it's just pure profit, so I would then consider letting tha managers do alot more of the work. Only at that stage, would I become "Chairman of the Board"

 

[fisherman]

As another ESR failure (My word for myself as I let the business grow to much when that was not needed) I like the way you put it much better. The following is how I am planning to handle the situation and I hope it might provide an idea two two for you.

I also agree with another poster that a business is either growing or slowly dying. Given that I have decided to allow a slow death if that is what happens before I can give it to the kids if they want whats left. The way I will approach this is to keep the customers I like and enjoy the most(I do not have any bad ones as they get fired quickly, a benefit of FI) and allow the ones that are less fun to fall away by raising their price till they leave.

My business is a consulting oriented business so the above is much easier. Could you maybe keep a small lot to play with or look into selling parts of the company but keeping enough for fun to follow a similar idea?

 

[MooreBonds]

Could you offer to sell bits of the business (like 24%/year) to whichever employees want to buy it? That way, the purchase price is spread among more people, and by doling out a small %/year, it's more manageable for them to afford it. And given the low rate environment, could you finance the sale at a 5% rate? Would allow you to still retain 50% control over the next 2 years, while also starting to realize the full value of a business at its peak.

 

[pb4uski]

How about partnering with the managers to limit your involvement to 50% time or less? Part of their comp would be partial ownership in the business that is non-transferable (like golden handcuffs they lose it if they walk) and you would all share in any profit distributions based on your ownership shares. You could design it so over some period of time (say 5-7 years) they will collectively own a substantial non-controlling interest in the business and at some point will have the option to buy your controlling interest based on a formula. Until then, you have majority control, can call the shots and protect your investment and develop them so they are ready to take over at the end of that time period.

They get to develop a business under your tutelage and own it in time and you get to have a bit of fun, cash flow and an eventual graceful exit.

 

[Meadbh]

How about partnering with the managers to limit your involvement to 50% time or less? Part of their comp would be partial ownership in the business that is non-transferable (like golden handcuffs they lose it if they walk) and you would all share in any profit distributions based on your ownership shares. You could design it so over some period of time (say 5-7 years) they will collectively own a substantial non-controlling interest in the business and at some point will have the option to buy your controlling interest based on a formula. Until then, you have majority control, can call the shots and protect your investment and develop them so they are ready to take over at the end of that time period.

They get to develop a business under your tutelage and own it in time and you get to have a bit of fun, cash flow and an eventual graceful exit.

Brought to you by the ER.org department of M&A.......LOL!

 

[obgyn65]

I agree with this.

Cardude, I honestly think you cannot stay away from cars. It is how you are wired. If you got rid of the business entirely, you would start hanging around other people's showrooms with your nose pressed up against the window.

 

[Ronstar]

You could sell it to the current managers over several years a little at a time (if they can save/borrow enough). But it could take a while. We are doing this in our business and the original 4 owners are still at 27% ownership after 12 years of selling out little by little.

I do think the banks will loosen up in the next several years, and combined with a few more successful years in business, you should be able to work this out. Selling out totally to an outside buyer is also an option. Eventually you'll want to cut back on the work hours. Letting your kids run it will probably not decrease your responsibilities unless they are savvy car people like yourself.

 

[cardude]

I have some comments that are meant in the kindest of ways so here they are.

Instead of brainstorming on the questions you ask, I have another idea. Why not spend a year or so doing considerable introspection, and thinking about what you really, really, really want in life. What direction should you take in order to be truly happy?

Then use your extensive business skills and experience to make the necessary plans to transition to that from what you are presently doing (if it is even different from what you are doing right now). You can do it! Plus, you know more about the car business than random internet posters so you also know more about what your options are. But what you don't yet know (I think?) is what you really want to be doing at this stage in life. It's not as easy to figure out as it sounds, sometimes. The idea is that if you work on this, then you won't end up having successfully ditched your present business but wishing that you hadn't.

Thanks for all the replies. I believe this forum is a great sounding board for virtually any issue that might come up, probably due to the fact that most folks on this board are pragmatic, forward-thinking planners who collectively have been through almost any scenario that could come up.

I started this lot to give me something to do while the kids are finishing up HS. We have one son in 7th grade, and our other son is a sophomore in HS, so we have 5 years to go after this year until the kids start college. The plan is to relocate to a bigger city with more excitement (Austin is our first choice) and use that as a home base, and then live in a little town we like in Costa Rica for 2-3 months out of the year to surf and explore, and if we get tired of that town we will just travel to other places.

So I think we know what we want to do to make us happy, but I suppose I do get a little antsy having to wait. Waiting is not my strong point, so I'm sure that's effecting my happiness somewhat. And don't get me wrong, we are not unhappy with our current setup, although I'm probably a little more ready to go than DW is since she has a bigger friend base here.

When we relocate to Austin I'm not interested in running a business any more, so my window is five years to do something with this lot. Squashing the expansion bug is my biggest concern I now realize. I have one manager who wants to open up another lot, and like I said I let that cat out of the bag unfortunately. This manager is a big thinker and idea guy where the other manager is a better day to day operator. I need to help them figure out a way for them to own this thing using their own money ( or money they can borrow) over the next 5 years I think. They can use this time to secure their own floorplan and save up their own working capital, instead of using more of my money to expand to another location. Once they secure a floor plan I will sell it to them and then they can expand without me if they still think they need to.

 

[eytonxav]

Could you offer to sell bits of the business (like 24%/year) to whichever employees want to buy it? That way, the purchase price is spread among more people, and by doling out a small %/year, it's more manageable for them to afford it. And given the low rate environment, could you finance the sale at a 5% rate? Would allow you to still retain 50% control over the next 2 years, while also starting to realize the full value of a business at its peak.

+1 this is what I was thinking, see if a buyout plan for employees overtime would work, to go with you diminishing involvement.

 

[haha]

Once they secure a floor plan I will sell it to them and then they can expand without me if they still think they need to.

Will you nevertheless have to take a note out of the sale, or do you expect that they will be able to one way or another cash you out?

Ha

 

[cardude]

Will you nevertheless have to take a note out of the sale, or do you expect that they will be able to one way or another cash you out?

Ha

Yeah, I will have to finance the sale-- they are in their early 30s and don't have much money. Because of this finance risk, I have decided not to sell it until it has made me enough profit to equal what I have invested in it, like someone suggested in a previous post. That will probably take another 3-4 years if we keep selling at our current rate, and during that time they can start saving up their working capital and learn more about the accounting side of the business.

I like this idea of structuring the future sale today. This way the managers can focus on maximizing profits at this store (which makes me more money) and start saving up for the future purchase, instead of bugging me about opening up additional stores.

 

[haha]

I see. I hope that when you get around to doing this, you will tell us how you structured the deal.

Ha

 

[FUEGO]

Not sure if your business is quite large enough to warrant this, but an ESOP is sometimes a good solution to transitioning a business from the initial owners and on to the employees and/or other minority owners. There are potential tax benefits. And having the ESOP as a purchaser of company stock means there is a market for your ownership interest. Having a price set for your stock (or whatever your ownership interest is denominated in) could also allow the managers to buy some small ownership interest each year as their capital allows.

And in the mean time, you can compensate your employees by contributing a profit sharing match into the ESOP each year, and those funds can be used to buy your own shares from you. You slowly transition ownership to your employees this way. It also gives them ownership and buy in to the company, which means (generally) more loyalty and willingness to work toward a common corporate goal (making more money!).

It worked fairly well for a small engineering concern I used to work at. The old president wanted to retire and he has managed to offload most of his initial 60-70% interest in the company over the last 8-9 years by having the ESOP buy out small chunks of his stock each year using funds contributed to the ESOP on behalf of all employees. Those contributions to the ESOP are tax free bonuses to the employees, and fully deductible employment expenses to the corporate entity. And if your business is structured with pass through taxation (like an S-Corp), the ESOP's share of profit is non-taxed.

 

[heeyy_joe]

I would give the big thinker a loan (seed money) to open up and run a new lot, where you are a passive partner that gets a percentage of the profit. Restricting or structuring the initial amount will keep the lot small (and your risk). As this big thinker grows this second lot, you can choose the point to sell the first lot to the highest bidder. This gives you the opportunity to get out of the responsibility (and risk) and continue to get a passive income stream if Mr. Big Thinker is a success.