Discover how real buyers value auto repair shops and how to increase your multiple. In What’s Your Shop Worth with Michael Smith and Cecil Bullard, they explain how to calculate true business value using EBITDA, owner compensation, and accurate add-backs. They share how profit consistency, team strength, and brand reputation impact what your shop is really worth. You’ll also learn the four value drivers that attract higher offers: human capital, brand and culture, customer loyalty, and solid systems. Whether you plan to sell to private equity, a key employee, or family, this session will help you build a more valuable business and secure your financial future.

Host(s):

Cecil Bullard, Founder of The Institute

Michael Smith, Chief Strategy Officer at The Institute

Show Highlights:

[00:02:10] - Cecil details court cases that reveal how off-books decisions and owner roles can distort a shop’s true value.

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Episode Transcript:

Cecil Bullard: Welcome. I'm Cecil Bullard from the Institute for Automotive Business Excellence. I am the I guess I'm the founder now and not the CEO 43 years in the automotive business. Sitting next to me is Michael Smith. Hi, everybody. Michael and I met three years ago. Yeah, something like that, ish.

Cecil Bullard: Michael's an expert on mergers and acquisitions and has put some things together with some of our clients that were very successful and profitable for them. Yes. And a couple years ago, we decided that Michael needed to be a part of the institute. And so here you are. Here we are. Why don't you tell 'em a little bit about your.

Michael Smith: Yeah I love your background in the concentration of this industry. I came from a different background. I was in the Fortune 500 level consulting business, and I grew up in 50 or 60 industry verticals. I haven't ever really counted different industries, different dynamics, different edges to them.

Michael Smith: Gives me a great background to come here. I think I got here about. 10 years ago, met a guy who had three shops and he said, I'm not having enough fun with this to keep doing it. I either gotta make more money or have more fun or both. Can you help me? And I said, maybe what do you want? He said, can you look at my little three shop system, like you would have one of the bigger companies and help me, tell me what you see.

Michael Smith: And I want you here because you're an outsider to the industry, not an insider. And I want you to tell me what you see. And that got me started. Got me started loving this business. The operator, the owner operators that we serve, the people that we've become very fond of. Hardworking people. 20, 30, 40 year legacies in this business.

Michael Smith: I, I love the people that we have the privilege to work with.

Cecil Bullard: My, my dad was one of those guys that you know, when he was 12 he quit school and went to work at the Ford dealer. Pushing brooms and Yeah. Cleaning stuff up. And eventually became a Ford master mechanic at the dealership. And then he started his own shop in 1961.

Cecil Bullard: 61. Yeah. And he worked there for a very long time. He, you know, he's gone now. He's been gone for I think about 12 or 13 years. I try not to keep count of the time. Right. You know, 'cause it's emotional indeed. But he was the he was the guy that worked really hard in his business.

Cecil Bullard: But it didn't have the kind of value. And so today I think what we're talking about is value and how do we value these businesses? How are they valued? And I think I, I'd like to add that for about the past six or seven years, I've done quite a few cases where I've testified in court where we've either had like a husband and wife, they're getting divorced.

Cecil Bullard: And you know, the last one was kind of interesting. The husband was heaven. An affair with the service advisor. And the wife got kind of kicked out and then the husband started doing stuff off the books. And so it looked like the business had no value, but it really had value because of what had happened previously.

Cecil Bullard: And then there was one that I did in Nevada where two owners, one guy left for three years. The other guy closed the corporation and opened another corporation, and this guy came back and wanted a million dollars. And so I've testified in several court cases about how we do value. I wrote an article, it's probably 15 years ago now, about kind of the six or seven major ways that we kind of value automotive businesses.

Cecil Bullard: And that has changed a little. I think that's in, to me, it's kind of interesting that, you know, I think four x, maybe five x was five x times ebitda. So earnings before, which I wanna say income tax, interest tax, and depreciation. Ation and amortization. Yeah. And amort. Okay. And the amortization thing I always mess up, but basically at the end of the year, what do I have?

Cecil Bullard: F left in the pile before I pay taxes and interest on loans and things like that. And then, so, currently the industry 2.8 is the last number. I saw that about three months ago in a industry article. And so I've been kind of quoting that would fall in line with where we're at somewhere between about one x so, and about four x or maybe five x if I found the right buyer.

Cecil Bullard: But really now because of the mergers and acquisitions and the venture capital, some of that's kind of changed. I mean, the core of it really hasn't, you have to be profitable. You have to be growing as a company. You have to have a decent lease or be able to own the property. What does the owner do in the business?

Cecil Bullard: If the owner is the service advisor or the lead tech, then the business is worth less because if the owner leaves right, you know, et cetera, can you carry the staff forward? Do you have systems, processes procedures in your business? So I wrote that article I dunno, years ago, published in one of the.

Cecil Bullard: Industry magazines. And I think that's how I ended up testifying in court was because somebody dug that up and said, oh, this guy knows what he's talking. So I got 'em all. I got 'em all fooled.

Michael Smith: Yeah, no. Well, I, you know, one of the things that caused me to stay when I got introduced to this industry was the dynamic of where we're going.

Michael Smith: The fact that I think there's an estimated, at least two thirds of the owner operators, if not more in our industry, are baby boomers who are interested in getting out in the next handful of years or slightly more, maybe sooner if you're exhausted. And the stories are heartbreaking. We have, I have a high performance group of.

Michael Smith: Top shops that are becoming topper shops, if you will, and one of the guys told a story at our last meeting, bought the business from his dad. And he said, love my dad worked for my dad. We're th he was the third generation in that family. And he said, and we wanted to give our dad as much money as we possibly could for the business that he was selling to us.

Michael Smith: And he said, and we did all the right valuation stuff. And when we were done, the business was worth. Are you ready for this $13,000? Yeah. 40 years. Yeah. In the business it was worth $13,000 on paper from an investor perspective, and it broke their hearts, bought the business from 'em for that, gave them a job, all that right, and then has turned it into something extraordinarily different now.

Michael Smith: But that's one of the reasons I'm here, because there's a lot of wonderful car service companies that do a great job with your customers that. Take care of your people very well. Long years of long days, and all the stress that goes in our industry and you don't have enough to retire on at the end. And that just, it breaks our hearts.

Michael Smith: There's, it's one of the things that makes

Cecil Bullard: me very passionate about the industry. You know, having my dad, yeah. Work is, you know, just work his fingers to the bone his entire life. And don't get me wrong, he loved what he was doing, but it we were never. Well off. Yeah. You know, we were always on the poor side.

Cecil Bullard: Later when I managed his shop, we started making money and so he was able to do some things and put some money away for his retirement. But there's so many shop owners that are not only just like working so hard in their business, but. They don't understand at the end that it's not worth very much because you didn't do the things that, or maybe you did.

Cecil Bullard: You know, there's instances, even now we're doing some evaluation, we're doing a lot of this right now for some of our clients and some other people like, Hey what is my business worth? I think it might be worth, we got a guy he thinks it's worth maybe two or 300,000. And when we looked at what he's pulling out and way, he's pulling it out.

Cecil Bullard: Unfortunately, if he had not done it that way and done it a different way, then he would've got the multiple meaning he, he took 150,000 as a salary. That probably should have been a draw to put in the profit, and we can put some of that back and create some additional wealth outta that. But if he had done it right.

Cecil Bullard: Initially and knew what he was up to. It. It could even be I think we figured out it was a little worth a little over 800,000 when we did the bot, the put backs and Yeah. But it probably could have been worth a million too. Sure. Right. And so I think that's

Michael Smith: the, and that's one of the, you know, that's one of the statistics, one of the things we got to know each other, walking beside very successful clients.

Michael Smith: Either side of them, looked over at each other and said, you know, this is not like two separate sets of train tracks. This is a set of train tracks that the same clients are gonna go down. His is one track, mine's another one. We should make them parallel and do this thing together. But one of the topics that came up was that issue of value and the fact that, you know, the private equity world, when you ask them, take all small businesses that are privately held, like our industry.

Michael Smith: Primarily is, and you ask the private equity people, what percentage of those companies, out of a hundred percent are, have been run such that they have been good investment, they would be good investments for us to buy as an investor, not have they been good cash machines for the owner, but is there something to buy at the end, guys, the statistic is 80 to 85%.

Michael Smith: Of the privately held businesses in this country, and not just our industry, but all industries, 6 million plus businesses, 80 to 85% of them have been used as like a cash machine. And do not ha get this, do not have enough significant value in them for an investor to even buy them.

Cecil Bullard: So I was talking about the case that I did in Vegas a few years ago.

Cecil Bullard: Yeah. In Las Vegas. The other guy came back and they had showed like a hundred thousand in profit.

Cecil Bullard: Yeah.

Cecil Bullard: But they hadn't paid themselves. So one guy was the service advisor, the other guy was the lead tech, and then they had a couple of other techs and they did like 500, 600,000 and they showed a hundred thousand in profit.

Cecil Bullard: But when you put their salaries back into the company it actually lost like 40 grand. So it had zero value. Right. I mean, it really had no value. The when I got done testifying and brought all the pieces in play and I said, you know, an average service advisor in this area would make X and an average you know, tech would make wine.

Cecil Bullard: And so the company really lost over $40,000 in this year. And the judge was like you know, okay, we're done. There's no court case. They just dismissed the case. Yeah. Because there was no value, there was no conversation you had and you see it.

Cecil Bullard: You see it a lot. I mean, the other thing I see is guys that don't figure this out in a timely fashion, like okay.

Cecil Bullard: I don't want to think about it. I got a couple guys right now that that are in their, you know, mid sixties. Yeah. And by the way, I'm on the lower edge of the baby boomers. Right. So, so these guys are boomers, right? Yeah. Right. But they don't want to think about their retirement. They got sons in play.

Cecil Bullard: The sons are kind of being underpaid, undervalued. Right. But if they don't figure it out when the time comes, you know, when they have to. Five years from now, four years from now, there just won't be value there.

Michael Smith: Well, if you think, and if you think about it, you know, if we don't build businesses that have investor value, that's, that is obvious to an investor, what do you do with it at that point?

Michael Smith: You come to the end, you got really two choices. One close it. Just stop, which gives you really nothing other than the asset sale of whatever you can. You can dig outta the business and sell at a super discount to somebody, or you sell it to a key employee that may be a family member for as much as you can get out of 'em.

Michael Smith: If you're lucky, and I'm gonna say if you're lucky in maybe a non-ethical way. You sell it to them for more than it's worth. 'cause they don't know any better when you fix a price to it. They say okay, but that's it. Those are your, those are our two choices. Right? And

Cecil Bullard: You are an investor whether you like it or not.

Cecil Bullard: And there's a, I think there's a, an industry like I don't want to deal with private equity. And so, okay, so you're not gonna deal with private equity, so you're not gonna have an investor, like a cash investor come in, you're gonna deal with your son, your daughter. Your cousin or a long-term employee.

Cecil Bullard: Right. And that is a big part of what happens, right. But if you look at money management and they don't have any money,

Michael Smith: right.

Cecil Bullard: So maybe they've saved 50,000 or a hundred thousand Well, and they put a down on your business Yes. At 400,000 or 500,000 and you carry it. But those payments, first of all, won't, they're not gonna give you a lifestyle that is comfortable.

Cecil Bullard: Right. And if you have one health issue you're done. You're done. And then and the other part of that for me is it's just like that if they screw up a year and a half in and you think you're retired and they've screwed it up, and now you're coming back and you've got the original a hundred thousand and maybe you had 50 or 60,000 in payments over the year and a half, they were in.

Cecil Bullard: But you're you only got a third of the money and there's nothing there. Right. There's nothing left because they've chased the customers away. They've they've pissed off all the vendors, you know, et cetera.

Michael Smith: Well, I'm, I wanna go back to something you said. I don't wanna sell to a private equity investor.

Michael Smith: Okay. You're gonna, if you don't close the front door, you are gonna sell to a private equity investor. And this is something I talk to my clients about here all the time. I wanna see a mindset shift, right? I wanna see it in the industry. I wanna see us go from saying, oh, you know, if I say, what do you do for a living?

Michael Smith: And say, I own an auto service shop. Really? Tell me about that. I'm an owner operator. You know what I want the second answer to be? I'm a private equity investor who happens to invest in a. Auto service companies. And I'm gonna tell you that's a huge mindset shift because, and I'm not correcting you.

Michael Smith: I'm saying this is the conversation that happens is I don't wanna be involved in investment to conversations. You were, when you bought the company, you bought it as a private equity investor regardless of you bought, whether you knew it or not. Right. And you're selling it to somebody who's a private equity investor in your company.

Cecil Bullard: Oh, no I started it because I just needed to make a living and I didn't feel like I could make a living where my. Where I was and I wasn't getting paid enough and I wasn't in control. I can do it better than that. Crazy hunter do it. But you're a private equity investor for yourself. I mean, and that shift really does need to happen.

Cecil Bullard: I mean, and the other thing that I think is cool 'cause. You know, we have a lot of clients around the United States and Canada primarily, and I, I'm watching these young guys come in their late twenties, early thirties, and they're like, I'm gonna have 55 shops, and they're going out and getting 2, 3, 4, 5 really relatively quickly.

Cecil Bullard: Right. But they're coming in with a completely different mindset of this is an investment and you know, you, like it or not, you may have come in, like my father out of. Like, I call it serendipity, right? Right. Accidentally falling backwards into it. I opened a shop. I ended up working at Ford to sweeping floors and then learned how to be a mechanic, and so then I opened a shop.

Cecil Bullard: Serendipitously. Right. But you are an investor, whether you like it or not, in your own success or your own ultimate failure, right? Yeah. And there's nothing I had we've done multiple plans for guys. I had a someone who, if I said his name, most, a lot of people in the industry would know who I'm talking about, right?

Cecil Bullard: They know the guy and he's got multiple shops at this point, but he came on at a shop that was one of the guys in our group. Knowing that in seven years he was going to buy the shop. Right? But they didn't get the details in play, right? And so at the end, the owner is looking at what the value of the shop is, and so is he.

Cecil Bullard: He's going, well, it's only worth a million, right? And the owner's saying, well, I don't have any money set aside and I don't. I need a million and a half to retire. So now. The price is suspect after seven years of him putting his life in there. The price is suspect. Right. And the deal almost didn't happen.

Cecil Bullard: I had to tell the buyer you know, pay an extra a hundred grand. Just do it 'cause the value is there in the shop. We'll get it back. And he did. But then the owner wanted even more. He wanted like the roof. The roof needed to be replaced 'cause he'd never fixed the roof and it leaked for years.

Cecil Bullard: And it was like gonna cost $47,000 to fix the roof. And yeah, the owner wanted the new buyer to fix the roof and not have that in. And I was finally like, go back to the owner and go, sorry. No deal. Yeah, no, no deal. And but if you. So I did another one in for another guy, which if I mentioned people would know.

Cecil Bullard: They, I think they ended up with six or seven shops at this point, but I don't know, eight years ago, nine years ago, we made a deal with one of the key employees that if they grew the business, we would give them. Up to 25% of the company as stock over seven years, and at the end of seven years, if they had grown the business enough, they would have 25% of the stock, plus they would then be able to buy the business, but the business was worth.

Cecil Bullard: I don't know, 10, 15 times what it was worth before. Right. Even though I gave up 30%, I still came out way ahead. Right. And that deal went down as planned. Right. And so now there's a guy that owns multiple shops who came in, they negotiated, we were involved in those negotiations and setting that plan up.

Cecil Bullard: And then seven years later, okay, we have an agreement. This is the agreement. This is for market value boom. Right. And everybody's happy and walks away from it and the owner can retire if he wants to retire, he can do other things if he wants to do other things.

Cecil Bullard: Yeah.

Cecil Bullard: But too many of the guys, I have another guy right now who is my age, and he's not unhealthy, but you know, who knows right?

Cecil Bullard: At this age, who knows? I mean, you could wake up tomorrow and they could tell you got a tumor in your head. Right, right, right. So that happened to somebody I know. Somebody we know. But he doesn't wanna have the conversation with his son. He doesn't want to do what he needs to do. Right. And it's really not.

Cecil Bullard: Like he doesn't want to take care of his kid or he doesn't want his business going. It's like, I don't wanna think that someday I might die. Right? No. So I don't wanna have

Michael Smith: that conversation. And you add to the fact that we do not work in an easy business. It is complicated, time consuming, energy draining.

Michael Smith: And the important stuff, some times we all talk about gets pushed to the back for the urgent.

Cecil Bullard: I cannot tell you, it happens a lot how many guys we have right now that are in their late sixties, early seventies. That have to get outta their business, just have to but they haven't done what they need to create the value to, to be able to, in my opinion, retire with dignity.

Cecil Bullard: Yeah. Et cetera. Yep. And it's it's, so, here's an idea. It's

Michael Smith: heartbreaking. So here's an idea. Yeah. No matter where they are in the business, right, that the owner operator says, you know what, from this day forward, I'm gonna see if I can make this as valuable from an investment perspective as I can, regardless of who I sell it to.

Michael Smith: So you don't wanna play the private equity game. Completely understand. Why don't, that's fine. But what does it hurt you to build a company that has as much investment value as you can, that along the way makes you more money than you've ever made before, continues to grow faster and better than you've ever had before, gives you the resources to build up a better team to go get better customers, right?

Michael Smith: It's kinda like what's the losing proposition in this? So if you just. Go that way and still decide to sell it to whoever at the end, along the way, you win. So the point is, start now. Well think about the end. Now, regardless if you're 20 years old or 65 years old, I don't,

Cecil Bullard: I don't care what age you are.

Cecil Bullard: Yeah. I don't care if you're matter brand new coming in or you're 65 or 70, you need to be thinking about what your out strategy is. Yes. No matter what. Absolutely. And the good news is if you're 25 or 30. You have lots of time. If you're 65 or 70, there's not much time left. Ah, you still got lots of time.

Cecil Bullard: Right, right.

Michael Smith: We keep telling ourselves that every day. We still got lots of time. Right. I got

Cecil Bullard: Yeah. Yeah. But we are, you know, we are setting ourselves up as investors, right. To be successful. And I think one of the things that drives me nuts about our industry is. Understand how to run your business profitably and don't feel guilty about making profit, because that's what it's about, right?

Cecil Bullard: Because if you don't, you're gonna come to this point where you're like, I gotta get out. I'm not healthy enough, or whatever, and there's nothing there for you. I mean, that's no real value. So, so I wanna

Michael Smith: hear your opinion about this. So I'll toss out an idea, right? So if you say to yourself, I feel guilty about making a profit.

Michael Smith: And a lot of our clients, they struggle with this, right? And the whole industry kind of does. The whole industry does so, right? So if we say, okay you're welcome to feel guilty about that but let's say this you're gonna need to, when you go to another. Place to get service, whether you hire a lawyer to help you with a will or whether you go to buy a service.

Michael Smith: You know, you go to buy a product, you're gonna put an air

Cecil Bullard: conditioning in that house, anything or whatever, right? Right. Your HVAC goes

Michael Smith: out and it's spend 12 grand on a new one, whatever it is. Right? You sit down. Are you worried about their profit margin when you do that? No. The price matters, but it's back to the quality of the equipment.

Michael Smith: It's like, does it, is it the right fit for the house? Let's stay with hvac, right? Yeah. Do I overbuy, do I undery? Is there a warranty? What does it look like? Are these people are.

Cecil Bullard: Also ran piece of equipment. Are they putting, absolutely putting a ream in or something that has a brand name? Or do you

Michael Smith: go to your HVAC person, guy or gal and go, Hey, listen, I want you to put in the cheapest possible thing you can.

Michael Smith: That's gonna be problematic for me in very short order, and I don't care if you have a warranty or not. Just give me the lowest price you possibly can. It's kind of exaggerating, but like, what are you gonna, you're not gonna make that. Other decision, you're gonna make the decision to buy the quality, pay the right price for it, sleep at night.

Michael Smith: I don't wanna think about

Cecil Bullard: it for the next 25 years if I'm gonna spend that of money, I don't wanna think about

Michael Smith: it. Exactly. And so here's the point that I'm making. As you draw your customers in, and we know this based on how you approach that philosophy, if you feel guilty about making. A margin, a good margin in your business, a good profit.

Michael Smith: And then you start to cut the profit amounts to be able to be more price competitive in the market. I'm gonna say this, from a competitive advantage standpoint, you're already starting to play a losing game. 'cause if you think about it, there's only one low price player in every market. Just one. Only one person can be at the bottom of that game.

Michael Smith: And everybody, it's a race to, there's only one Walmart. It's ARAF to race to destruction, right?

Cecil Bullard: Yeah. Yeah. And you think about it and that's the thing I always say is that. Yeah. No matter how cheap you can be someone can be cheaper than you. Gotcha. Right. You can't win that game. You cannot win that game.

Cecil Bullard: Right. And so in my crystal ball, the future of the automotive industry is you got the cheap guy, you're always gonna have the cheap guy else working out of his house, not doesn't have workers' comp, whatever, don't know what they're

Michael Smith: doing.

Michael Smith: Yeah.

Cecil Bullard: But you're also, you're gonna have the guy that gives really great service.

Cecil Bullard: And a great product. Those are the only two that, that are gonna exist. And we've seen this happen in multiple industries. I mean, Kmart, where'd they go? Right, right. I mean, target kind of holds on, it's a middle player if you's middle. If you think Walmart and Nordstrom's and you know, Target's a little bit of a middle player.

Cecil Bullard: But even then. We know that if I go to Target, I'm gonna pay a little more money. I believe I'm gonna get a little higher quality, blah, blah, blah. Right. They're not

Michael Smith: play on the low price game. No.

Cecil Bullard: They're really not. Right. And so let's go let's I guess this is about how do you value a shop?

Cecil Bullard: Yes. Okay. And so you need three years worth of profit and loss statements, minimal. For someone to really take a look at your business and go, here's what it ought to be worth. Right. Right. And it, the primary thing is. How much profit did you make? I mean, don't get me wrong. I mean, there's these other factors like, have you been growing or shrinking?

Cecil Bullard: You know, 2020, hurt a lot of companies, right. Not because they didn't survive or they didn't even make money in 2020. They just didn't make as much as they had previously. Yep. And the banks and everything, they're like, well, you're not worth, we can't loan you money, or we can't do this because you had a low year.

Cecil Bullard: So it's about consistency of profit that's. That's, I don't know, that's 50, 60% of it. And how much? Because if you make a 4% profit or you make a 20% profit, the 4% profit company has no value. I mean, almost nothing. Right. Even if it's, I did well, we did 40 million and we made 4%. You know, and by the way, there's no auto shops doing 40 million that made 4%.

Cecil Bullard: They won't. If they won't survive, they won't. You can't get that big on 4%. You can't do that, right? You

Michael Smith: have nothing to invest.

Cecil Bullard: But it that's like the bulk of it really is that consistency of profit over time. And because that's the, what the bank is willing to land on. Yeah. That's what creates most of the value.

Cecil Bullard: Yep. There are other things like if the owner doesn't work in the company as far as like, I might do the books or I might come in and, you know, once a week and kind of rah the guys, but I'm not fixing cars and I'm not right in service. That adds to that, that means I get a bigger X.

Cecil Bullard: But everything and so you, you also have these owners right now. They're like, well, you know, I'm I buy all my groceries through the company, right? So they're, you know, they're whatever. Bill is huge. And the company makes a lot less profit and they think they're saving themselves 'cause they're not paying taxes on that money.

Cecil Bullard: Right. Saves them that I don't know that 25% on the money, so. But let's say that I do that and it's $50,000 a year that I'm spending, and I'm gonna make 50,000 less, and I'm gonna not pay taxes on that 50 grand, which would be 20, I don't know, 23, 20 7% or something. So it's gonna save me 10, 12,000.

Cecil Bullard: But that 50,000, when I go to sell it, if it's a four x or A three X, just

Michael Smith: make it three x. Right. Three x that, that's

Cecil Bullard: $50,000. How many years do I have to do? That's right. To make up for that $150,000 I'm not gonna get at the end. Yep. I mean, and

Michael Smith: so, so let's pretend for a second that, that you do wanna play an investment game.

Michael Smith: And I, I call it a game because there's lots of strategies. It's like playing chess. Everything's a game. Life. Life is a game. Life's a game. That's how we, that's how we enjoy what we're doing. Here anyway, so what we talk about is just go with me for a minute. Say you want to make this worth as much as you can to an investor.

Michael Smith: So what Cecil was saying is absolutely right. The baseline you have to present into the investment community is better than your average shop in our industry. The average shop in our industry is a 4% net. At the end, the paycheck does or doesn't. Sometime one month the owner gets a paycheck. One month they don't.

Michael Smith: One month they get a paycheck. One month they don't. It's two to three employees. This is the average shop in our industry out of 235,000. Approximately. Okay. So if you think from an investor's perspective, that doesn't even get you to the table. And this is kind of the point that I think we're trying to make.

Michael Smith: If you're struggling at that level you can't stop now, right? If you want to put you, you don't even have to want to win at the investment game. But if you're gonna sell it to have anything really meaningful come back to you to retire on, we have to get out of this sort of typical industry thinking and start saying, okay.

Michael Smith: And I'm gonna put it this way, what does an investor want to see when they come to the table to give me more than that? That minimum amount, the two and a half times of that 4% net, right? They won't even pay you for that. But two, how about a

Cecil Bullard: 4% net? You're gonna. You won't make two and a half times won't, you're gonna make less.

Cecil Bullard: You won't. So yeah you might get a one x or maybe even a two x, but so what does it take

Michael Smith: to make more? Right? So let's talk about that. When an investor comes in, the minimum that you have to show them a steady growth of revenue and profits over a three better, a five year period of time that you can tell a story in the marketplace.

Michael Smith: What is your unique. Competitive advantage, not what your competitive advantage, that's the same as his and hers and his and hers. You gotta stop a unique thing and we have

Cecil Bullard: to, in our industry, we have to stop thinking about, well I can I use a better water pump? Or, you know, whatever. Or I have a SC certified master technicians.

Cecil Bullard: That's nobody. That's your, nobody else ever said, that's not your competitive advantage. Your competitive advantage is how you make your client feel. Right, exactly. And the consistency that you create in your company because of that. Right. That's those things are your competitive advantages.

Michael Smith: So there's a list of things that private equity will pay more for than just a well run financial shop.

Michael Smith: So let me give you the short list. Human capital. Do you have the rock stars working for you? Leaders and team members, that's one. Number two is social capital, your culture, your brand, and your market reputation. Is it superior? We know the definition of superior brand, superior culture, superior market reputation.

Michael Smith: Lemme just get the list out and we'll come back to it if I can't. Right? Number three is customer capital. Have you captured the premium customers in your marketplace? If you can make the case that the rock stars are yours, the market position is yours in terms of leadership and influence, and the customers are there.

Michael Smith: You got the best customers in town. Then they say there's one more thing we want to ask you. Have you institutionalized all of this so that when you, the owner, walk away with a check and we take the keys from you, that this thing will continue in the excellence that you built for us after we buy it? And if they feel confident that all of that is there, we're talking two to three times.

Michael Smith: More value coming back to you than if we just run the average kind of a shop,

Cecil Bullard: Cecil? Well, it's kind. So I wanna go back to those four, but absolutely. It's kinda like this. So I'm running a 4% shop and I'm making 60,000 a year, right? So I'm doing 1,000,002, I'm I'm net 60 plus whatever I'm taking outta the company.

Cecil Bullard: And I can do some put backs depending on how. What I do in the company and how in ingrained I am. Right? And so if I'm making 40,000. Then that shop has no value, no matter what. And these guys build like, well, we have the reputation in the area. Okay, great. But if you don't have the team, if you don't have the other things that go along with that then it does, it's not worth any that reputation. Absolutely. It by the way, I see guys with great shops as far as reputation goes with not enough profit. Where they're closing their doors because nobody can buy it. Nobody wants to buy it, no bank will loan on it, blah, blah, blah.

Cecil Bullard: And it, it makes me it, again, a lot of things make me crazy. It's one of those things. So go back to the four, what was the first thing that you said? Human

Michael Smith: capital.

Cecil Bullard: So human rock stars, human capital. So you're, what you're always doing if you do this right, is you're always building a team.

Cecil Bullard: Absolutely. Right. So. Everything that I do in this company and in the shops was to build a team of successful people so I don't have to be there. Right. To guide that team or lead that team or answer all their questions. For them not because of value, frankly. 'cause I never thought of it that way.

Cecil Bullard: Quite, I thought of it in this sense. I don't want to be locked and tied into this day-to-day. Like my dad's shop had a, a room that was like probably 10 or 11 feet wide by 20 feet. That's where the counter was. That's what when I ran his shop, that's where I spent 90% of my life was in that 11 by 20 space.

Cecil Bullard: Right. And it drove me nuts. And I'm like, I can't do this for the rest of my life. I can't that's kinda why I like what I'm doing. 'cause I can go. I'll be on the East coast next week and you know, blah, blah, blah. Yeah. But so I need to be building human capital teams Yes. Of people that can do the job without me.

Cecil Bullard: Right. Right. And some of these guys, God bless you, but you're so, I need to be the guy that. That literally is the guy that's the best guy that makes all the decisions that does because only I can make those decisions and only I really know how to fix the cars and only I know how to talk to. Yep. And that is so much crap.

Cecil Bullard: So lemme tell you is bad for you and

Michael Smith: lemme tell you how you break free from that, right? You have to have a mindset shift. That you're not, you shouldn't be the answer person. And that's a mindset shift. There's a dopamine hit that goes with being the mind to being the answer person. Right. I am Cecil, I'm stuck.

Michael Smith: Can you help me? Oh, sure. I can. Yeah, lemme help you. Let me tell you what to do. And then that. Thanks, boss. And then you walk away and cecil's like,

Cecil Bullard: well,

Michael Smith: he is glowing. Right? That's, I'm a genius. I'm kidding. I'm so smart. That's the same dopamine addiction that takes kids back to social media, right? That dopamine addiction owners who do this, that's so you feel good about that, but guess what?

Michael Smith: I talk all the time about an investor. I got a short list of questions. I got medium lists, I got long listed investors use. That's what we train our clients. And one of the questions on that list is, and this is serious, you've heard this over and over, how much do you work on the business versus in the business?

Michael Smith: Early owners will say, what do you mean? It's like, what are the roles that you play in the business right now? And an owner may say, oh, I'm the fallback guy. I answer the questions nobody else can answer. When the service advisor team is down, I'm at the front desk, I'm under a car. Whenever a tech doesn't show up, I do all the bookkeeping, my, my spouse and I, all this.

Michael Smith: Right? At the end of the day, you know, every one of those roles that you play, working in the business is something that the new owner has to pay somebody to bring to the table. When they buy the business. So you wanna work yourself into a position, and I'm going somewhere with this where you don't have to do that.

Michael Smith: And you may say, I can't do that. My people aren't that good. There you go. That's your problem. Your people aren't that good. Train them. Hire a different class of people. We know exactly what it means to be a champion, to run a champ. Team, we know how to turn champions on, get the rock stars to come to you.

Michael Smith: The kinds of questions to ask, we know why they come and stay. Rock stars are different than the typical employee. We teach you these things and we say once you get those people to come to you, then guess what? They don't ask you those questions as much anymore. And guess what? They're more reliable.

Michael Smith: 'cause they come to work and they'll call you if they're not feeling well. And you can make other arrangements not to have to be the emergency. Fill in. And the point is, it's like if you find yourself in a place where you're stuck doing that. With all due respect, it may be as much on you as it is on the people in your shop.

Michael Smith: There are ways to get around this stuff, and again, there's no guilt trip here. This is how you prepare your shop for an investor's sale, is you make sure that you take care of these value components and you put them in place before you try to sell it to anybody. Whether the investor is your kid or your key employee, or some private equity person walking in the front door with a big checkbook.

Michael Smith: Same dynamic.

Cecil Bullard: So we have a rather large client. They do. Exceptionally well. Yeah. And in their business, the owner was the head diagnostician. Yep. Right. And he als he had cancer and had to go in for chemo and Yeah. Et cetera and literally disappeared. And we didn't have anybody that could be the diagnostician.

Cecil Bullard: Yeah. And so they're like, okay, well we're gonna hire this person or whatever, but you, where do you find them? And. How did you become good at what you do? I got news for you. I'm, I tripped. I made mistakes. I screwed up. I learned, right? And I didn't have somebody looking over my shoulder.

Cecil Bullard: Pointing out every right way I should do the job. Right, right. And so you're not doing yourself or your people any favors? No. If you are the shell answer man in your business, you're not doing it. Absolutely. Alright, so number two, what was number two on your list?

Michael Smith: I put it as social capital brand culture.

Cecil Bullard: So brand reputation, and. Some of our clients or some of the industry our clients, I think do a good job in a lot of ways. Yeah. But I think some of the industry does a pretty good job on the brand part, but there's more to brand than just the name of your shop. As being recognizable.

Cecil Bullard: Right. It's how does the rest of the community see you? Right. And how do your employees see you? Because if your employees don't see the way you need to, then your brand is not. What you think your brand is. If you haven't created that culture of leaders in your company, that team culture in your company, then your brand is not as strong.

Cecil Bullard: Right? And you may think, oh, well, everybody thinks of Bob's Auto and when they're in this city and we are the best and everybody knows we're the best, but frankly, that isn't gonna. That, that might carry you forward some, but doesn't carry you forward all the way. So what was number three on your list?

Michael Smith: Customer capital. Have you captured the loyal, the clients, the loyal brand ambassadors that are yours

Cecil Bullard: and by the market. And the way, if you have a bunch of people that don't come back, or a bunch of people that come in for cheap oil changes or whatever, and then that's not, you know, if I can show that I have these clients that keep coming back and spending money over years with us.

Cecil Bullard: That is I is of extreme value. Right. You know, 'cause Blue Sky, which we used to talk about all the time. Blue Sky is something that has almost completely disappeared. Right. Because when you're not there, if they're only loyal to you. Then they're not gonna be loyal to the brand, the company, et cetera.

Cecil Bullard: Yep. And so I, again, if I can do these things right, I might have a business that's worth 2 million as opposed to 600,000. Yep. Right. So level four.

Michael Smith: The structural capital. Have you built it in to your company systems, processes? Have you, you know, pretend you have one, two, and three, right?

Michael Smith: Right. You're the rock stars, the great brand culture, market reputation, and the loyal clients attached to you. But what if it's all wrapped around you? Have you institutionalized it so that will continue without you having your hands on it at all? That's number four, right? So

Cecil Bullard: If you come into, if I come into value a shot, because the courts have asked me to do that, right?

Cecil Bullard: I'm gonna look at three to five years of profit and loss. I'm also gonna look at the p and l because looking at the p and l and the profit and loss gives me information about. Is this real or bs? Right? But I'm also gonna look at what is the owner doing on a day-to-day basis in that company? Because if you are that person, then your shop it literally could go from say, a five x down to a one and a half x. Even though you might be making money. Yeah. Right. Because I've gotta think about it. I'm, you know, I've seen people buy company I bought a company and the transition. Between getting those clients in, we lost more clients than we probably should have because I still haven't figured that out really but I've seen shops do it and the owner leaves and all of a sudden the techs leave and the service advisors leave.

Cecil Bullard: And then whoever bought it is standing there with nothing. Which is

Michael Smith: also a dynamic in the buying process with a real investor. They try to assess that too.

Cecil Bullard: Yeah. How do I continuity? How do I know if there's some continuity there? And by the way, if you have a good team and you have those systems and processes that guarantee profit, and these people are being paid well and they feel good about being a part of this company, right.

Cecil Bullard: That gives you more continuity. So it gives you that fourth Yep, that fourth level of,

Michael Smith: of capital. There are, and I'll say this, there, there are processes and techniques and tools behind building all of these things. You start building a high performance company by being very clear about who you are and what you stand for and when you can articulate that, and I mean.

Michael Smith: Go through a process of writing it down with great clarity that the meaning and the intensity and the emotion of the meaning is available to people who understand what that's about, what that's those statements, if you will say, then you have the platform to build a brand and your culture on. By the way, brand is your external company.

Michael Smith: Personality culture is your internal culture. Personality the culture is your internal company personality. And I make a joke with people when we're teaching this and talking about this. Don't be schizophrenic. Yeah. Don't try to have a brand that's different externally than your culture is internally.

Michael Smith: When you get consistency on that, based on the meaning that you've articulated. Then you can, number one, attract team members who walk that out naturally and are aligned. Those people then bring in customers who are aligned with the meaning, the brand and the culture, and the structuring of, this is what I'm talking about, making this a process and making this become real for your company.

Michael Smith: There are tools, there are methodologies, there's nothing. Unknown about what we're talking about. It's unusual in this industry, but it's not unknown to science, business science, or in other industries. And that's literally what we're doing is bringing this and having these conversations with our customers, with our industry marketplace.

Michael Smith: And say, guys with private equity at the door, right? The baby boomers are getting ready to run from the door in volume. The private equity guys are sitting at the door salivating, waiting for the doors to open so they can run in. And this moment in time we sit in right now. What can we be doing to build as much value as we can to either present it to them for purchase or to say to them, I don't need you.

Michael Smith: I'm fine on my own. The boomers who are leaving, how can you build as much value in this thing as you can in the time that you have left? Whether it's a year or five years, or you could extend it to seven. We're not saying be working when you're 80, but we're saying don't walk outta here with the knowledge that's available to do this.

Michael Smith: Don't leave without understanding what you need from the company when you're gone. What are you gonna do after you're retired? When you sold this thing? What your life look like after that? How much money do you need to live that life? Yeah, and what's the business have to give you to get there? Do this thinking now, Susan, and think

Cecil Bullard: about all these guys that are, they're at that place in time.

Cecil Bullard: Where they think if I don't have my business, I have nothing. Yeah. Like it's so much a part of them. Yeah. And I want to talk private equity, but I wanna make a statement first. Sure. So, so then I want to talk a little bit about private equity. Yeah. My statement is this, if you're not profitable and profitable to probably 15%.

Cecil Bullard: 14%, maybe 18% is better. 20% net is better.

Cecil Bullard: If you're not profitable. None of the other crap matters. It's, it has no value. Right? So not only do I have to do these things, but I also need to understand and learn how to be profitable in my company and not feel bad about making a profit in my company right now.

Cecil Bullard: Let's talk private equity for a minute. Yep. So, 10 years ago, 15 years ago, a couple of private equity companies step into the automotive space and they're gonna. What do we consolidate? Right? Right. And so they go out and they buy shops, but the shops they're buying are really poorly run shops because they're, their thinking from their side is, well, we know how to run a business.

Cecil Bullard: That's

Cecil Bullard: right.

Cecil Bullard: And so we're gonna come in and we'll put our processes and we're we know how to charge margin and blah, blah, blah. We're gonna teach these guys how to do business. Yeah. And they, these companies literally fell on their face, one of 'em still here, and they're actually doing better.

Cecil Bullard: But only because they changed what they were looking for. And so now these private equity companies are not looking for companies that have no margin and where the owner's in the middle of it, right? They're looking for companies that have good margin. Where they built the team, where they have the people capital, where they have the brand capital, et cetera.

Cecil Bullard: And they're willing to pay more for those companies than they ever did. So instead of them coming in and paying somebody a hundred grand for their shop Yeah, which was poorly ran and really probably wasn't even worth that. They thought, oh, well, they're not marking their parts up and they're not getting their profits and they're not selling enough and their average repair is too low.

Cecil Bullard: We'll fix all those things. And number one, they don't know how to do that. Right. That's what we know how to do. But I know but they couldn't, they didn't because there wasn't the basis in the human capital, the other stuff there. And then they said, oh, we made a mistake. We've spent a few billion dollars on this.

Cecil Bullard: Now I want companies where that structure is there. That capital is there, that team is there. Yep. And I'm willing to pay. Five x for that. I mean, or four x at least at the top of the charts. Right. And I just find that interesting. So now we have a bunch of more private equity guys looking at our industry and coming in our industry.

Cecil Bullard: I don't know how many. But I would tell you that I literally probably get two or three inquiries a week from different investment companies, private equity companies, about we're buying up the automotive industry, we're interested in buying, either buying your company, or how can you help us find shops that they can buy at that are these type of shops.

Cecil Bullard: And so let's say that now we have 15 or so and the billions and billions of dollars that they have. This is you. You know, I'm sure that the guy that owned the Bob's hardware in the middle of town, you know, 20 years ago, was a great guy. I'm sure that he was doing everything that he felt he should.

Cecil Bullard: But Bob's hardware doesn't exist today. Right. Right. It's gone. Right. And there I you go in the Midwest, you go in the south, there are still some small hardware stores. But almost everything is Home Depot, Lowe's there's a Freedman's in California. You know, more of the bigger chain, et cetera.

Cecil Bullard: And the rest are gone. Well,

Michael Smith: there's, there are cycles that roll, rolling up industries go through. We're at the beginning of ours. Yeah. And so that gives us. It gives us time.

Cecil Bullard: 10 to 15 years. Yes, it does. To figure this out and really work it well,

Michael Smith: yes it does. And I'm, I also wanna say this about us oldsters.

Michael Smith: I'm a early, I'm a sort of the end of the baby Boomer group too. Along with Cecil. I have a lot of clients that I work with and they. You know, they start, the conversation starts. I'd like to figure out how to do as much as I can before I'm done. And we get into this and they start to unpack what it takes to be a high performance company, how to put value in it, like an investor would see it.

Michael Smith: What if I chose to have expand my footprint, right? Take my tent stakes out further. Once they start to learn this and they realize there's a science behind it, I cannot tell you the number of people in their sixties that turn to me and they go, wait a minute. What am I gonna do when I retire anyway? And now stay with me.

Michael Smith: Right? Yeah. If I say that to some of you who are probably gonna catch up with this, you're gonna say, oh my God, I'm exhausted. What do you mean I'm gonna change my mind? There's no way in hell. But here's the thing, if you do the same thing over and over again, right? That's Einstein's version of what it means to be insane.

Michael Smith: Insane, right? And hope for a different outcome. But what if you're not doing the same thing over and over again? What if this wave of investment money, regardless of who's holding it, right, there's good guys out there holding it and bad guys out there holding it. We can decide. You can, we know how to decide which ones we do and don't wanna work with, but the money is here, right?

Michael Smith: The opportunity with the boomers that are gonna leave is here. It's churning the marketplace. What if the

Cecil Bullard: wave is gone, right? I don't, I mean, the wave is

Michael Smith: here, right? Yeah. And we're like, oh, look the water's receding on the beach. Let's go pick up seashells. It's like, guys, you should be getting ready here right now.

Michael Smith: How? Right? How many, how

Cecil Bullard: many times in your life have you. Said yourself. I wish I knew that 20 years ago. Yes. Right. And that's my point. Or I wish someone had, you know, frankly, I really wish my dad or somebody had just smacked me in the face and said, Hey, stupid, wake up. Right. You know? Because there are things that I learn as I get older.

Cecil Bullard: That. I'm like, man, if I'd have known that 20 years ago, right. I don't know how many clients have come to me and said, you know, that thing is what you asked me to do. I finally did it, man. I should have done it the first time you told me six years ago. Right. And I think we all, those are regrets in a sense.

Cecil Bullard: They could be huge regrets for you. Right? Well, for most of us it's like, oh, I could be further along or whatever. But what if you did it now? Right? What if you knew the wave was coming? What if you planned for the wave? What if you so, so lemme frame the wave. Got the best surfboard. So let's

Michael Smith: frame the wave.

Michael Smith: The wave is above the beach in terms of size, right? Some of it's dribbling on the beach already. But the reality is it's gonna take 20 to 25 years for that wave to hit the beach, go all the way up land, and then come out with a reformed industry 20 to 25 years. So from that perspective, it's like, okay, so I'm 35 years old.

Michael Smith: Where are you gonna be in 20 years? 55 or 25?

Cecil Bullard: You're gonna be 60. I got news for you wake up in the morning, you're 60. Yeah. And you look in the mirror and you're like. What happened to that 40-year-old guy that I used to know that had,

Michael Smith: you know, more hair,

Cecil Bullard: right. You know, et

Michael Smith: cetera, et cetera. So my original story about guys like, what the hell am I gonna do?

Michael Smith: Retired anyway, right? The young guys that are listening to this and gals that are in your thirties and early forties, there's a window of time here and there's no pressure that we have to get in or get out. Our industry's early in the rollup phase, the consolidation thing will go through four phases.

Michael Smith: We're at the beginning of phase two. We don't need to unpack that right now, so, but there's decades to go with this. And so knowing how it works and what's the science and what's the opportunity I'm gonna say this right openly to the marketplace. You guys owe it to yourselves to know what the options,

Cecil Bullard: your families,

Michael Smith: your, you need to know your wives, and then to decide your husbands yes.

Michael Smith: I mean, come on. Joking. The legacy that you leave to your communities, your team, your customers, you, and then when you know, you can decide with education, right? With knowledge. I don't want to be with private equity investors. I do wanna sell to a key employee. I know where Well, why not set

Cecil Bullard: that up and make that happen the way you want it to happen?

Cecil Bullard: Exactly. Instead of like exactly at the last minute. Go. Oh my God, the company Worth enough. I wish I'd lo love

Michael Smith: 75% of privately held business owners. Profoundly regret, you can put that in quotes. 'cause this is profoundly regret the way they exited the business because they did it so poorly.

Michael Smith: Within 12 months of exiting the business, three quarters. That's 4 million businesses that will transact and the owners within a year will look back and say, man, I blew that opportunity. So we're saying to you, don't blow it, guys learn. Right? So

Cecil Bullard: Think about, I mean, the guys, you put together a come on, Cecil what do you call it? A group of shop owners platform. Platform put together. Yep. You put together a platform. An investment platform. An investment platform with five Yeah. Guys. Sure. With multiple shops. Yeah. And then you went out and you shopped private equity after Yep.

Cecil Bullard: Creating the human capital. The other four steps and helping them get there. Yeah. And so I know all those guys, and they're smart guys. There's, there's not like a dumb guy in the group. Right. There's some guys, they're probably not as smart as some of the others, but there's nobody in there that's like, an unlimited genius, right?

Cecil Bullard: Like, like, I couldn't do it. They're normal, smart. They're normal, smart guys. They're wise in our industry. Yeah. And by the way. So they woke up one morning and there was millions, and millions in their bank account.

Michael Smith: Tended it's not nine.

Cecil Bullard: How much fun. How much fun? Are they having now? Right.

Cecil Bullard: Still playing in the industry. Right. With millions in their bank accounts. Right. As opposed to No I'm getting towards the end. I haven't built the capital. I haven't built what I need to create the value in my shop.

Cecil Bullard: Yep.

Cecil Bullard: And now I don't, I'm afraid what happens if I get sick? Or what happens if I can't?

Cecil Bullard: Who's gonna take care of me? Which kid am I gonna burden with myself? Right. Or. If there aren't any kids how am I gonna survive the, where do I go with this thing the next 15 years? Or should I just go in the back and shoot my brains out? Right. It's such a different dynamic, right.

Cecil Bullard: That it's so opposite. Right. Right. And the it's out there ready to go. Yeah. Right.

Michael Smith: Yeah. So I guess that's our point. Maybe if we have a thousand points we've probably made today without knowing it. Yeah. Maybe if there's a point, start thinking about it now. There are methods and tools to use.

Michael Smith: Exit strategy comes from what happens after you're gone back up from being done with it to what it takes to be comfortable being done with it, to what you need to get from it, to be able to get to that point. And then we can back up from that vision, if you will, to what you have in your hand today and figure out how do you close that gap in the timeframe that you have to achieve that long-term goal.

Michael Smith: And if you wait till the end, you're. Lot less likely to get that done than if you start that thinking right now. Tools are here, processes are here. The people who know how to do it are here. We want to help. We've done it. We're in this industry to help you with this. That's why we're here. So, yeah. Yeah.

Cecil Bullard: I'm good. I think yeah, I think we made the point, and I think we talked about value and Yeah. Creating what you want and you don't have to build I also want you to know that you don't have to build seven shops. No, you don't. You don't have to be part of a platform.

Michael Smith: No, you don't.

Cecil Bullard: But run the company that you have Well, as well as you to create opportunities for yourselves and your family and to live well, because when it's all said and done that's what it's all about is well, you

Michael Smith: might as well do well doing it. So

Cecil Bullard: If you wanna know like. You say to yourselves, well, you guys, you're coaches and of course you believe you're trying to sell us something, or whatever. Right? And yes, obviously that's how I make a living, or we make a living.

Cecil Bullard: It's by helping other people, which is I don't know that there's a better place to be, but we have so much information that we don't charge for. We have our YouTube channel. We have our gear for shops.com. In the next slide, there will be a QR code that will get you hooked up. And you don't have to pay us, you don't have to say, oh, Seesaw, I wanna buy a coaching program, or I want to be in one of your programs.

Cecil Bullard: Just get as much information as you can and make sure that you are doing the best that you can to move forward. Yeah. And then if you decide, Hey, I would like to have a coach or a coaching company, or somebody help me. We certainly we're here are more than qualified to do that, and we do that routinely with all of the shops, you know, several hundred shops that we work with.

Cecil Bullard: So, yep. In the next slide, take a look and at least go look at some of the classes that are free. And I'll help you make profits and help you get outta your own way and move forward. Yeah.