Out of the clear blue sky one day earlier this year, Mike Upton, owner of Upton Tire Pros, received an offer from Express Oil Change & Service Center LLC to buy his four-store dealership in central Mississippi. After discussing the options with his wife, Denise, and some negotiations with the buyer, he sold. Now his main concern is his bee farm and how much honey his “lovelies” will produce for him this year.
In the last couple of years, six Dealer Strategic Planning (DSP) 20 Group dealers were approached by companies offering top dollar for their businesses. None of these dealers were thinking of selling and to be honest, they weren’t particularly interested in selling. However, the offers got their attention. After considerable thought and analysis, the six decided to sell.
The common denominator for all six of these business owners was their involvement in owner and founder Norm Gaither’s 20 Group. Mike Upton’s explanation says it best: “I was asked by my 20 Group how I managed to get my business in order, and the thought that immediately came to mind was, ‘Do what Norm says!’ It’s that easy.”
DSP 20 Group members meet three times a year in a highly structured and intense environment to compare financials, share best practices and ideas, and generally help each other overcome challenges and take advantage of opportunities. It allows these business owners to work “on” their businesses instead of “in” their businesses, and to focus on strategic planning and changes to improve their operations.
More from Upton
Continuing with his “somewhat tongue-in-cheek and somewhat not” analysis, Upton says group members “can go to the meetings and take home pages of ideas and insights, and that’s the fun part and the easiest. The tough piece of the 20 Group concept is to vigorously apply the principles Norm hammered into us (at) every meeting from the very start. None is more important than the payroll maximum of 45% of gross profit.
“Understand, when I started with the 20 Group, my payroll was at 65% (payroll dollars divided by gross profit dollars). I went to that first meeting and was so embarrassed that I quit — making tenfold excuses for not coming back. Years later with continued good sales but constant cash flow issues, my good friend, Shane Adams (of) Trax Tire, talked me back into the program. I had done a yeoman’s job in the meantime of getting my payroll down to 63%!”
Gaither describes payroll as the “killer” of companies. At each meeting, the members compare their payroll expenses, even looking at what percentage of the payroll (as compared to gross profit) goes to the store manager, service writers, tire techs, service techs, owner, office workers, etc. This comparison helps the owner not only identify where he might be over staffed, but also take appropriate measures to downsize.
Upton’s reentry into the 20 Group was critical to his later success. “With my second entry I was determined to listen to “The Great One” and his apostles, and worked diligently to reduce our payroll. While I never got to the 45% that Norm preaches, when the business was sold we were at 50%, and a multitude of problems had disappeared — cash flow, smiling bankers, to name a few.”
What were the buyers looking for? “First, they were really only interested in our P&L, with little interest in the balance sheet. They were looking for profits, and used the EBITDA approach that Norm had instructed us on, and they took the last two years of my year-to-date P&Ls.
“His first offer was very close to what Denise and I had decided we felt the business was worth, and with some more negotiations we arrived at an agreeable price.”
Sage advice
Gaither’s advice to all of his 20 Group members is to take at least three years to prepare your business for the sale. In that way, you can make corrections and get top dollar for the business. Periodically during the meetings, he explains the rationale on inventory and equipment and real estate so that owners understand the real value.
Upton took Gaither’s advice to heart. “I would add that as you are deciding to sell or as you prepare to sell, your inventory and equipment will have to be paid off by the proceeds from your purchase price, so always be attentive to buying only the inventory you need and aggressively paying those off as quickly as you can. Any equipment leases will need to be paid off as well, as are taxes which are prorated as well as insurance. So pay off those equipment leases as well as the other privileges of ownership — trucks, boats, four-wheelers — and inventory as fast as you can.”
20 Group advantages
One of the key benefits of the 20 Group membership is the financial analysis that is provided every month on a confidential website just for members. On an Excel spreadsheet, each expense is compared to the average of all the members in the group.
If an owner’s expenses are higher than the group average, he or she can look at the detail and determine exactly which expenses are out of line and then investigate the causes. Many times, a member will call another member whose expenses are lower and ask for specific details such as, “How much are you paying your accountant?”
Upton benefited from this analysis. “Another epiphany for us was how much our company was paying towards our daily/monthly/yearly expenses. While I believe we were conservative there, it doesn’t take long to realize that you’re now paying after the sale for gas, insurance, income taxes and a long list of small items that your businesses provided for you in your past life. It took us a couple of months to adjust to this new paradigm.”
Upton’s summary of his 20 Group experience says it all.
“Finally, do any of you believe that it’s a coincidence that the five acquisitions (Express Oil Change & Service) has made in these last two years have all been members of a 20 Group? The buyer was largely a quick lube business wanting to get into the tire business, and the first five tire businesses they bought were all 20 Group members... members that took the concept to heart.
“So, I know you might sometimes question the time and cost of attending these 20 Group meetings, but the value that it brings to your businesses is incalculable and will change your life. Priceless, really. Take it from someone who is still amazed.”
A mixed blessing
Gaither says this success is a mixed blessing.
“We are really happy that our members are getting top dollar for their businesses, but we hate to lose these wonderful clients.
“Mike’s experience has been mirrored by at least five of our members, and we are now hoping to fill their vacant spots with more dealers who sincerely want to improve their operations, whether it’s to sell or to be more financially secure. Either way, the DSP 20 Group can help.”
For those of you who might be interested in learning more about selling your business, go to www.dsp-20group.com. You’ll find a copy of a Norm Gaither article published by Modern Tire Dealer in January 2012: “Selling your business — Advance planning is needed to get your best deal.”
An application for membership also can be found on the DSP website.
Or call Mike Upton at (601) 506-8473. He’d love to share more of his experiences with you. ■
Pat Brown is vice president of marketing for Dealer Strategic Planning Inc. (DSP), which has formed seven 20 Groups made up of non-competing independent tire and repair shop owners in the U.S. and Canada. Its goal is to help them improve bottom line profits through idea sharing, financial benchmarking and best practices. DSP and Modern Tire Dealer formed a strategic alliance in 2010 to better serve the tire industry by sharing resources. For more information, see www.dsp-20group.com.
