When machine shop owners are ready to retire they must weigh the exit strategies that are appropriate for their businesses. Those with highly profitable businesses usually opt for listing their businesses with a broker.
Those with less profitable businesses or who require speed, either because of an illness or a financial crises or perhaps a lost lease, must consider options that will convert their asset to cash as quickly as possible. For many the logical first step is to call a Machinery Dealer, one who buys and sells used machine tools. Is this the smartest approach? If the goal is to get the best market driven price and exit the manufacturing business with the most money in your pocket, it makes sense to examine all the methods.
Today we’re taking a look at the differences between selling a machine shop to a machinery dealer vs. selling the entire shop via an online auction. All conditions being equal, which method would net the machine shop owner the most money? Do machinery dealers actually pay fair market value for a machine shop? Thinking logically, how could they? How then could they make any money? The fact is that on average, machine tool dealers pay approximately 50% of fair market value, and less if they can get away with it. Keep in mind that the machine tool dealer has to bare the cost of rigging, cleaning, repairing, insuring and storing the equipment until it actually sells. Machinery dealers need to make a living too, so lets not forget they have to mark up what they’re selling above what they paid and the costs described above.
How does this compare to online machine shop auctions? Aren’t they incredibly expensive? The truth is that online machine shop auctions can be run at a fraction of the cost of a live auction. Think about it, there is very little staff needed on auction day. Equipment and security does not need to be transported to the auction site, so there is a huge savings. What about prices achieved? Doesn’t “auction” mean “fire-sale?” Auctions have been used for thousands of years for one reason – THEY WORK! Some of the most expensive, exotic and rare assets in the world are sold via the auction method. Savvy sellers understand that the element of competition is paramount to achieving the best market driven price.
Let’s look at a comparison of a machine shop worth $100,000.00, sold via online auction verses a machinery dealer buyout:
The above example is based on average online auction expenses for a machine shop worth $100,000.00. Some auction preparation and marketing budgets actually come in less than that indicated. In this example the seller would net $30,000.00 more than if accepting a buyout from a machinery dealer. That’s 60% more! The truth about online machine tool and machine shop auctions is that they generate on average 60% more in net dollars to the Seller.