I’m addicted to BizBuySell.com. It all started so innocently from an advertisement on another site. After a little bit of searching, I was hooked.
This site is like crack to anyone interested in business or investing. I mean, there are literally thousands of businesses for sale at any one time. And the ads are all painfully interesting enough to get you hooked, yet uninformative enough that you keep moving to the next one.
Learning about Business
This site is the virtual Wikipedia of small business. Except, it’s not academic – not by a long-shot. Every concept is applied, and some of it has to be learned indirectly. I think that’s what makes it awesome.
First you’ll notice that small business valuations are silly. There are countless liquor and convenience stores up for sale at any one time for 2-3 times the cash flow to the owner. So, if a liquor store makes $500,000, you might notice that it can be purchased for $1.5 million or less. That’s an insane valuation – 33% per year is a spectacular return on capital.
And then you’ll notice all the crazy ways that people value businesses. For example, the standard in the gas station department tends to be a valuation based on inside and outside sales. Rarely are these two combined, since gas is unprofitable and inside sales are where the magic is made. But what is really cool is how these numbers change. One gas station might sell 20,000 gallons a month outside, then $70,000 in sales on the inside. Another might sell 40,000 gallons outside, then sell only $105,000 on the inside.
Obviously store one is doing much better when it comes to turning outside sales into higher-margin inside sales, but why? Could you rearrange the second gas station with 40,000 gallons in outside sales so as to improve conversions and profitability?
Maybe gas station 2 has more customers with trucks, which have bigger fuel tanks and thus buy more gas on each stop. Or maybe gas station 1 is close to an apartment complex, making it more of a convenience store and less of a gas station.
Dirty Talk – Car Style
You gotta’ check this one out: a lot of 12 car washes that seemingly runs “hands-free” thanks to skilled employees. The sales price? $10.5 million bucks on cash flows of $870,000 annually. Now, that’s a pretty high multiple – so there’s upside.
The listing notes that car detailing and washing businesses were hit during the recession (people can’t afford a bath for the Lexus anymore!) but economic improvement would allow for upside. Makes sense, right? It’s in line with my thesis for automotive production, which is largely based around the knowledge that American cars are the oldest ever. My car is 10 years old and there’s no way I’d take it to a car wash. Pfft, what do I care about resale when there is no chance I’ll ever resell it?
Higher income in car washing? Hmm, it’s as easy as discounting for fleet owners, so as to add to marginal incomes with each additional car wash. Fixed costs have to be the most expensive part of this game, anyway. Water and soap are incredibly cheap. Hmm, what about old people. I imagine few people go to wash their cars before work, especially since its self-service. Plus, who wakes up thinking, “hey, I’ll go wash my car at 6am?” Get those retirees in when other people are working and marginal revenues leads to big profits by maximizing the amount of sales possible during daylight hours.
Oh, and this opportunity even goes so far to appeal to value investors. Competition is apparently limited thanks to local zoning laws that make startup costs for a new car wash too high to encourage competitors. Investors should enjoy that.
Waste Your Day Away
Hey, so this site might be a complete waste of time for practical purposes. But it’s probably the easiest way ever to learn about a multitude of factors that affect business decisions. It’s also kind of fun to look up businesses and see how fat their margins are, just so you know how bad you’re getting ripped off when you visit a similar business in your local area.
It also shows why the Millionaire Next Door is likely to be a small business owner. People who work for a living don’t sell their jobs for 2-3x annual income when they retire. Small business owners do.
Anyway, I just find this site absolutely fascinating. Sure beats the hell out of chemistry homework. Just don’t go to it if you have no surplus time to waste.
Photo by: MWichary