Over the next few weeks, Mr. Kettler outlined five options, including his favorite of selling in 5 years.John summarized all the estimates over a 10-year horizon.The option and estimates were given to Elmer, and he agreed with them.
Option #1: Remove rebuild. Stop operating the rebuild shop and concentrate on selling wholesale parts. The removal of the rebuild operations and the switch to an "all parts house" is expected to cost $750,000 in the first year. Overall revenues will drop to $1 million the first year with an expected 4% increase per year thereafter.
Option #2: Contract rebuild operation. To get the rebuild shop ready for an operation contractor to take over will cost $400,000 immediately. If expenses stay the same for 5 year, they will average $1.4 million per year, but they can be expected to rise to $2 million per year in year 6 and thereafter. Elmer thinks revenues under a contract arrangement can be $1.4 million the first year and rise 5% per year for the duration of a 10-year contract.
Option #3: Maintain status quo and sell out after 5 year. (Elmer's personal favorite.) There is no cost now, but the current trend of negative net profit will probably continue. Projections are $1.25 million per year for expenses and $1.15 million per year in revenue. Elmer had an appraisal last year, and the report indicated Gulf Coast Wholesale Auto Parts is worth a net $2 million. Elmer's wish is to sell out completely after 5 more years at this price, and to make a deal that the new owner pay $500,000 per year at the end of year 5 (sale time) and the same amount for the next 3 years.
Option #4: Trade-out. Elmer has a close friend in the antique auto parts business who is making a "killing," so he says, with e-commerce. Although the possibility is risky, it is enticing to Elmer to consider a whole new line of parts, but still in the basic business that he already understands. The trade-out would cost an estimated $1 million for Elmer immediately. The 10-year horizon of annual expenses and revenues is considerably higher than for his current business. Expenses are estimated at $3 million per year and revenues at $3.5 million each year.
Option #5: Lease arrangement. Gulf Coast could be leased to some turnkey company with Elmer remaining the owner and bearing part of the expenses for building, delivery trucks, insurance, etc. The first-cut estimates for this option are $1.5 million to get the business ready now, with annual expenses at $500,000 per year and revenues at $1 million per year for a 10-year contract.
Over the next few weeks, Mr. Kettler outlined five options, including his favorite of selling in 5 years.John summarized all the estimates over a 10-year horizon.The option and estimates were given to Elmer, and he agreed with them.
Option #1: Remove rebuild. Stop operating the rebuild shop and concentrate on selling wholesale parts. The removal of the rebuild operations and the switch to an "all parts house" is expected to cost $750,000 in the first year. Overall revenues will drop to $1 million the first year with an expected 4% increase per year thereafter.
Option #2: Contract rebuild operation. To get the rebuild shop ready for an operation contractor to take over will cost $400,000 immediately. If expenses stay the same for 5 year, they will average $1.4 million per year, but they can be expected to rise to $2 million per year in year 6 and thereafter. Elmer thinks revenues under a contract arrangement can be $1.4 million the first year and rise 5% per year for the duration of a 10-year contract.
Option #3: Maintain status quo and sell out after 5 year. (Elmer's personal favorite.) There is no cost now, but the current trend of negative net profit will probably continue. Projections are $1.25 million per year for expenses and $1.15 million per year in revenue. Elmer had an appraisal last year, and the report indicated Gulf Coast Wholesale Auto Parts is worth a net $2 million. Elmer's wish is to sell out completely after 5 more years at this price, and to make a deal that the new owner pay $500,000 per year at the end of year 5 (sale time) and the same amount for the next 3 years.
Option #4: Trade-out. Elmer has a close friend in the antique auto parts business who is making a "killing," so he says, with e-commerce. Although the possibility is risky, it is enticing to Elmer to consider a whole new line of parts, but still in the basic business that he already understands. The trade-out would cost an estimated $1 million for Elmer immediately. The 10-year horizon of annual expenses and revenues is considerably higher than for his current business. Expenses are estimated at $3 million per year and revenues at $3.5 million each year.
Option #5: Lease arrangement. Gulf Coast could be leased to some turnkey company with Elmer remaining the owner and bearing part of the expenses for building, delivery trucks, insurance, etc. The first-cut estimates for this option are $1.5 million to get the business ready now, with annual expenses at $500,000 per year and revenues at $1 million per year for a 10-year contract.
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