About a year ago I left my corporate finance job to take a stab at entrepreneurship. After sifting through hundreds of leads, I've narrowed my search down to two potential targets.
The first is a small community bank that has been around since 2006. Loan-to-deposit ratio is just over 50% and barely has any non-performing assets. Plenty of capital to lend out. Any problems from 08' have been long resolved. Single branch with all staff in place. CEO will take Chairman role (with skin in the game) to mentor me and give regulators peace of mind. Consistently profitable and borrowers are primarily local small business owners. All loans have collateral, agency-guaranteed where possible (e.g. SBA), and include personal guarantees. What I like is that the only branch is located in an affluent area.
The second is a Honda car dealership that's been around for decades at the same location. Excellent, prime location with superior visibility. Real estate is included. Suburban area with mostly upper-middle class families (the type to buy Honda). Prominent local family wants to sell because next generation isn't interested in the business. Dealer-principal is required to stay on in order to get franchise approval from the automaker (Honda corporate). The plan is to learn the business and eventually cash out the dealer-principal at a predetermined price so as to avoid disagreement later.
Both are age-old industries with their own headwinds. Both are in the Midwest. Both are community-oriented. Both are scaleable. Both are highly regulated. Both are at the mercy of the market/government (for banks - interest rate set by the FED, for dealerships - tariffs/taxes). Both are highly sensitive to general economic conditions. Both rely on financial leverage (banks with deposits, and new car inventory at dealerships is 100% financed by lenders until sold to customers). Both require a ton of working capital.
Valuation multiples for most, if not all, businesses are at all-time highs. If I wait, these opportunities will be gone, along with the easy/cheap financing, as well as my investors. Mindful of the Great Recession, I think I can operate lean from the start to survive the next downturn.
Between the two choices, community bank and franchised new car dealership, or neither, which would you go with and why? Happy to answer any questions to help you answer. I always get good insights on WSO, so I thought I'd pose the question.
Looking forward to the responses.
If you're an introvert, do neither.
Just last night I heard a story about some guy who made zillions in Ford dealerships and then bought up a bunch of Nascar tracks. When asked by an older friend of mine, what's his favorite thing to do, he responded; "Sell Cars. I like nothing better than being on one of my lots on a Saturday grilling hotdogs and selling cars". If that's you, definitely take the Honda dealership. It 1,000% isn't me and that story told me to never consider a car dealership because it's that sort of car-selling maniac I'll have to compete with.
Banking is M-F, 9-5(-ish), more respectable, etc but every bit as chatty and community focused. If you like going to Chamber and Rotary meetings and such, great. The finance part will probably be more fascinating than in cars. I think the screwing-people part of banking is more subtle and pleasant than the screwing people in cars (charging bullshit fees vs 'let me go talk to my manager').
Baseline - there is nothing more important than knowing your true self and doing what truly fits. Neither of those businesses would fit me and my personality but that's really easy to overlook when you're impatient or desperate or lack options.
I hope these are good fits for your personality. Good luck,
MY family and family friends have been in the car business for decades. its a very lucrative business, and its hard but the GM's and owners of these things bring in money like no other. If you have the opportunity to get into a dealership even as a minority owner than I would.
Just my 2 cents also one of our friends just bought into a dealership in the southwest. So ive seen it first hand.
Curious to know why owning a dealership is so lucrative? I know that the maintenance and repair business makes it steady and can keep the lights on, but I'd love to learn more.
Honestly Id be lying to you if I said the exact technicals but, I know that it depends on the manufactuer. So for example Toyota and those brands promote volume and reward the dealerships based on selling more. BMW etc will be more lucrative because of the spread on each car.
The repair and maintenance can also be a major revenue generator. The problem is that big car groups such as Sonic and Autonation have different goals than the manufacturers
I'd lean toward the car dealership - community banks are dying and would be very expensive to scale outside your community - interesting article in WSJ a few months ago about community banks struggling with technology offerings and how expensive that is to build out.
The only thing that would give me pause is that it may be interesting to do the bank route as it sounds like you're in a somewhat insular wealthy community - may get you connected in with successful small business owners that may open up better opportunities down the road
Have worked with several community banks (providing non-interest fee income services like retail investments and insurance- reps sitting in bank branches were my reps). A few things to consider: 1. What is the current clientele? 2. What is the bank culture? This is important as I've found that changing the culture is quite difficult and takes a long time with lots of hiccups. In our case were trying to add services. CEO and Board bought in but the employees either didn't or weren't the right people (needed more of a sales mentality to create leads, grow wallet share, etc.) 3. What is the growth plan? 4. Are they a target to get acquired or are they looking to acquire? 5. Why do people bank there? What's the value prop? In a highly regulated business, can you make money operating the same way?
Watch the regulators. They can truly impact how you operate. Granted my experience was prior to and during the financial meltdown but the regulators were quite active in telling a growing community bank what business lines it could add. We actually had two banks taken over and a major income earner acquired by a larger bank that wanted footprint in a different market.
All that said, I think the investors do pretty well on liquidity event. Until then, it's just a job.
Quos aperiam corrupti eligendi unde perspiciatis omnis. Cupiditate commodi ea pariatur ipsa vel.
Unde exercitationem praesentium ut molestias perspiciatis qui id. Dolorum pariatur sunt laudantium suscipit inventore voluptatem sed.
In maiores at est. Recusandae dicta ratione perspiciatis illum eos et velit quae. Ratione numquam fuga perspiciatis aliquid cumque nihil. Rerum eum iusto amet expedita rem veritatis quo. Eveniet soluta sed ducimus magni optio maxime.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...