It is an unfortunate sign of the times - an auction of a company’s assets to pay off creditors. It has been happening with more frequency in one metropolitan community in recent years; and other business owners are reaping the rewards of bankruptcies or out-of-business sales.

Once in a great while there might be a diamond in the rough at an auction sale. For example, there is the true story about an HVAC contractor who bought some file cabinets from an out-of-business competitor. The cabinets had not been cleaned out and contained the customer files. So for the price of a used file cabinet, this lucky contractor picked up hundreds of customer names, the type of equipment they owned, and the services performed on the equipment.

Not a bad investment.

One HVAC contractor is using old customer records from a competitor to reconnect. “I recently purchased another company’s inventory, including equipment and files,” said Chuck Thompson of P&P Service Center Inc., Mahomet, Ill.

“Unfortunately the most recent files were not there (I think the main tech who is now in business for himself took them), but the older files - the newest of them being from 2005 - are proving to be of value. The customers in these files had not had any contact with the previous company, so we are going out to service their equipment and hopefully sell service contracts.”

There are likely several reasons why businesses fail and assets are sold. These could include an owner wanting to retire or the death of the owner. But one reason has caused a dramatic increase in the auction business over the past few years - a poor economy.

Joe Carli, owner of JC Auction Services Inc., Plymouth, Mich., said he has seen a dramatic increase in his business over the past few years, mostly because small businesses have been crippled by the poor economy.

“I’ve had more work this year than the last five years combined,” said Carli. “People are simply gone. I drove down a main street the other day where all of the buildings had been occupied three or four years ago. Now about 25 percent of them are for lease.

“A lot of mom and pop businesses just can’t compete.”

Carli said that most of his auctions get about 20-25 people, usually bargain hunters looking for tools and scrap materials. “The scrap guys will come in and buy it for a fraction on the dollar, and then turn around and resell it to a scrap yard for double the price,” he said. “Some guys buy the parts and equipment and set up shop in a retail operation, selling it right out of their building.”

Tools and old floor and bench machines are hot sellers. Carli was in charge of the sale of Blue Dot assets in metropolitan Detroit a few years ago. “There were lots of tools and probably 55-60 ladders,” he said. “We must have had at least 150 buyers that day.”

At a recent auction of a HVAC contractor’s assets in Eastpointe, Mich., JC Auction Services sold some older machinery that still had a lot of life in them. “The best buys were an older bender and sheet metal cutter, selling for $700-$900,” he said.

HVAC contractor Jeff Miller of Al-Don Indoor Air Quality Specialists LLC, of St. Louis, Mo. said he goes to auctions to look for several things, including sheet metal, tools, torches, reclaim equipment, dollies, lifts, and sometimes office equipment.

“Most of the time if they are selling at an auction they are hard pressed to get rid of it, and you can get some really good deals,” Miller said. “There are times they will have some inventory items they are trying to get rid of such as black iron fittings, copper fittings, sheet metal fittings, etc.

“We look for just about anything we can use,” said Miller.

Here is an example of some of the items sold at the Eastpointe auction and the winning bids:

• Two sets of gauges: $5

• Twenty various floor and wall vents: $5

• Milwaukee corded drill: $10

• Large box of shoe booties and 8-foot wood ladder: $10

• Two large bins of metal connectors: $14 and $20

• Drill press on wheels: $25

• Refrigerant recovery/recycle unit: $70

• 36-inch sheet metal cutter: $400

Carli said a lot of the stuff is old and outdated and won’t sell at all. But some of it is useable, especially the tools.

“You can find some good deals if you know what you are looking for,” he said.

While these auctions are a sad reminder of how vulnerable small businesses are - especially in today’s economy - they are also an opportunity for existing business owners to restock their own parts and tools, at a fraction of the replacement cost.

Sidebar: Small Businesses

The U.S. Small Business Administration Office of Advocacy defines a small business as one that employs less than 500 workers. According to the U.S. Dept. of Commerce, the Bureau of the Census, and the International Trade Administration, these small businesses:

• Represent 99.7 percent of all employer firms

• Employ just over half of all private sector employees

• Pay 44 percent of total U.S. private payroll

• Have generated 64 percent of net new jobs over the past 15 years

• Create more than half of the nonfarm private gross domestic product

• Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers)

• Are 52 percent home-based and 2 percent franchises

• Made up 97.3 percent of all identified exporters and produced 30.2 percent of the known export value in FY 2007

• Produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large firm patents to be among the 1 percent most cited.

Publication date: 10/25/2010