Business guys I need advice

[TURBOPOWERED68]

My uncle told me that the company that he works for was going to be up for sale and that his boss said to him if you or one of your family members is interested in it (the company) he would talk to us first before putting it on the market.
So my brother and I contacted the owner and have a meeting for this coming Monday.

This the first time I ever looked at buying a business.
What should I know before buying a business?
How do I calculate how much is the company worth today?
HELP PLEASE.

BTW my uncle has worked for this company for the past 12 years.
It’s a small business only 3 employees and a single owner.
The company has been in business for the past 25 years.
The reason for selling the company is “the guy is old and retiring”

First I will keep my uncle on board as he knows the businesses ins and outs.
And one other guy.
The other one will also retire.

I will also not change the company name and would like to keep the same #rs.
Please add to my too short list.

 

[d90dan]

If the company is making money, why sell? The owner wanting to retire is a very good reason, but are you sure it's not because of a pending lawsuit? Put emotions a side. Any investment requires due diligence. If your unfamiliar with dealing with this hire a consultant or company to check it out for you. You'll need to do this regardless if your looking for a sizable loan.

 

[josh watson]

you

Should check out the company finances for the past 5 years..........If everything is ok the current owner will have no problem sharing. Find out why the company is so small after so long....even small companies tend to grow 10-15 % a year.......anything more is dangerous....less is a sign of a weak business....(usually)....Make sure product/service is not old technology (as in it will not be outdated soon)...........not trying to discourage but BE CAREFULL.....good luck

 

[TURBOPOWERED68]

If the company is making money, why sell? The owner wanting to retire is a very good reason, but are you sure it's not because of a pending lawsuit? Put emotions a side. Any investment requires due diligence. If your unfamiliar with dealing with this hire a consultant or company to check it out for you. You'll need to do this regardless if your looking for a sizable loan.

Already have a lawyer doing lawsuit searches, and other types of legal inquiries. But my lawyer is not specialized in this field.
thanks

Keep the ideas coming

 

[ledzeppac]

My uncle told me that the company that he works for was going to be up for sale and that his boss said to him if you or one of your family members is interested in it (the company) he would talk to us first before putting it on the market.
So my brother and I contacted the owner and have a meeting for this coming Monday.

This the first time I ever looked at buying a business.
What should I know before buying a business?
How do I calculate how much is the company worth today?
HELP PLEASE.

BTW my uncle has worked for this company for the past 12 years.
It’s a small business only 3 employees and a single owner.
The company has been in business for the past 25 years.
The reason for selling the company is “the guy is old and retiring”

First I will keep my uncle on board as he knows the businesses ins and outs.
And one other guy.
The other one will also retire.

I will also not change the company name and would like to keep the same #rs.
Please add to my too short list.

Triple the discretionary income to find out how much the company is worth....
Straight from the mouth of a business broker- my father

 

[TURBOPOWERED68]

In conclusion
We did lots and lots of research on what to look for, when buying a small business.
No future contracts for more work.
They were a franchise so to get the same name I too would have to become part of the franchise. But we did not want the franchise so the name was OUT.
Next. The phone number was also being used as a home number and they did not want to give it up. So the phone # was also out.

So what’s in?
And estimator on an hourly wage (per job) for six months not a day more. Just for the record the estimator is the owners Son.
A customer list that goes back 20 years
We itemized all the tools and assets that were include in the business and the price did not exceed $3500.00
Now the problem
They asked for 20k with a deposit of 15k and pay the last 5k on the first big job that we complete.

Our counter offer
And estimator on an hourly wage (per job) for six months not a day more. Just for the record the estimator is the owners Son.
We will give them a 5k deposit and half the profits until the complete total of 30k
We offered to keep all the books open to them and of course every thing would be in writing.

this offer was declined
My question to you guys was it an unreasonable offer i mean and extra 10K.
doesn't sound bad to me.

 

[ledzeppac]

In conclusion
We did lots and lots of research on what to look for, when buying a small business.
No future contracts for more work.
They were a franchise so to get the same name I too would have to become part of the franchise. But we did not want the franchise so the name was OUT.
Next. The phone number was also being used as a home number and they did not want to give it up. So the phone # was also out.

So what’s in?
And estimator on an hourly wage (per job) for six months not a day more. Just for the record the estimator is the owners Son.
A customer list that goes back 20 years
We itemized all the tools and assets that were include in the business and the price did not exceed $3500.00
Now the problem
They asked for 20k with a deposit of 15k and pay the last 5k on the first big job that we complete.

Our counter offer
And estimator on an hourly wage (per job) for six months not a day more. Just for the record the estimator is the owners Son.
We will give them a 5k deposit and half the profits until the complete total of 30k
We offered to keep all the books open to them and of course every thing would be in writing.

this offer was declined
My question to you guys was it an unreasonable offer i mean and extra 10K.
doesn't sound bad to me.

May I ask what type of business is this? 20K for a business is extremely cheap... Books mean absolutley nothing unless they are showing a profit....
You need to give a lot more info about this company...

Like I said before. Triple the net profits & add the inventory and thats what the company is worth. (simplified)

 

[Quick6'n'-K.C.]

May I ask what type of business is this? 20K for a business is extremely cheap... Books mean absolutley nothing unless they are showing a profit....
You need to give a lot more info about this company...

Like I said before. Triple the net profits & add the inventory and thats what the company is worth. (simplified)

That was my first question.


Lots of different companies, just have to know the nitch of what we are dealing with here. You want the best, ask the folks who deal with that bidness. Let us know what it its

wanner@kc.rr.com
BW

 

[Chad Oliver]

It sounds like all you are getting for 20 to 30k is leads. If he retains the phone # then he's probably not going to send you any referals.

Most people sell for 3 to 5x the annual profits unless there is alot of real estate. For most business owners and people getting ready to retire 20k ain't sh!t. Most franchises require you to be liquid to a minimum of $100k.

Has he provided you with the financial statements and business plan? If no then its most likely failing.

Running a business is like being married.

 

[TexasT]

Maybe I'm wrong

But doesn't your insider already know all these 'customers'{leads}? For the money you could start your own from scratch. I mean does he have some kind of noncompete contract. You could even try to entice the son into coming along. Just some thoughts. Seems to me they aren't willing to work with you.

 

[2QUIK6]

I find it interesting that if the owner's son also works for the company why isn't he interested in taking it over since he would obviously already know the business??
20k does not sound like much of a business even if there is no realestate involved.
What would the average profit be from one of the "big" jobs?
You need to have a look at all of the books from the last 3-5 years and all of the income tax filings, estimated tax payments etc.

For that matter, if he's keeping the ph# and the name, and you are still interested in buying the company, provided that everything checks out, I'd make sure to form your own S-corp with a new Fed Tax ID and your basically buying the current Customers and the tools...that way the IRS or local govt can't come after you for past missed or incorrect payments...no reason to keep that stuff the same anyway since nothing else would stay.

Looking at just the profit in the past years is not a good measure, especially in small companies with one owner, because a good CPA will have a good small company making very little profit because profit gets double taxed....comapny gets taxed for claiming it as profit, and goes up % wise after the first $50k. Then if you decide to use that already taxed profit as a salary payment or dividend..guess what...then you get taxed for it again when it becomes your personal income...
So, any good small business will keep their profit to a minimum....maybe the owner has 2 businesses also that way its easier to hide profit by transferring it among companies with stagering fisical end of years.....there's so many games that can be played here that allows to to keep lots of operating capital in the companies bank account but not have to claim it as "profit" at the end of the year.

Be sure to look at all the companies bank accounts as well, if there's nothing there, then your uncle may be lucky to get paid at each paycheck.

Also, look at the expanses from the previous years...owner could be buying lots of things at company expense that has nothing to do with the company...look at that as income for the owner...perfectly legit as perks for owning your own business

 

[SGRIM]

Need to know the business. From the brief description sounds like someone needs 15K quick:wink:

 

[GregInAtl]

Find out if you have any contracts of his you will gain as immediate income, and if all files remain w/ the bussiness (Paper, and computer). If he keeps the paperwork, computer documentation, phone number, buss name and sells you an idea, bail out. Ideas are free, and his client list is valuable if it is an on going service (Like annually contracted "X"), and yuo can keep the company name and transition w/ few ripples.
IMO a seamless transition, keeping the name, and prior bussiness documentation are key to value.

 

[Jerryl]

It's already been said. Here is what I would do;

· Micro review the books for accuracy and truthfulness (Forensic accounting)
· Figure out long term/short term contracts and all the expirations
· Know and understand the business - Potential sales based on contracts
· Determine inventory and if it is obsolete (or soon to be)
· Determine inventory levels and taxable impact (Especially if it is obsolete or scrap)
· Determine business/brand name recognition through market research
· Determine market trends
· Pray a lot for wisdom.

 

[ledzeppac]

Not to be rude but it sounds like you dont know what the guy has...

Contact a broker in your area and he can help you out.
Business Broker Directory - BrokerPages. Find a business broker

 

[TURBOPOWERED68]

I am sorry for not being specific about type of business and location but I am shore most of you would understand why. (At this point at least)
But I am giving you everything else I have
I have been on the last job they will be doing witch is also one of their biggest jobs for the last week
1-a big job takes about 10 days to complete and it costs $2,000.00 +/- $100.00 a day to do.
I actually took inventory my self and checked payroll
I also got a copy of the work contract
The job was billed at 37k
Of course you have your other expenses
Insurance is about 14k a year plus your local permits and corp. fees
All the tools fit in a full size van.
The big con is that you are doing business with large chains and dealing with the corporate environment and the job are billed at completion with a 30 day to pay agreement witch according to the son really means getting paid on an average of 45 days after completion. BTW did I forget to mention you don’t get a deposit to start the job ether

My uncle is 64 or 66 years old and is willing to come aboard with use just to teach us the daily ops of the actual work, logistics, prep, getting help for the work and anything else he can help with.

The last time we spoke with the owner he said “if I don’t sell I will just shut down and burn all of the files.

At this point we are assuming that we will not be able to reach a deal.
So I have already picked a Name for the newly being formed corp.
And I am also working on some marketing stuff.

 

[SGRIM]

I am guess but I feel like with the clues you have dropped you will probably do just as good starting from scratch as buying in. Just IMO!

 

[2QUIK6]

The only advantage to butying it is if you are getting all of the past Customers and their contacts, and assuming the type of work is something that is recurring for these clients...otherwise you are getting nothing but a few tools it sounds like...
"if it doesn't sell he's just going to burn the files"...hmm, seems like he would take just about any amount which would be more of a gain to him than just burning them unless this guy is just a real a-hole and doesn't want anyone to profit and continue the business...especially if your uncle has worked that long with him...if that's his personality then screw that, I would not deal with anyone that was that way. That type of personality would rub off to his clients and they may not be inclined to call him back...but of course he's keeping the ph# anyway....

If you do it, get the past client list and call everyone of them to make sure they have your new information..if you're not good at calling people and "marketing" to them, get someone who is to do the calling.