Buying Businesses...your thoughts?

[Callidus]

So...an opportunity has arisen which is what I would call a steal to buy an established business in a trade which isn't saturated. It's the only business within the county doing what they do, the customer base is not massive but their clients are big fish....NHS etc.

The current owner is looking to sell, for retirement purposes only.

Owner is looking to continue to work in the current business where I would not need to have much input, obviously my own ideas and a few minor changes but it runs well with a very healthy profit.

I wanted to get a brief overview on how you personally value a business.

Basing it on its current customer base, turnover, profit, stockholding etc.. its a no brainer to buy it. He wants very little for it and I could have my money back in 10 months.

I COULD even flip it and sell it and make a killing on it but wanted forum members opinions etc.

Thoughts...?

[Heraldorks49]

Im also interested and thought about doing this.

[Bunneh]

I don't want to offend you, but this really does sound a little surreal.
What type of company is this?
If a company was making enough money where you could make the money back that you purchased it for it in 10 months.. i highly doubt the seller of the business would sell it for cheap. Retiring or not.
He would want to sell it for its full value and would it really be so cheap?

You have to ask yourself, why? Is there any debt owed against the business name, because once you buy it, that debt will become your debt.

I know that once ownership changes over and word gets out, companies like NHS will probably no longer use you, as they do checks against a company and its owner before even considering using them.

I have a family member who works in a make up factory, it is a VERY well known and popular brand of makeup, and when
M&S wanted to stock there items, they had M&S reps come to the factory to see how it was run,how items are stored, how clean it was etc.. before they would even think about figures. They failed the M&S 'clean' check and so M&S will not stock them.

I also know of another family friend whom owned a window cleaning business, he sold it for £5k because he was retiring, and the new owner lost a lot of clients out of it, because most of them only stayed with him out of trust & loyalty and didnt know the new owner from adam...

[jeffweico]

Generally speaking, a small business that is fairly solid goes for between 3 times and 5 times its annual profit. Larger companies can go for 10 times their yearly profit or more.

You may have stumbled into a good deal, but I agree with Bunneh. I would be VERY cautious here, as the deal sounds too good to be true. The only deals I have heard of like this were family or friends selling a business to someone they know. And even THOSE deals are few and far between. Because most people are not willing to sell a business for less money than they could make in a year by operating it. It just does not make financial sense to do so.

[123]

Yeah this sounds like one of those too good to be true kind of deals so I would investigate it with caution. But if everything checks out then yeah go for it! But just do all the necessary research before hand.

[Callidus]

It's not surreal. The owner HATES money, he is probably the wierdest type of guy you have ever met. He wants someone to take it over that he knows, a family member of mine has worked for him for 17 years.

It is a small setup but they are known for the quality of their work, they won't use cheap goods and the service offered in comparison is second to none.

He wants cost price of what the 'stock' currently is plus about 5-7k good will.

There is no debts against the business whatsoever, apart from a lease I would renew for 4 years at a time.

This isn't a retail product setup, it's a service. These companies come to the business for a service to be rendered.

As mentioned before I have known this guy since I was very young, family member has worked there for donkeys years and this guy wants to sell to someone he knows who can make it work.

Hopefully thats some more background.

I echo bunnehs reservations. Thats the pessemist in me. Is the business reliant on one or two contracts? If say the NHS didn't renew their contract for example, would that throw the business in to turmoil?

It sounds a great venture, just do your due dilligence and account for everything when deciding.

[Callidus]

Originally Posted by just_smile

I echo bunnehs reservations. Thats the pessemist in me. Is the business reliant on one or two contracts? If say the NHS didn't renew their contract for example, would that throw the business in to turmoil?

It sounds a great venture, just do your due dilligence and account for everything when deciding.

No that was just 1 of many many, including multiple property agents etc Lots of companies they deal with.

[yankee]

I buy and sell businesses. I sell for HUGE xxx but can prove massive and rapid growth and usually can offer financing in one for or another.

When I buy businesses, I rarely buy market value or even 50% of gross NET annual profit because almost always there is a reason. Product change, market change, loss of resources, etc... In these cases I usually buy assets and resources only.

Typically I pick up a new venture through "transactional financing" and by this I mean I increase sales to the point for percentage of ownership. Most small businesses are under employed and marketing/delivery is minimal.

My pitch is, "Would you give away half of your business if you made 5x as much and did 80% less work?"

How much debt does this business have? That is something that rarely a business seller brings up. It sometimes can be hard to determine backside debt of a business.

[jeffweico]

At the end of the day, only the OP can determine if it is a good deal or not. For me, when he stated that a family member has known the owner for 17 years, it starts to make more sense. Maybe the owner wants to stay on, but not have to work as hard because he is older. Life gets harder the older you get, God knows I can vouch for that!

I didn't mean to be discouraging, but whenever someone tells me of a deal that is too good to be true, it raises red flags for me. But sometimes you CAN run across these deals when you know the people involved. I once bought a house way below market value, because my neighbor died and her daughter was in from out of town and just wanted to sell the house quickly because it was a nuisance for her to have to deal with it. She liked the fact that I had helped her mom over the years and she already had plenty of money. So she sold it to me for cheap. I fixed it up and resold it for a very nice profit. So, these deals DO exist, but they are out of the norm.

[rsot]

Best of luck callidus with your informed decision

[Callidus]

Thanks for all the info guys, appreciated.

So typically a small business with a dedicated customer base and good net profit could sell for up to 5 x the yearly NET profit?