Home Forums Hunting & Shooting Hunter's Campfire Purchasing an established small business

If it is a service business without a lot of hard assets you have clients and employees which can both go away on short notice. In most cases it makes sense to do it from scratch. My wife and I just did that.

I wouldn't assume any existing accounts receivable and accounts payable. Purchase price should be adjusted for both.

What would it cost to hire someone to run the business ? ( I know you will, but figure this in equation/value)
What is value of hard assets? Truck and $10k already mentioned.
What is asking price?
1500 customers and AR, are not guaranteed.
Will he accept X amount of profit for payment ?

I wouldn't buy a job.... customer list carry little value... is real estate involved... that has value, the rest is blue sky

I have seen small businesses that thrive because of the long-time experience, specialized knowledge and personal contacts of the owner. These are things that can't be purchased.

In a case like that, customer loyalty is to HIM, not the new owner. Learning what he knows will likely take you as long as it did him - which likely means many years of experience, good and bad.

Do the current customers know him personally or just know the name of the business? If only the name of the business, you have a chance of keeping them as your customers after the sale.

Are his suppliers raising prices? Do they offer him better prices than others because of personal connections? Are there multiple sources of needed supplies or are you tied to one company who can manipulate prices, have varying availability to fulfill orders or who may go bankrupt at any time?

Do you know how to advertise online, how to pay taxes and record expenses on a business (vastly different than your personal taxes) and how to create and maintain a business website? A friend who has succeeded for decades from word of mouth is now seeing old customers die off and doesn't realize 99% of new business will come from a Google search. He will be paying multiple thousands to establish an online presence. You should count on hiring a CPA and a web developer/social media manager.

Owning your own business means that every day of every week, YOU are the person worrying about late/non payers, rising costs, government agency inspections, licensing costs, losing customers, finding new customers, spending money on advertising that may not pay off, whether or not to hire employees (a HUGE mistake if you don't want ulcers managing people who don't show up, steal from you, lie to you, quit with no notice, fake an injury to get Worker's Comp payments, etc., etc., etc.).

When you are the owner and sole employee, there is never a vacation where you can stop worrying about the business not being able to pay the taxes, rent, utilities or maintenance costs, where you can refuse to answer a phone call from a dissatisfied customer and not be ready to take of the problem yourself regardless of what day of the week it is or whether your kid/grandkid is being a camel in a school play or starring in the playoffs in a high school or college football/basketball/soccer game.

Someone else mentioned 80 hour workweeks - sounds like he has actually owned a small business or two. If this is a business you have no REAL experience in (meaning day-to-day operations, actually answering the phones and dealing with a wide variety of problems), then I would COUNT ON 80 hour workweeks at least until your debt is paid off.

Finally, please be aware that income (revenue) means nothing until you know the expenses and losses! Pay for an accountant to go over the books!

Good luck!

P.S. If you paid him $100,000, say, for the business, he would likely invest it to get a steady income that he could use for living expenses. Consider offering him 10% of NET income each month for at least the first year in lieu of a big cash payment. He won't be able to get more than 3-5% return on his $100K, so it could be a win-win. He gets more monthly income than he would from a lump sum payment, and you have some protection from the possibility that the business goes under from something that you didn't expect or if you find that the constant worry is sucking the life out of you and ruining your retirement years. If you choose to keep it, renegotiate after the year is up and you have a realistic knowledge base of what the business will cost you in time and effort.

Spent over 10 years looking for a business to buy. I have been in contract to buy a few businesses. Ended up closing 1.

Give me a call and I’d be happy to visit with you and share what I’ve learned.

PM sent

I’ve seen it work out well a few times and seen businesses crash after the original owner sells within a year many times. Way too many variables to give an honest educated answer in this case. Use your best judgement but be extremely conservative in your valuation and financial projections.

9 out of 10 times your better off stealing dobeobes business model, hiring away their employees and going after their clients.
I’ve had a few fry it with me and luckily had loyal employees and clients. It comes with treating people honestly and fairly.

What’s a box truck with tools and a year of aggressive advertising cost compared to his asking price?

This. You can make a six figure income without paying for it first without too much trouble.

Quite a psychopathic post


First you’re advising him to be a dirty, underhanded dirtbag, then tell him you’re honest and fair


Wow!

LOL

Hilarious!

Subtract what it would cost to have someone run the business from the profits. The blue sky value is based on this excess. Businesses where personal loyalty is important aren't worth as much as a business that is transactional in nature.

I have never owned a business, but worked part time for a man who did own one. He worked every day and had a bedroom in the back of the shop. He stayed there 4 or 5 nights a week. I always thought that it was sad that he didnt go home every night.

LOL

This is why purchased businesses fail.

The purchaser doesn’t know how to run it or wants to have anything to do with running it , hands on. They think owning a business is glamorous and guarantees income

Fuqking hilarious!

Care to expound on this?
I'm interested.

LowerRiver: The VarmintWife and I started, built and owned a very successful small business for 25 years, in a large west coast city, before I retired and we sold it.
It was rewarding and profitable but a FULL time undertaking for her because I was employed full time elsewhere and only contributed when I could.
We had, at one time, 8 (eight!) employees and there-in was "the rub"!
Dealing with spoiled and at times lazy/absent employees was a BIG pain/drawback.
If you can handle that small business (no employees!) by yourself I say go for it - and good luck.
Remember the tax advantages (write-offs!).
Hold into the wind
VarmintGuy

Starting to sound like a commercial floor cleaning business.

How many hours do you have to put in per year in order to reap that 6 figure net profit? Now figure out how much per hour you'll be making. If it's less than you can earn working for wages, it's a bad deal.

One rule for evaluating a small business is to figure out what it would cost to have someone else run it, and figure out how much cash the business will produce over and above that. Can you put your investment in a safe investment that doesn't require any work and reap that much reward? If so, why would you invest in something that requires you to work?

Read the whole post, he's correct.
Regarding price of business.
Many people own businesses and don't run / work there. As said before , then it's owning your job.

It’s absolutely correct


If you don’t want to work, don’t have the knowledge, don’t want to maximize profit

High level look at hours in a year.

1500 customers
Most are annual visit
If they average just 2 hours with travel that is 3000 man-hours per year.

That does not take in account for job type problems, warranty work, ordering supplies, your equipment maintenance, time to manage business (banking, invoicing, collections etc).

I could see an easy 4000 hours a year, like a couple of posters said, 80 hours a week.