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Old 07-05-2018, 07:22 AM
 
1,925 posts, read 980,004 times
Reputation: 746

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So I went a couple weeks ago and spent the day with the owner reviewing things (not easy owner is a bit more scatter brained then I remembered and hard to get answers out of)
I would love to own the business but my main concern is the current owner. Gonna need a good contract and legal protections.
He is currently micromanaging everything which is causing issues. I also took a walk thru the property and shops. The property needs work, like all his old pickup trucks (his personal company vehicles) from the last 25 years are parked on the edges of the property. He buys a new one every few years uses the old one for a shop vehicle and parks it when it dies. There were 6 around the property apparently 3 still run. There was also a pile of lawn mowers behind one building. Fun.
Equipment is another issue. About half the equipment is in good usable shape but could use updating but will be good for another 10-15 years. The other half is patched together and needs serious work or more likely replacement. He still makes around 100k a year of the old equipment but it looks sketchy, and could make more if it was reliable.
I can see after a deep dive why investors were scared in the next 2-3 years there will need to be serious investments. Plus the place looks like crap.
While the owner was talking with a customer I chatted up an employee who started when I left years ago. He said the owner has been inconsistent billing customers giving stuff away overcharging for other things and generally not keeping on top of things. All of which looking at the books is costing him money. He has kept his take home similar thou thanks to lack of investment. If you could get the office running smoothly clean things up and start replacing equipment piece by piece there is real growth potential. But it will be a ton of work.
Trying to work out more details still. I'm in no hurry and based on what I saw he would have to sell at a severe discount and I don't think he is ready to accept that.

Side story on the owner. There is a piece of equipment taken out of service 15 years ago. He put it up for sale at that time. It's old outdated but it has a small cult following in the industry for being overbuilt. He overpriced it and it was still for sale when I was there. He told me he was offered 15k for it last year (he wanted 20k) he told the guy no. I shook my head if your trying to sell something for 15 years and the best offer you got was 25% less then what you want guess what that's what it's worth.
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Old 07-10-2018, 11:44 AM
 
Location: Chattanooga, TN
57 posts, read 46,543 times
Reputation: 124
Quote:
Originally Posted by East of the River View Post
So I went a couple weeks ago and spent the day with the owner reviewing things (not easy owner is a bit more scatter brained then I remembered and hard to get answers out of)
I would love to own the business but my main concern is the current owner. Gonna need a good contract and legal protections.
FWIW - all the legal protections in the world won't make you whole if he decides to not live up to his end of the bargain. His largest asset is the one you'd be buying so any remedies against him would only distract you from the business and he'd just bury whatever other assets he has so they'd be shielded from judgement. Seen it 100 times.

The best protection you could have is getting him to provide substantial seller-financing that is 100% subordinated to bank financing and includes a non-compete clause that keeps him out for good.


Quote:
...Trying to work out more details still. I'm in no hurry and based on what I saw he would have to sell at a severe discount and I don't think he is ready to accept that.
So, it sounds like there is still something to this opportunity and you're not disinterested.
  • The real question is do the customers have a connection to the business and what it does for them or do they have a connection to the owner? If the latter - game over. If the former, you need to interview several of the biggest customers or the ones that have been served by the business the longest.
  • Find out if they are "fully" served by the business or if there are other providers they go to for certain things. See if those things are complementary to what the business does and if you could enter that market. Would the equipment and machinery you'd need to be allow for this or is there no synergy?
  • Are they just attracted to pricing or is there room to gain ground on pricing if service was more consistent?
  • Is the current staff ready, willing, able to work as hard as you think is necessary to make this happen?If not, do you know people you could hire?
  • Are you willing to spend some money on due diligence even if it goes nowhere? You ought to be able to engage a decent business valuation for a couple thousand bucks and it would give you something objective to hold up as a basis for the price you pay. Remember the adage about "your price, my terms... OR... My price, your terms". If things are in such a state as you describe, you may even offer to jointly choose the evaluator so he can't object to the conclusion because you chose the firm and they made a low-ball figure due to your interest.
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Old 07-10-2018, 12:54 PM
 
1,925 posts, read 980,004 times
Reputation: 746
Honestly talking with my wife we might try and see if we can come up with some cash see what's available for loans and then get him to owner finance most of it. I originally wanted to buy him out over-time while working there, but I think me and him working together would not go well. Current revenue would support what i need for income and loans to cover what i think it's worth easily, what he thinks it's worth would be pushing it.
I think it might be his best chance at selling for a good price unless some one crazy comes to buy it with too much money. (you laugh but I have seen it happen before) If I had cash to offer it would be a seriously low ball offer.

I did talk with a few old customers that are still with him I know well. Most seem to feel it would be better off if he were gone. The exceptions were the ones that back in the day I worked there tended to be late paying and often got discounts from the owner.
The customers have a mix of pricing/ using a local supplier and quality of work as reasons to do business. He also has some unique advantages other competitors in the area do not have but some of that includes machinery he has stopped investing in. Local is the important part here as the type of business can be done by companies away from customers locations but it adds to the cost quite a bit.

Staff does not seem to be a huge issue. Most would stay. The bigger issue is he has been switching them on and off from employees and contractors which I'm amazed the labor department has not come down on him for. So that would need to stop.
I'm looking at comps now. hard because it's a somewhat unique business. My guess is the real estate and equipment is the bigger cost. The equipment I can figure I found auction results and other sales results online. The realestate is odd. The city it's in has it zoned with tight restriction's and he appears to be grandfathered in. The property is actually 3 lots. Only one (which is small less then .25 acre) is approved for business use and that's not the one with the building currently. Another lot is almost all wetlands. The main lot which is improved and has the building is grandfathered and seems to be a mix of wetlands and agricultural (with possible residential zoning). The property is odd as the commercial building was put up in the 50's or 60's I think and is surrounded by wetlands farm lands and some new housing developments. I gather a farmer's son started the business and it has been run (by several owners) as the same type of business for decades.
The city has it valued way less then I would figure My guess is because they view it as essentially un-developable other then what's there.
Another side note he gave me the sales info along with more financial data. He has the data in the sales listing the entire property as build able. But I pulled the current city records which indicate that's not true.

The price he has listed for the place seems to be based on a similar sale from 5 years ago on the other side of the state. I happen to know that business well as I did some contract work there a while back. It was immaculately maintained had a great client list, larger sq ft building (thou similar size realestate) etc etc. It was also located in a town with extremely high property values in comparison. Thou honestly based on the location it may have had zoning restrictions as well.

I have looked and found a few business valuations firms that have dealt with this type of business before but I have yet to ask for pricing.
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Old 07-10-2018, 01:16 PM
 
28,461 posts, read 74,386,238 times
Reputation: 18505
Default I truly wonder if the original owner is not some variant of a horder...

Quote:
Originally Posted by East of the River View Post
So I went a couple weeks ago and spent the day with the owner reviewing things (not easy owner is a bit more scatter brained then I remembered and hard to get answers out of)
I would love to own the business but my main concern is the current owner. Gonna need a good contract and legal protections.
He is currently micromanaging everything which is causing issues. I also took a walk thru the property and shops. The property needs work, like all his old pickup trucks (his personal company vehicles) from the last 25 years are parked on the edges of the property. He buys a new one every few years uses the old one for a shop vehicle and parks it when it dies. There were 6 around the property apparently 3 still run. There was also a pile of lawn mowers behind one building. Fun.
Equipment is another issue. About half the equipment is in good usable shape but could use updating but will be good for another 10-15 years. The other half is patched together and needs serious work or more likely replacement. He still makes around 100k a year of the old equipment but it looks sketchy, and could make more if it was reliable.
I can see after a deep dive why investors were scared in the next 2-3 years there will need to be serious investments. Plus the place looks like crap.
While the owner was talking with a customer I chatted up an employee who started when I left years ago. He said the owner has been inconsistent billing customers giving stuff away overcharging for other things and generally not keeping on top of things. All of which looking at the books is costing him money. He has kept his take home similar thou thanks to lack of investment. If you could get the office running smoothly clean things up and start replacing equipment piece by piece there is real growth potential. But it will be a ton of work.
Trying to work out more details still. I'm in no hurry and based on what I saw he would have to sell at a severe discount and I don't think he is ready to accept that.

Side story on the owner. There is a piece of equipment taken out of service 15 years ago. He put it up for sale at that time. It's old outdated but it has a small cult following in the industry for being overbuilt. He overpriced it and it was still for sale when I was there. He told me he was offered 15k for it last year (he wanted 20k) he told the guy no. I shook my head if your trying to sell something for 15 years and the best offer you got was 25% less then what you want guess what that's what it's worth.
Quote:
Originally Posted by MidasMulligan View Post
FWIW - all the legal protections in the world won't make you whole if he decides to not live up to his end of the bargain. His largest asset is the one you'd be buying so any remedies against him would only distract you from the business and he'd just bury whatever other assets he has so they'd be shielded from judgement. Seen it 100 times.

The best protection you could have is getting him to provide substantial seller-financing that is 100% subordinated to bank financing and includes a non-compete clause that keeps him out for good.

So, it sounds like there is still something to this opportunity and you're not disinterested.
  • The real question is do the customers have a connection to the business and what it does for them or do they have a connection to the owner? If the latter - game over. If the former, you need to interview several of the biggest customers or the ones that have been served by the business the longest.
  • Find out if they are "fully" served by the business or if there are other providers they go to for certain things. See if those things are complementary to what the business does and if you could enter that market. Would the equipment and machinery you'd need to be allow for this or is there no synergy?
  • Are they just attracted to pricing or is there room to gain ground on pricing if service was more consistent?
  • Is the current staff ready, willing, able to work as hard as you think is necessary to make this happen?If not, do you know people you could hire?
  • Are you willing to spend some money on due diligence even if it goes nowhere? You ought to be able to engage a decent business valuation for a couple thousand bucks and it would give you something objective to hold up as a basis for the price you pay. Remember the adage about "your price, my terms... OR... My price, your terms". If things are in such a state as you describe, you may even offer to jointly choose the evaluator so he can't object to the conclusion because you chose the firm and they made a low-ball figure due to your interest.
I would think long and hard about the likelihood that the business owner has some issues -- https://www.npr.org/templates/story/...ryId=125344573


If the pick-ups, lawn mowers, and unsold but somewhat valuable equipment is any indication be aware of what you may be dealing with --
Quote:
"One of the things that I knew intuitively but didn't really understand until it was taught to me here, is that I have to be in control. I can't just let people come in and take over. My anxiety just goes off the wall,"

I have helped folks buy businesses and the basics of negotiation are generally pretty clear -- https://hbr.org/2014/06/how-to-negot...erful-than-you


Ask all the questions already cited and come up with a few dozen more! Questions that are open ended and help the seller understand that there is value in the business BUT potentially a better way for them to get that value than having this mess is going to take a lot of time and probably some very even tempered patience. Don't directly confront the seller. You have to be essentially "on the same team" -- somebody that will continue to run this business and profitably serve the existing market, ideally with a renewed sense of purpose that might make for more profits down the road. IF you do bring in others to help with ANY aspect of the deal be sure that the business owner is fully aware that those folks are merely helping BOTH of you come with a fair deal, that is going to be crucial! You absolutely don't want the owner to feel like the third parties are putting artificially low price on anything! If the seller has that "hoarding mindset" they're probably already stuck on some {not very realistic} "best case scenario" type value -- consider just the 'dead pickups' -- in his mind maybe some have enough unrusted parts that if one of the running pick-ups were to get smashed up it would 'save money' to swap over the bed and tailgate, he's thinking that could save thousands. Of course to an actual junkyard the fair value of non-running pickup is probably just a few hundred dollars...


If the business truly is "equipment intensive" and you have enough depth of experience to understand not just how things were with the old equipment, but what sorts of trends there are for clients who need the capabilities offered by the newer generations of equipment it may be possible to use that to put together the sort of plan that bankers LOVE to see -- they are more than happy to lend money to somebody that has the right mix of experience to take a company that is doing OK and help them grow it. They don't want to lend money to a firm that is truly struggling (there are turn around experts for that...) but are generally eager to meet with somebody that has the ability take on the challenges of increasing revenues in a realistic way -- https://www.bizjournals.com/bizjourn...plan-when.html
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Old 07-10-2018, 01:24 PM
 
1,925 posts, read 980,004 times
Reputation: 746
Quote:
Originally Posted by chet everett View Post
[/list]I would think long and hard about the likelihood that the business owner has some issues -- https://www.npr.org/templates/story/...ryId=125344573


If the pick-ups, lawn mowers, and unsold but somewhat valuable equipment is any indication be aware of what you may be dealing with --


I have helped folks buy businesses and the basics of negotiation are generally pretty clear -- https://hbr.org/2014/06/how-to-negot...erful-than-you


Ask all the questions already cited and come up with a few dozen more! Questions that are open ended and help the seller understand that there is value in the business BUT potentially a better way for them to get that value than having this mess is going to take a lot of time and probably some very even tempered patience. Don't directly confront the seller. You have to be essentially "on the same team" -- somebody that will continue to run this business and profitably serve the existing market, ideally with a renewed sense of purpose that might make for more profits down the road. IF you do bring in others to help with ANY aspect of the deal be sure that the business owner is fully aware that those folks are merely helping BOTH of you come with a fair deal, that is going to be crucial! You absolutely don't want the owner to feel like the third parties are putting artificially low price on anything! If the seller has that "hoarding mindset" they're probably already stuck on some {not very realistic} "best case scenario" type value -- consider just the 'dead pickups' -- in his mind maybe some have enough unrusted parts that if one of the running pick-ups were to get smashed up it would 'save money' to swap over the bed and tailgate, he's thinking that could save thousands. Of course to an actual junkyard the fair value of non-running pickup is probably just a few hundred dollars...


If the business truly is "equipment intensive" and you have enough depth of experience to understand not just how things were with the old equipment, but what sorts of trends there are for clients who need the capabilities offered by the newer generations of equipment it may be possible to use that to put together the sort of plan that bankers LOVE to see -- they are more than happy to lend money to somebody that has the right mix of experience to take a company that is doing OK and help them grow it. They don't want to lend money to a firm that is truly struggling (there are turn around experts for that...) but are generally eager to meet with somebody that has the ability take on the challenges of increasing revenues in a realistic way -- https://www.bizjournals.com/bizjourn...plan-when.html
Thanks I have to agree he does have hoarding tendencies and trouble letting go. One of his current employees even mentioned it to me that they would be loading up a dumpster and the owner would yell no noI have plans for that.
I actually started a basic plan with numbers and have shared it with a relative who was in finance for decades. He thought it was pretty good and agreed there was potential in the business to make more. I have worked in the same industry (or related to this industry) my entire working life. So I'm hoping your right.
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