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Not sure what the comment about the attraction of a wind up toy means. I've been in this business nearly 30 years and this is a good opportunity that will increase the value of our business.
A 'wind-up toy' is a business that you either buy or establish that generates revenue without a lot of additional time or investment. The aforementioned mini-warehouse is a good example of that.
We are about 99% sure we are going to buy an existing very small business. It's a well established 1 person operation with the equipment we want to expand our business. We have a good working relationship with the owner already, he would refer existing customers to our nearby location.
We have a list of the equipment which is fairly easy to put a price on. We would use that equipment to continue servicing his existing customers plus expand our offerings to our own customers.
For discussion sake, let's say their gross sales are $100,000 and expenses are $35,000. This doesn't include a salary for the owner/operator. We would be paying someone about $20,000 part time to do that specific work. What would be a fair price for the business?
Absolutely impossible to value the business without knowing what kind of business it is.
I dont think she wants to say too much of her business and what is the machine she is buying.
But it sounds like she knows what she is doing .
but then she said she has to learn to use the machine and this part time person is going to teach them,make you wonder ?
why didnt this part time worker buy it herself?
I dont think she wants to say too much of her business and what is the machine she is buying.
But it sounds like she knows what she is doing .
but then she said she has to learn to use the machine and this part time person is going to teach them,make you wonder ?
why didnt this part time worker buy it herself?
The part time worker already has the same machine and uses hers for a totally different customer group. She knows we have considered buying these types of machines for years. For 30 years, we have contracted out this specific work to other small businesses, including the one we want to purchase and our part time worker. There's plenty of business out there and this opportunity is a way for us to step in with training from both the current owner and our worker.
The other benefit is that we will be saving on a huge portion of their existing overhead, no rent, insurance, phone, utilities, just a slight bump in our power bill. I'm guessing that's additinal profit of at least $1200 a month, will verify when I see their records.
So for all these years, our business has provided services A B & C. Now we are adding D, E & F with full control instead of contracting it out.
The part time worker already has the same machine and uses hers for a totally different customer group. She knows we have considered buying these types of machines for years. For 30 years, we have contracted out this specific work to other small businesses, including the one we want to purchase and our part time worker. There's plenty of business out there and this opportunity is a way for us to step in with training from both the current owner and our worker.
The other benefit is that we will be saving on a huge portion of their existing overhead, no rent, insurance, phone, utilities, just a slight bump in our power bill. I'm guessing that's additinal profit of at least $1200 a month, will verify when I see their records.
So for all these years, our business has provided services A B & C. Now we are adding D, E & F with full control instead of contracting it out.
All of which is great. But I would still pay a CPA to audit their books. I learned that through bitter experience about 25 years ago. It wasn't fatal, but the amount of money I ultimately spent on lawyers was far higher.
Last edited by MinivanDriver; 10-23-2019 at 09:11 AM..
Gonna say it. I wouldn't touch it until a CPA did a full body cavity search of the books.
I think rather than falling for the dicey 'Goodwill' valuation on the balance sheet, I'd rather give him the opportunity to enjoy long-tail revenue by making sure his clients stay put with you.
That was an excellent post. I'll comment on a couple of things you said (quoted above). I've sold several small businesses and have been selling investment properties for years. It's a rare small business whose books tell the whole story. Same with income properties. Sure, I want to scour what books they've got but I also have to think beyond what the books tell. Many businesses have unexploited opportunities, weird tax-saving bookkeeping methods and are often simply mismanaged. Two identical businesses in identical markets can generate very different profits. OP sounds like she knows the owner and the business pretty well and has a good idea what to look for. If a CPA gave the books a bad grade I'd still be interested in buying it based on what OP has said. That she can buy this going operation for one year's net makes it a very low risk venture.
I like the idea of having part of the purchase price being tied to ongoing success and being paid after the sale, but, selling at just one times net I doubt the seller is interested. The entire thing as described sounds like promising deal.
All of which is great. But I would still pay a CPA to audit their books. I learned that through bitter experience about 25 years ago. It wasn't fatal, but the amount of money I ultimately spent on lawyers was far higher.
I totally understand what you're saying, but here's where I'm coming from. We are in fairly similar industries, lease from the same property management company, buy from many of the same suppliers, so I can compare his numbers to ours. I don't use a CPA myself, I do all our taxes, I went through a huge IRS audit successfully with the agent sitting in our location, giving me props for how I kept our records.
And right now I'm about as anti-attorney as you can get. Just got ripped off by two of them in a situation that I should've handled myself, like the IRS audit, but that's another story.
OP sounds like she knows the owner and the business pretty well and has a good idea what to look for. If a CPA gave the books a bad grade I'd still be interested in buying it based on what OP has said. That she can buy this going operation for one year's net makes it a very low risk venture.
I like the idea of having part of the purchase price being tied to ongoing success and being paid after the sale, but, selling at just one times net I doubt the seller is interested. The entire thing as described sounds like promising deal.
Actually, I like this idea and I think I will try to propose something along these lines. 50% down and the other 50% paid over the next 12 months, a flat amount unless sales fall under a certain amount, which I really don't foresee happening, but once I see the books, maybe I'll structure it based on past sales for each month. The owner is very happy that we want the business and is most concerned about continuity, quality and his repeat customers staying happy after the transition.
It seems you know what you are doing and you have pretty much decided you want the deal to go thru,why are you asking strangers on this forum?
The only reason I can think of is that $$,is it outside your comfort range?
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