As indicated, I'm evaluating an opportunity to buy an existing excavation company that's been in business 20+ years. They have assets in excess of $600,000 USD to include 4 dozers, 4 excavators, 1 grader, 1 scraper, 2 extendahoes, 2 steel wheel compactors, 2 dump trucks, 2 dump trailers, 2 truck tractors, 2 low boys and various other equipment. I'd say the average age of the equipment is around 5-7 years. Some older, some brand new. They have a reported adjusted cash flow of ~$300,000 USD on $1,100,000 gross. Owner is retiring. Asking $1,000,000 USD. I have an industrial background but not much experience in the excavation industry. I do have a good mind for business, understand costs and can manage people. If we can't quantify how we would bring value to this business, we would not move forward on this deal. I'm meeting with the owner soon and would welcome any comments you have. Having to do it over again, would you get into this business? What are some of the big mistakes you have made? What keeps you up at night?
My first and biggest question is what is there debt:income ratio...equipment paid for? If so then you would be in for a good deal...what about insurance?...jsut things to think of...insurance...fuel....payments...those are what keeps us up at night..and we arent as big a company as that sounds like it is
Thanks for the reply. From an asset standpoint, they own approximately $400,000 of the equipment and have loans outstanding for roughly $200,000. I do not know how much of the $200,000 is actually owed to the bank. Regardless, this will be an asset purchase meaning the current owner provides all assets free and clear of liabilities. When we meet I'll ask about his insurance costs.
Another thing What market does the owner cater too usually? Any repeat customers? How has the industry in general changed in your area? Long term & Short. If you have a reliable market for your services you can succeed. How old is the equipment? what kind of shape is it in? Go look at all the assets and get them appraised if you can afford it, and shop around for your financing type of thing if you need it (talk to the finance guy hanging around he sems pretty canny in these matters) I'm not very good at the ephemereal aspects of business but I try to look at things in a practical way, don't ignore that outlook. If i think of more I'll drop some. Good luck!
Did you end up making the purchase?
No, we passed. The owner did not document his financials so it was next to impossible for us to determine the businesses value beyond the liquidation value of its physical assets. For those of you who are considering the sale of your business in the future I'll offer the following: We all understand the advantages of not documenting income, however, your business’s value to a buyer is going to be based largely on a multiple of it's free cash flow. If you can't show it, the buyer can't pay for it. Looking at it another way, you can take the "good" now or you can take it later in the sale. Just don't expect to get it twice.