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Purchasing an existing business

Discussion in 'Business Fundamentals' started by ry_rock, Feb 20, 2012.

  1. ry_rock

    ry_rock Senior Member
    Messages: 105

    To those of you who have purchased an existing business I am looking for your expertise.
    There is a business for sale in my area and I am looking at purchasing it to add to my current business. How have you valued the business you have purchased? Any suggestions or advice you can share would be greatly appreciated.Thumbs Up
     
  2. wizardsr

    wizardsr PlowSite.com Addict
    Messages: 1,557

    Typically worth the value of the assets and maybe a little extra depending on what kind of profit it currently turns. No guarantee the current customers are going to stay with you after the buyout which makes buying/selling a service business difficult.
     
  3. NICHOLS LANDSCA

    NICHOLS LANDSCA PlowSite Veteran
    Messages: 4,310

    What Wizard said, it's really only worth what you can hold in your hand. Contracts and contacts are useless as we all know they can be broken and forgotten at anytime. A business relationship means nothing these days especially once someone else owns one of the businesses. How would you feel if you had been doing business with someone and they sold the Co? You no longer have the feeling of loyalty (which most places don't have anymore anyway)
     
  4. grandview

    grandview PlowSite Fanatic
    Messages: 14,609

    You can confirm the above posts by talking to your banker and they'll say the same thing.What assets are you buying from them?
     
  5. csi.northcoast

    csi.northcoast Senior Member
    Messages: 320

    agree with above post, make sure you get a non compete signed and bete yet see if previous owner will stay on to help manage/continue with current customers if they are worth it
     
  6. Pennings Garden

    Pennings Garden Senior Member
    from VA
    Messages: 242

    I have bought and sold business for % of first years sales. With that I mean the seller gets x% of the paid invoices within a set time period, plus of course any hard assets of the business.
     
  7. birddseedd

    birddseedd PlowSite Veteran
    Messages: 3,516

    get reports from the company. looots of reports. profit loss statements. balance sheets. and TAXES. taxes will prove what they made. and stay away from any company wanting to sell but not wanting to show you the real information. taxes included. thsi way you know what you are getting and can see the real data.

    and be carefull. small businesses dont always keep contracts. bigger companies with a history of net profits are worth more. but then again its usualy best then to keep the business going in its name.

    same as western, fishers and blizzard? all 3 being owned by another company, but keep individual names because that name is worth money. more money than all of their fixed assets.
     
  8. snobgone

    snobgone Senior Member
    from CT
    Messages: 122

    The value of a business has many variables. Consistent profitability, long term contracts/client relationships, customer profiles, tangible assets, etc.

    If its the contracts you are after then structure the sale and payment plan based on retention. Sometimes, the former owner will stay on for a year to transition the clients and assist with retention.

    Tangible assets may or not be of value to a potential buyer if they do not fit their business model. Don't buy what you don't need to support the new business. Negotiate the assets separately.

    A non-compete is good advice.

    The value should not exceed the cost of organic growth.
     
  9. serafii

    serafii Senior Member
    Messages: 285

    My dad originally bought his route off of an existing company. The lawn maintenance was bringing in 10k a month. So multiply that by 3. He paid 30k for the company with a truck and no other equipment.

    For those 3 months he (my dad) and the previous owner worked together so that there wouldn't be a big change in services.

    It's now 25 years later with the same 30 clients and many more.

    Residential winter clients are sold for what they are worth during one month