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Unique opportunity to purchase business

Discussion in 'Introduce Yourself to the Community' started by BCRoss, Jun 23, 2014.

  1. BCRoss

    BCRoss Junior Member
    Messages: 10

    Hello Everybody, what an amazing site this is!! Thank you for all of the resources. I currently have a unique opportunity to purchase my grandmothers snow removal business of 40 years in northern colorado. She's been extremely successful ever since I was a little boy. Some of the best memories are riding in the plow with her and my grandfather. She's now getting too old and wants to sell the business. My brother and I would like to buy it, but she's concerned that the business won't support two people. I think this is because she's been operating it by herself and she doesn't have the energy to take on new business. We've had numerous conversations about gross revenue numbers for the last five years, liability insurance, maintenance requirements, etc. I'm confident that with two young men with incredible work ethic we could grow this small business into a much larger operation but I've never owned a snow removal business before. What should I be thinking about as I contemplate this move? Any help would greatly be appreciated.
     
  2. JustJeff

    JustJeff 2000 Club Member
    Messages: 2,031

    It is possible, but you have to remove your romantic notions, and memories or riding in the trucks and all of that stuff. I can't say for certain in your region if it's the same or not, but snow removal is a "race to the bottom" if you will, with all of the low-ballers out there. I'm not saying it's impossible, especially with two people that are truly dedicated and have a good work ethic, but IT IS difficult in this day and age with the cost of equipment etc. Equipment gets more expensive, and hourly rates and bids get less profitable. Do your due diligence before jumping.
     
  3. BCRoss

    BCRoss Junior Member
    Messages: 10

    Thanks for the tip. That's one of the reasons she said she quit doing lawn care work in the summer time. But I guess it's becoming a problem in the winter too. She has contracts in place that have been with her for 30+ years, so I was hoping I would be able to take those over which would be sort of a head start. But I don't want to assume.
     
  4. Whiffyspark

    Whiffyspark 2000 Club Member
    from SOMD
    Messages: 2,402

    You need to find out gross and net

    How many customers

    What are you going to use to service them

    Etc
     
  5. JustJeff

    JustJeff 2000 Club Member
    Messages: 2,031

    A +, I agree with Whiffyspark. Don't just "jump". Do yourself a favor and don't rush into anything. If your Grandmother doesn't want to see you lose money, she has a reason for saying that.
     
  6. BCRoss

    BCRoss Junior Member
    Messages: 10

    Great points whiffyspark, I know the answer to the gross and net numbers but not sure of the total number of customers. I know it's a large and consistent cliental. She had to turn down a bunch of contracts because she just doesn't have the time and energy, or money to hire any help. Her biggest reason for caution was that she said we'd be at the mercy of the weather. Colorado had a big drought a few years ago and she said she only did $60k gross.

    When you say "what are you going to use to service them" are you referring to the equipment and services I will provide for the customers? She has an inventory of two plows (and trucks, albeit outdated), several blowers that would come with the business as well.
     
  7. Whiffyspark

    Whiffyspark 2000 Club Member
    from SOMD
    Messages: 2,402

    $60k gross is small

    Find out how many customers and average travel distance.
     
  8. BCRoss

    BCRoss Junior Member
    Messages: 10

    Yeah, absolutely. Thank you for the advice. I'll talk to her in the next day or so and ask her. 60k is very low, but the average gross every year for the last 5 years is almost 150k. Good number, but for two people that's not enough. I'm just thinking that if an elderly woman with one employee could do that amount, how much could two younger, fired up, guys do? But I don't want to be wishful thinking so that's why I value all of the tips.
     
  9. maxwellp

    maxwellp PlowSite.com Addict
    Messages: 1,112

    Are you just buying the equipment?
    Or are you paying for a lot of pie in the sky, the accounts can all move on when they find out there is a new owner. Just something to think about. Before you buy. I would not buy anyones snowplow business they change all the time. Build your own.
     
  10. BCRoss

    BCRoss Junior Member
    Messages: 10

    I would be buying both the equipment as well as the name. I'd like to think that when the customers find out that a family member is taking over it would provide some continuity and peace of mind that someone with the same values and integrity will be taking care of them. She still has quite a bit of contracts that are still good for another year. But I'm not sure if there are provisions within those contracts to void them if the business changes ownership. Do you think I would lose a lot of them?
     
  11. Whiffyspark

    Whiffyspark 2000 Club Member
    from SOMD
    Messages: 2,402

    Anything is possible.

    How much snow do you get? Are all the driveways within a certain area?
     
  12. OldSchoolPSD

    OldSchoolPSD Senior Member
    Messages: 242

    You should look at the books back as far as you can (at least 7 years) and make your decision off of that.

    All that sentimental crap is for suckers... You aren't picking out drapes here, you are buying a business. All those warm fuzzy feelings aren't going to help you if you aren't turning a profit.

    Personally, I would leave your brother out of it as well. If you grandmother was running it by herself, then it's obviously not more than one person can handle. Unless he is bringing something tangible to the table like a buttload of contracts or something, you will get farther with regular old help you found in the classifieds.

    "A friendship founded on business is a good deal better than a business founded on friendship."
    John D. Rockefeller
     
    Last edited: Jun 24, 2014
  13. Banksy

    Banksy PlowSite Veteran
    Messages: 3,113

    You can purchase the equipment but don't buy customers. They have no obligation to stay with you.
     
  14. OldSchoolPSD

    OldSchoolPSD Senior Member
    Messages: 242

    I'd disagree with that. I'd value the business based on total billings, not the value of the equipment.

    It costs roughly 7 times as much to attract new business as it does to retain current customers. If the business has been doing $xxx,xxx a year for the last 7-10 years, there is no reason to think that all your clientele is going to up and leave as soon as you buy it. On the same note, if there are no "books" or any way of proving its profitablility, then you either walk away or buy it cheap enough that you can liquidate all the equipment and get your money back.
     
  15. Banksy

    Banksy PlowSite Veteran
    Messages: 3,113

    But it's a weather dependent business (unless seasonal billing). I am not going to pay a premium for several good years of snow to chance getting nothing. I think buying the value of a business would be more appropriate for a store, factory, or something like that. How about paying a flat rate for the equipment and pay a percentage of the billing depending on if customers stay for a minimum period of time? Like pay X amount if customers A B C & D stay with me for 2 or 3 years. You're right, it's not certain that customers will jump ship from the business changing hands but I just personally would not pay a premium for the hope that they stay.
     
    Last edited: Jun 24, 2014
  16. BCRoss

    BCRoss Junior Member
    Messages: 10

    This is an interesting debate. On one hand I see Banksy's point about not paying a premium for something that you hope might happen. But then again this is a business I'm purchasing from a family member so it's not going to be that premium. Don't get me wrong, I still want her to make money on it, but I also think at 1.5 times the average annual gross over 5 years it's undervalued. This is because she's had so many things going on lately and hasn't had the time and energy to realize the full potential of the business. When I talked to my grandmother she's confident that her current contracts would continue through ownership transition.

    "You can purchase the equipment, but don't buy customers." This is very interesting and good reason to pause and think.
     
  17. maxwellp

    maxwellp PlowSite.com Addict
    Messages: 1,112

    Buying from family is hard,
    Start your own and let her sell it on the open market and get what she can.
    Or profit share for x number of year and then it is yours
     
  18. BCRoss

    BCRoss Junior Member
    Messages: 10

    Forgive me I'm new, but why would I want to start up completely new when I could by a name that people in the area have known for 40 years and have trusted? Not to mention when those contracts find out it's still family owned I would think a large majority of them would continue doing business. Now the sharing in profits was something we just discussed today. She's open to doing this at a rate of 10-13%. This way she gets her money in approx 5 years or less.
     
  19. TCLA

    TCLA 2000 Club Member
    Messages: 2,699

    You sound like a very bright young man. I doubt many (if any) will cancel because of the ownership change. I also can't imagine she would have a clause in her contracts to void them upon an ownership change. Your grandmother will not wish to see you fail...quite the contrary. Her selling price is reasonable and her terms are wonderful.

    Regardless of the existing dynamics between you and your brother your biggest concern should be partnering up with him in business. Seriously consider not taking him on as a partner. Rather giving him ownership in the form of commissions, incentives and or profit sharing in bringing new business to the table on top of his salary. If what you say so far is true about yourself and your brother, you two should have no problem quickly reaching a point where your biggest problem will be needing help.

    I wouldn't call this a unique opportunity...I would call this a golden opportunity for you.
     
  20. BCRoss

    BCRoss Junior Member
    Messages: 10

    Thank you, I appreciate that. May I ask why you think the biggest concern should be partnering with my brother? Are there potential pitfalls I'm not seeing? The only thing I can forsee is that the revenue really isn't enough to comfortably support two people. After we really get this going, maybe I bring him on as a partner later.