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Should I buy a 20 year old appliance repair business?

tonyf7

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I own a two man appliance repair and used appliance sales business with my uncle. It's definitely a slow lane business. We've been at it for almost 5 years and have seen some success, but still, it pretty much just pays the bills (most of the time).

Recently I was approached by the owner of a local appliance repair/parts dealer here in town (small town, like 100k-200k population) who wants to retire and sell his business. He wants 200k for it. I gathered his last 3 years tax returns and had the business appraised with the help of Richard Parker of Diomo Corporation. Richard has been buying and selling businesses for a long time and I bought his $100 course, which is very detailed, but was definitely over my head in some areas. So I emailed him and he helped me free of charge; sweet.

Anyways, the business is only worth about half the asking price and the income I'd be making by purchasing this business would only be slightly higher than what my uncle and I currently gross. And that's just the two of us with very little overhead.

I'm not sure it's worth buying a 20 year old business where the owner is making just a little more than what we've been able to make in less than 5 years. I'd be getting into debt by purchasing the business and inheriting all the overhead, just to make a few cents more than I do now.

What's intriguing is the potential. The business has tons of name recognition in the area and there are many things the current owner does that I can do better. The business also has a system in place that has good potential for being autonomous. It would allow me to leapfrog a few steps in the growth of my current business. I may very well be able to grow this business into something great that can potentially run itself with very little time and effort required from me.

Or I could grow my current business and find a way to Fastlane it.

That's the dilemma I'm having.

Your thoughts?
 
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minivanman

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Well, personally I'd never go in to debt for anything and second I never give anyone their asking price for anything. But looking at this from a different angle than those 2 things, it's a tough call. You are an hour and a half (without traffic) from most of the Memphis population so expanding that far is out of the question. I guess my question would be, does he have anyone else that would be remotely interested do you think? What types of systems does he have in place that you don't currently have? What can you do better than him? If you want to send me a private message feel free.
 

tonyf7

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Well, personally I'd never go in to debt for anything and second I never give anyone their asking price for anything. But looking at this from a different angle than those 2 things, it's a tough call. You are an hour and a half (without traffic) from most of the Memphis population so expanding that far is out of the question. I guess my question would be, does he have anyone else that would be remotely interested do you think? What types of systems does he have in place that you don't currently have? What can you do better than him? If you want to send me a private message feel free.

Seems he's been trying to sell his business for a while now and no one is buying. Partly because there's a shortage of buyers in the area. Not many people know about appliance repair here.

The systems he has in place are mainly software programs they use to track the repair technicians that are out in the field. It's something that anyone can be taught to do. That's just one example.

What I can do better is utilize the internet to bring in more business. They don't advertise. They also don't sell used appliance. Something my uncle and I are good at.

I hate debt as well btw.
 

minivanman

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And I'm guessing you live up north and work out of a building in back of the house so not much public knowledge of you? Just guessing...... no?
 
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tonyf7

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And I'm guessing you live up north and work out of a building in back of the house so not much public knowledge of you? Just guessing...... no?
We have a shop that we rent, but yes, initially we were working under my uncles car port. [emoji23]

We're definitely gaining some more local recognition, but we're not as well known as some other companies. We do have an excellent reputation among our customers though. That helps a lot with word of mouth referrals.

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Choate

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If you think you would have the time to manage this new business as well as your current business with your uncle, what I see is that you aren't putting enough hours into your current business. Hence why it is slowlane and "pretty much just pays the bills (most of the time)."
 

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I'm not understanding. He needs to sell it so he can retire. That means he has to be present to run the business. That means whoever buys it from him would have to be present to run the business. Why would you want to buy your job? So that when you get to be an old man you can sell it and finally retire?
 
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JustKris

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I don't really see the benefit in buying a non-scalable business with no recurring revenue, no unique product, and still would require tons of work on your part. (I mean, I guess you could start an appliance repair franchise model, but you don't need this guy's business to do it.)

If this guy closes up shop, wouldn't you be getting all of his customers anyway? And couldn't you just apply his autonomous system to your own business?
 

daivey

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Well, personally I'd never go in to debt for anything and second I never give anyone their asking price for anything. But looking at this from a different angle than those 2 things, it's a tough call. You are an hour and a half (without traffic) from most of the Memphis population so expanding that far is out of the question. I guess my question would be, does he have anyone else that would be remotely interested do you think? What types of systems does he have in place that you don't currently have? What can you do better than him? If you want to send me a private message feel free.

Man, you never go into debt ever... like worst words of advice.

Anyway, to the original poster, honestly, $200,000 for his companies name, for very little upside, doesn't really make much sense to me. But there is a lot we are not seeing here either.... Does that $200,000 include $150,000 in inventory? What about property/lease? rentals? ect?

What does that $200,000 get you?

Because from the sound of it, it's not getting you much, and not increase your bottom line. Unsure what rates you can borrow at where you are, but I'm assuming for business loan like that over 5%? Or would you HELOC your home to get it?

Assuming 5% interest on $200,000 that's $10,000 a year in interest costs alone. How much more revenue can that business generate over that?
If it's $200,000 with $150,000 in inventory, that you can easily sell/whatever, but you get that name which you can then leapfrom and build up way bigger business, then it might be worth it.

but ultimately there isn't enough info to really make a good case here.
 

tonyf7

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If you think you would have the time to manage this new business as well as your current business with your uncle, what I see is that you aren't putting enough hours into your current business. Hence why it is slowlane and "pretty much just pays the bills (most of the time)."
I wouldn't manage both business. I would combine them. But you're right, I don't put enough hours into my current business. I pick my kids up from school everyday.

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tonyf7

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I'm not understanding. He needs to sell it so he can retire. That means he has to be present to run the business. That means whoever buys it from him would have to be present to run the business. Why would you want to buy your job? So that when you get to be an old man you can sell it and finally retire?
The idea would be to turn it into a business that doesn't require the owner to be present in order for it to be successful.

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tonyf7

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And couldn't you just apply his autonomous system to your own business?

Yes, I could. As of now I wouldn't know where to start but I'm sure I can find out. It may not be worth 200k to learn their system when I can figure it out on my own. I see your point. But I'd also be spending a lot of time learning instead of earning.

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G

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The business also has a system in place that has good potential for being autonomous. It would allow me to leapfrog a few steps in the growth of my current business.
I'd be very surprised if you couldn't create a similar/better system for less than $100k.

The business has tons of name recognition in the area
Normally, I'd argue that name recognition is worth a lot, but for owner-operators in small towns - it's often different. People might be going to him. He might have name recognition. That wouldn't be transferable.
 
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tonyf7

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Man, you never go into debt ever... like worst words of advice.

Anyway, to the original poster, honestly, $200,000 for his companies name, for very little upside, doesn't really make much sense to me. But there is a lot we are not seeing here either.... Does that $200,000 include $150,000 in inventory? What about property/lease? rentals? ect?

What does that $200,000 get you?

Because from the sound of it, it's not getting you much, and not increase your bottom line. Unsure what rates you can borrow at where you are, but I'm assuming for business loan like that over 5%? Or would you HELOC your home to get it?

Assuming 5% interest on $200,000 that's $10,000 a year in interest costs alone. How much more revenue can that business generate over that?
If it's $200,000 with $150,000 in inventory, that you can easily sell/whatever, but you get that name which you can then leapfrom and build up way bigger business, then it might be worth it.

but ultimately there isn't enough info to really make a good case here.

Forgot to mention that the owner offered to finance the whole deal. He has about 200k in inventory. How much of that is sellable, who knows.

He owns (and just finished paying off) the building where the business is located and is willing to keep rent affordable.

I just don't know if it's worth going into debt over. I'm essentially buying a name, and I'm not sure that name is really worth it. With a little more time and effort I can build my own name up.

I'm also scared of all the debt and responsibility of having rent, employees, vehicles, parts suppliers, etc. It's a big jump from the two man show I currently run.

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tonyf7

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I'd be very surprised if you couldn't create a similar/better system for less than $100k.


Normally, I'd argue that name recognition is worth a lot, but for owner-operators in small towns - it's often different. People might be going to him. He might have name recognition. That wouldn't be transferable.
Very good point. I've already heard stories of customers who only want to deal with the owner. I'd imagine they'd all mostly jump ship when they find out he's no longer there.

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lewj24

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Sounds risky with little upside in my opinion.

Also if he is retiring and wanting to get out of the business doesn't that give you leverage to low-ball him? Who cares what "it's worth" tell him you can do 50k and he'll have to take it. Unless others are offering him more (doubt, since he approached you).

Actually you say he is going to charge you rent? That's how he plans on retiring. Tell him you will take the business for free and pay the rent so he can retire. I bet he has no other options.
 
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tonyf7

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Sounds risky with little upside in my opinion.

Also if he is retiring and wanting to get out of the business doesn't that give you leverage to low-ball him? Who cares what "it's worth" tell him you can do 50k and he'll have to take it. Unless others are offering him more (doubt, since he approached you).

Actually you say he is going to charge you rent? That's how he plans on retiring. Tell him you will take the business for free and pay the rent so he can retire. I bet he has no other options.
Interesting when you put it that way. Lots of leverage to enjoy. If I were to buy it, I'd probably offer, at most, 75k.

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tonyf7

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Well, if you had 200k in cash would you be able to grow your business to bigger and better than if you were to buy his?
Yes, I would. Maybe that's what I should focus on. My business.

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tonyf7

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A business guy from NYC recently told me "If I were selling a 20 year old business, I'd be asking for millions, not thousands." Makes sense, but we're also talking NY vs small town AR.

Buying this business would be like purchasing a fixer upper in a great neighborhood. There's a risk the foundation is rotted and it'll be a money pit, or it may just need a few cosmetic upgrades.



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What's intriguing is the potential. The business has tons of name recognition in the area and there are many things the current owner does that I can do better.

I'm not sure it's worth buying a 20 year old business where the owner is making just a little more than what we've been able to make in less than 5 years.

Makes no sense.

The business has TONS of name recognition... yet in 20 years is making just a little more than your business which has less name recognition...

Doesn't add up. Who's name are you keeping?

Seems like a dying business or slow lane forever business. Save the money you don't have.
 

biophase

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A business guy from NYC recently told me "If I were selling a 20 year old business, I'd be asking for millions, not thousands." Makes sense, but we're also talking NY vs small town AR.

Your statement here is flawed. Just because you are in AR you can't make a million dollar business in 20 years? Come on.

If you gave me your business today, You better bet I would not be only in a small town in AR in 2037. That's a limiting belief.

In 20 years you could/should be in 48 states or the number #1 online ecommerce store selling appliance parts. Think about it.

Don't ever think like that again.
 
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minivanman

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I sent you a private message but just so you know, there is a guy here in the north Dallas area that works from behind his house, no carport. His 2 guys deliver a minimum of 15 sets every day, 7 days a week. So don't have any shame about working under a carport.
 

Chazmania

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With service businesses don't forget some % of customers are there because they know the guy in charge or somehow favor him. Once he's gone then so are they. Or at least they're back on the market shopping around which leaves you in the same spot you're already in.

I'm sure you could use a fraction of that dollar amount and generate the same revenue yourself.

I wouldn't buy it unless you're getting it for peanuts.
 

amp0193

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MidwestLandlord

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With service businesses don't forget some % of customers are there because they know the guy in charge or somehow favor him. Once he's gone then so are they. Or at least they're back on the market shopping around which leaves you in the same spot you're already in.

This. ^^^

Electricians.
Therapists.
Plumbers.
Appliance repair.
HVAC

Most all of these "by the hour" service businesses...

The owner IS the business.

Especially in a small town, with a guy only doing peanuts in revenue after 20 years. Likely he is one of these "knows everybody" type of guys, and that's why people use him.

He leaves and his customers leave. At that point whomever has the best marketing/reputation/convenience/service wins.

So...the exact same position you're in now. There is NOTHING that will turn his gross revenue into YOUR gross revenue, is there?

His gross sales, and his net profit mean NOTHING if you can't keep his customers.

Downsides:
"affordable" rent of this freshly paid off building (a liability you don't currently have)
Loss of his customers (could be 100% loss)
Debt service on the loan
Expenses related to employee's, vehicles, etc (would his employees stay on??)

Upsides:
One less competitor (although a guy only doing low revenue after 20 years is hardly competition haha)
???????

My opinion:

If you aren't saying "F*ck Yes!" to buying this, then DON'T.

Trust your gut.
 

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You're buying a job from a dude that bought himself one 20 years ago. Let that depression sink in for a second.

I'm watching my dad go through the process of trying to sell his job so he can retire. It's painful. You don't wanna be that guy.

I almost bought myself a job this week, and probably would have gone through with it if the business broker hadn't been a dick. Due to some temporary mental illness, I was going to buy a coin laundry and renovate it for "passive income". Except,... I would have spent at least a year driving 20 miles across the metroplex in work traffic every morning to spend time there before driving another 15 miles to another end of DFW to my 9-5.

Sometimes, when you're about to punish yourself with bad decisions, it's nice to have people here that point out that they are.... bad decisions.
 
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tonyf7

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Makes no sense.

The business has TONS of name recognition... yet in 20 years is making just a little more than your business which has less name recognition...

Doesn't add up. Who's name are you keeping?

Seems like a dying business or slow lane forever business. Save the money you don't have.

Yea, that's what bugs me the most. After 20 years he should be making more.

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tonyf7

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Your statement here is flawed. Just because you are in AR you can't make a million dollar business in 20 years? Come on.

If you gave me your business today, You better bet I would not be only in a small town in AR in 2037. That's a limiting belief.

In 20 years you could/should be in 48 states or the number #1 online ecommerce store selling appliance parts. Think about it.

Don't ever think like that again.
You're right. I know millions can be made here because I know of many local business already doing it.

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