Advice on a business acquisition and future development

[Hurley32533]

Fastlaners, I'm currently in the due diligence stage of purchasing a parking lot company here in Florida. The purpose of creating this thread is to chronicle the journey along with all successes and failures. In the spirit of full disclosure please forgive my horrible spelling and punctuation. As we all know this forum is a goldmine of information and resources for those willing to execute. Along with being able to share this experience with the community I'm also selfishly looking to tap into the vast wisdom of successful forum members for ideas and advice.

Okay for a quick business snapshot! The company has been around for 30 years and the current owner has had the business for the past 13 years and is 70 and looking to retire. This company has 5 employees that operate sweeper trucks on commercial parking lots at night over a three county area. The business grosses $360,000 a year and nets $110,000 through 1-3 year contracts with commercial companies and other big box retailers. The employees are long term and have been employed at the business on average 8 years. The owners present duties include management, bookkeeping, payroll, customer relations and ensuring the mechanic keeps the sweepers in good working order. The assets value for all sweepers and miscellaneous equipment is in the $150,000 range. The broker has the company listed for $265,000 with a possible portion of owner financing as well as SBA loan with 10-20% down payment. Having looked over financials and with the current staff and assets I believe the company has the potential to grow by 30-50%.

For the sake of getting some content out today I'm going to go ahead and submit. Future postings will contain more progress/failure, process, details and also more on my story and my ideas on fastlaning this business should I decide to acquire. Cheers for now!

 

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[BrettA]

Hurley,

Good luck with this and keep us posted.

Brett

 

[Hurley32533]

Hurley,

Good luck with this and keep us posted.

Brett

Thanks for the support guys! More to come so stay tuned.

 

[Hurley32533]

Ok folks! So today the wife and I met with the business broker and owner at the large warehouse that all the trucks,tools equipment etc are housed. For the next half hour or so the owner went over basically how the equipment worked and the ends and outs of the day to day operations and employee roles. Most of the trucks had between 150-200,000 miles on the Diesel engines and lower hours on the vacuum systems. From what I’ve researched these diesels can go for 300-350,000 with maintenance. After looking over the equipment we proceeded into the office to discuss and look over the administrative side of the operation. The owners primary functions are administrative,customer service,employee management,billing,payroll etc which from what he told us requires roughly 15 hours a week. Basically he has one piece of software that runs the whole operation and also a service thru Verizon that tracks the movement of the trucks while on route. The owner showed us his customer list which contained corporations such as Walmart,Publix,Winn-Dixie,Target,Coca-Cola and many others. The customer list contained roughly 30 corporations. Also during the review of the software we took a look at accounts receivable and discussed insurance,payroll,fuel cost,taxes,invoicing and a few other aspects of the operations side. Overall my wife and I got a good vibe from the owner. We felt as though he had good character and was being upfront and honest about the business. One thing also to note is he has a complete operations manual that was very comprehensive on the nuts and bolts of the power sweeping business. We were impressed with the fact that he had systematized and automated the majority of the functions and processes of the operation. So after completing the tour and parting ways with the owner we went to lunch with the broker.During lunch we discussed possible Sba financing options with 10-15 down and also the possibility of a owner carry back of 5 percent. Much to my surprise the broker said normally with Sba loans the bank wants to place a lien on your home for collateral purposes in order to qualify. At the moment I’m not sure how I feel about a lien on the house however it’s mortgaged and not owned by us anyways so I’m not so sure it would matter. Any thoughts on this option folks? Have any members of the community went thru the process of securing a Sba loan and if so would you mind sharing your experience? If you have read the entire post thank you and I apologize for the length.As always any feedback,advice,criticism or whatever you would like to share is welcomed. Cheers for now!

 

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[Hurley32533]

Alright so today I filled out and submitted the personal financial statement, management resume, tax returns and release forms to the SBA bank business development manager. So within a week or so the results of the SBA pre-qualification should come back allowing us to make a more informed decision on the business purchase. At this juncture things are on hold until we get the results back, however if the loan doesn't pan out for whatever reason we will aggressively pursue other viable options. Will update more as things progress so stay tuned, have a prosperous week and keep it fast!

 

[Hurley32533]

Alright so a month later the banker finally pulled all the business financials and our personal financials together and produced a term sheet on Thursday. The term sheet reads a little like this $240,000 for the business $16,000 in sba fees and closing cost $28,000 down with a 10 year loan for a monthly payment of approximately $3,000. The bank is also requiring a lien on the business assets and our home along with $275,000 a piece in life insurance. In addition to all the above I learned that the current interest rate of 7.75% has a base prime rate that adjusts every quarter. Personally I’ve only ever had fixed rates however for what I gather this is common with sba loans. As everything stands now the bank is waiting for for us to sign off on the term sheet,deposit $3000 and wait for full approval. I must admit after receiving the term sheet details and sifting over the numbers and different scenarios I’ve either developed analysis paralysis,cold feet or something else along those lines. Honestly I feel like the loan amount,collateral requirements and a adjustable base rate has really made the sba loan option unappealing and down right scary for me. Friday as part of my attempt to decide how to proceed I used help my decision. The two decisions were to buy this business and start a business. Start a business was the best decision by 20 points. If my numbers were correct after servicing the loan the business should produce approximately 23,500 cash flow if the business remains consistent. Best case scenario with a 50% growth rate would spin off approximately 58,500 after servicing the debt. Worst case scenario is that the business becomes not profitable and it folds,bank comes after collateral,5 employees lose jobs,we have to try to sell the business etc. Ok so so there’s the details guys and gals. Anyways feedback always welcomed but definitely not expected. Alright well I have teenage girls to take to the beach now for a birthday party so wish me luck! ✌

 

[Turbo]

Hey, any updates? What direction did you take for this deal?

 

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[Hurley32533]

Hey, any updates? What direction did you take for this deal?

Thanks for asking Turbo! Yes we did end up purchasing the business however we did not use any bank financing thank goodness. Several months after we decided not to buy due to all of the unreasonable bank requirements I reached out to the seller again to see if he ended up selling and much to my surprise he hadn’t. After several conversations we ended up putting together a deal with a down payment on my part and owner financing for the remainder. The deal closed on 7/10 and we have been full steam ahead with our fair share of slow cash flow problems, fires and hires, contract negotiations, equipment failures and much more but man are we learning and progressing. The whole process has been a challenge and continues to stretch us but we are embracing everything that comes our way with arms wide open knowing execution and respecting the process are essential. Hopefully when I have more time I can go into a little more depth.