Purchasing an already established 20 yr business

[ddzc]

Hi everyone,

A partner and I have an eye on a business we're interested in. This would be my first offline business I've ever ventured, along with my partner. It's a seasonal business (Yacht/Vessel - Business For Bachelor Partis, Stag AndDoe, Private Functions And Corporate Events). They've been in business for 20 years. When it comes to number crunching, when is a business considered a good deal and advantageous to the buyer like myself? For eg, this business is net profiting 150k/year and the asking price of it is 250k. What are your thoughts in terms of the asking price? Is a business like this worthwhile if 80 or 90% of the purchase price came from a bank loan?

I would like to take a look at it tomorrow and have an in depth conversation with the owner about it. I have a few general questions about how they operate, busy months, how they promote/market, who maintains the vessel, etc. Do you guys have any suggestions for any odd or out of the ordinary questions I should be seeking answers for? How can I validate the numbers in terms of them being accurate and not fraudulent?

Thank you,
Dan

 

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[CommonCents]

Do your due diligence on the financials, ask for tax returns etc...work the paper trail to validate his claims. Ask for seller financing and/or a chunk down and give the owner an earnout over a year or two, pay them a small consulting fee for a period of transition time. Take a ride on the boat, interview employees etc....

I think this is going to be a good strategy for young entrepreneurs to take over baby boomer businesses. The demographics will say there will many older sound businesses will be for sale for retirement that could be improved with some modern technology internet/mobile marketing, various software efficiency applications etc... In many ways with good due diligence, less risky than doing startups from scratch.

 

[Stupub]

Is the Yact included in the $250,000 asking price? Will the sellers sign a non-compete?

And yes, definitely get get tax returns and audited financials from past years.

Look also to see what the growth rate has been over the past few years. And analyze the market to see if there are opportunities for growth that the current owner just didn't pursue. IF everything is as the current owners say it is, 1.67 times earnings is definitely a good price for a buyer. Especially if the yacht is included and it's in good enough shape to keep using.

Find out about the condition of the yacht and research it's value. If nothing else, maybe you could get bank financing using the yacht as collateral at whatever LTV the bank is willing to do and get the sellers to carry a note on the rest. Assuming the yacht is in good shape and the business relationships, permits, etc. are all in good standing, you could then get to work trying to grow the business by 10%-20% each year (or whatever % is feasible without needing additional capital investments) and pay off the debt as quickly as possible.

 

[ddzc]

I appreciate the response, thanks a lot. I have a list of questions already lined up and you both helped me add to that list.

I'm going to ask about the seller financing and whether that's an option or not in the deal.

Stupub, yes the Yacht is included in the sale. I still don't have the details of it, but it's a 100 passenger 70 footer...fairly expensive boat. This one looks a bit old judging by the pictures and may need some work to modernize it a bit. I'm talking to one of my friends this weekend regarding bank financing on a purchase like this one. I noticed they have an old 2000 style html website, no online presence, no social media integration, no pictures of the yacht or previous events, etc. I believe that's where I can fill the gap and grow this business much larger because web design, development and online marketing is something I know inside out.

 

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[CommonCents]

oh, make sure you get a recent "survey" of the boat included in the deal. It is like a home inspection but for boats to spot any trouble. Especially in hull/structure as well as engine and generators etc..

 

[Michael Raphael]

I think your best bet is as you said, work on the website but most importantly improve the BRAND! You can completely flop this and make a ton of cash if you can market it properly. Work with colleges during off-seasons. Trust me, I am a college student. If you find out during the meeting that during Nov-Feb you have the least amount of sales, try and get in contact with some of the top party schools in the country and promote the shit out of it during those months.

A good website can differentiate you from the rest, a good SEO marketing campaign can put you two steps ahead, and a market that talks ie. working with college students who just want to get shit faced, well then your an epidemic. Shoot me a message, I would love to help you with this.

 

[ddzc]

Hey guys,

I have an update here. First, I'll answer the above.

CommonCents: Here in Canada, every 5 years an inspection is mandatory which runs the owner around 50k and everything passed in April of this year.
Mike; I agree totally, this is the best route to go with this business at this present time.

Now, for the update:

I went to see the boat and talked to the owner for quite some time. When it came to numbers, he seemed very flustered and couldn't give me any accurate numbers. Even though the advertisement was very brief, it was all lies. They claimed to be in business for 20 years but when I checked the history of the website and when I questioned him about that, he said he's had the business for 4 years. Apparently it was bought off another company which I'm familiar with and they're very popular and well known in the city. They have a vessel which supports over 300 ppl so maybe they sold this smaller one to finance the large one which they sail with currently. I will have to verify that.

The second thing was the numbers, which is a huge deal here. The ad claimed to have net profited 150k/yr but in reality that was there gross income. When I questioned him about his yearly net revenue, he couldn't give me a straight answer. I then tried breaking it down in terms of what he makes on a typical night after employees and all expenses are paid off. I had to do all the number crunching myself on the fly with a pen and paper handy. Basically, it's making on average of 50k/yr net profit. The business is run from May - Nov.

He didn't seem like a business man whatsoever and didn't have much passion in the business as I got to know him more and more. He just wanted to buy a boat for the hell of it and did so, with this small business tied to it. He did one cruise in the past week alone. When asking why he wanted to sell, his reason was because of his wife who's a teacher by trade and helps out and works throughout the summer to support this business and he no longer wants to put her through this any longer. I think there's a lot of potential for growth, with small parties and celebrations for <100 people.

When analyzing the interior, the furniture and the look of it didn't feel too youthful. If I'm going to cater to younger crowds, stags, stagettes, boat parties, etc...a lot of work needs to be done with the carpeting, furniture, tables, chairs, etc...major overhaul. If it's for a more elder looking crowd and families, then it can remain as it is.

Docked next to this boat were two others, massive yachts. I went over and talked to the guy, he was the general manager of them both which is owned by the same owner. One of them supported 190 people and the other supported 300+ people. These competitors would crush me in a heartbeat, but I believe those are in a different category catered for large parties and events as opposed to mine which would be geared towards smaller inexpensive cruises and events. I talked to the guy for quite some time and seemed really nice and honest and gave me a lot of info on the boat I was looking at and most of it was positive feedback. I talked to the general manager of these two boats right before I talked to the owner of the boat I was interested in. All of the info the GM told me lined up perfectly when I re-asked the same questions looking for the same answers...so I see there's honesty throughout everyone in the industry.

In final, I do have interest in it but I would never pay the full asking price or anything close to it based on my in depth assessment from meeting the owner. He said he's interested in entertaining any type of offer or joint partnership, split revenue sharing, etc. My question for you guys...is their any way I can join in on this venture without really putting any money upfront..basically the asset gained is me, as opposed to x amount of $ for a piece of the pie. I have strong interest in running it from the ground up, running it's operations, marketing campaign and advertising, etc. What are your thoughts and suggestions?

Dan

 

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[Michael Raphael]

I would do this. Tell him what you want. He will gain you. Then say your skillset, you can market (biggest thing to say) do X Y and Z... than offer to do one party, you don't get paid, but you get a percentage of what the boat makes that night/week what ever you decide to do.

Now your job is to get the name out there... get a huge F*cking party, do what ever you can to really make the decor look better (send me pics I dont mind giving tips I worked at an event/interior decor place for a year when I was 17 sure I was young but it was one of the biggest firms in NY/LA/Hollywood) for cheap. Trust me you can make places look good for cheap. Just get white paint lol.

If you do really well youll make him money and if you make him money hes going to be happy. At the same time your energy is also paid off cause you made a % of the night. Now he will know why your worth 30% of the business or whatever % u agree on to split.

That is what I would do. Now the hard part is getting the name out there and getting people to go on a cruise for a weekend. Use all the resources he has, and do some homework. I know Ezoo is playing in NYC Aug 23 I think... see what you can do there.

 

[Get Right]

Run.

I have a large boat and some friends in the industry. LOTS of work, hands off is nearly impossible. Insurance is very $$. BTW - if one of those engines dies do you have a plan for the 40k replacement and 2 month downtime?

If you insist, try starting a business that promotes an existing boat(s). Take a percentage and negotiate a 1 week vaca for your family on it/them.

 

[ddzc]

Thanks guys, appreciated the responses. I was thinking on the same lines as you, to joint partnership or to get a cut out of the profits. I'll have a meeting with him and see where it goes

 

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[Milkanic]

1.) Buying an old boat. Run. Maintenance will eat you alive.
2.) Owner has no idea on numbers and only looks to net 50k a year. Run.
3.) Only way to scale is more capital. Run.

I don't know why you are still at the plate when this is clearly a strike out. Move on.

 

[jon.a]

Is the owner stupid, or did he try to mislead you? Why would you want to go into business with him?

 

[Stupub]

Run away!!!

No business with a single revenue source and that much capital exposure is worth 5 times earnings.

 

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