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Should I buy this business?

tmb22

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So, I have started a small side business, which is a local service business and is very niche with nobody else doing it in my area. I started a thread on it here: EXECUTION - Overall Look at a Local Service Business

But, while I was networking and talking to people I know that run local businesses, I randomly found someone that would sell me his business. I know him very well. It's a sign business, so like real estate signs, construction signs, business signs, etc. We haven't talked about what he wants for it yet, but he said it averages about 18k a month gross and margins are 40-45% and takes up about 25 hours a week taking home around 8k a month. All of his work is from repeat customers that he's had forever, he's been doing this for like 23 years. He has no website, doesn't go after any new business at all, just answers the phone when people call. He said it is definitely something I could do while keeping my job for as long as I want, because I have early hours at my day job for the most part.

So, I'm wondering if anyone has experience in the sign industry, but also if anyone has some tips on getting financing? SBA loan? I can try to get a personal loan from family or friends if y'all think going through the bank isn't worth it.


Thanks
@ZCP @minivanman @Walter Hay @Greg R @Kak @MJ DeMarco @Andy Black @Vigilante
 

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NMdad

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Questions that might help you decide:
  • Quick math shows that your effective hourly rate would be $80/hour ($8k net/month / 100 hours/month)--is that worth it to you?
  • Could you reduce the time required by delegating (to your partner/spouse, kids, or a teen/college student)?
  • Could you scale it bigger?
  • Could you increase the margin?
  • Is there the potential to do seller financing? Like, you buy the business & pay for it with the proceeds?
 

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I say no if you intend to work there like he does.

I say yes if you are willing to cut your pay to 4-5 grand a month and hire someone to work full time. I would also want the current owner to train the person.

When figuring earnings on your valuation, definitely include a full time employee in your calculations. Because the business isn't making anything with an 8k per month owner operator.

And SBA is a perfect option for this.

Next. You NEED growth. So I would look to expand your business online and also get more local traffic with geofenced advertising.
 
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minivanman

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I'm out on loans. I know nothing about them and would never borrow money from friends or family unless I didn't like them. But what I do like, since this is his business and he knows it makes money, how about him let you pay % of what it brings in each month until it is paid off.

HE depends on repeat customers, what if for some reason those customers don't like you. You could be the best damn person in the world but sometimes, people just won't like you.

I'd say if you want to do this, make an exit plan from your work and make an advertising budget. After you have your budget, make a plan how you will spend it. Don't be afraid to adjust when needed.

And, if you want to honestly know the truth, in your numbers, you need to have a manager's salary. So, for example, if you would pay a manager $3000 a month, add all of those costs in there. So take his figures of what he wants for it and deduct a managers salary. The only time I'd be willing to work with him on something like this.... he works it himself so he doesn't pay a manager, I know, but you need to add in a managers salary..... is if he is letting you give him a % of what the business brings in each month with 0% interest. If he is going to charge you interest, then you need to deduct the managers salary. And in your negotiations, remember..... he probably needs YOU more than you need him.
 
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tmb22

tmb22

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Thanks for all the replies. I should’ve included this in OP - he initially said he would do seller financing two weeks ago but yesterday said he changed his mind and won’t. I never would’ve thought to include a manager salary so thank you @Kak @minivanman

and @Ernman @NMdad I see it as a way to work for myself and have plenty of time to work on a fully CENTS biz on the side with plenty of time. I could tap out my local market with it and have a full time manager run it while I do other things. And, I could sell online but compete with vistaprint. But there’s a lot of aspects of it that just can’t be done online, like installations and huge signs
 

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Why does he wish to sell now?

eg Maybe last year he was working 50 hours a week and making $16k a month and lost half his clients as they are old and died off and what's left is not far behind.

Maybe he has a sick relative and needs large sum of cash pronto.

I am possibly using extreme examples and can come up with plenty more but him changing his mind on seller finance would tally with either scenario wouldn't it?

I would want a lot of intel before worrying about the money financing it bit.

Dan
 

DST

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1. takes up about 25 hours a week
2. taking home around 8k a month.
3. All of his work is from repeat customers that he's had forever, he's been doing this for like 23 years.
So you're working 25 hours a week and are on call 247 for $2000/week (Assuming the numbers aren't skewed, which they probably are, because its easy to nudge them up or down a bit to make them seem more attractive).

You need to know who his "repeat customers" exactly are. If they're "businesses" consisting of only one employee they might be retiring and sales drying up.

Otherwise, his 25 hours might be your 75 hours. I have no idea of what equipment is used, but I know techinical issues can be a F*cking pain to deal with, especially when starting out.


Lastly, what exactly are you buying from him, machine equipment and phone number (and the reputation that comes with it)? Machine equipment is easy to quantify the worth of at least.
 

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seems like a dying industry

Not so much that this will completely be replaced by digital, but I can order physical signs online and get pretty quick turnaround , I mean...I guess you could go through with the due dilligence but i'm not seeing it.
 

Walter Hay

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And in your negotiations, remember..... he probably needs YOU more than you need him.
That is sound advice when considering buying any business.

You don't say if it is a franchise. The sign industry has quite a few franchise businesses, one of which I can't name, but I would not touch that particular one with a barge pole. It's worth keeping franchising in mind for scaling of any business, but only to sell franchises not to buy them.

You could always sit back and wait until he is willing to offer a better deal, or maybe better still, until he just closes the business. Many old people who have been running a business for years will stubbornly hold out for their price until they lose heart and decide to just close up.

That would mean you would be starting from scratch, but at least you would know the primary market. You can get great help from suppliers of the various kinds of printing gear, and also from suppliers of the materials that are used in sign making.

Walter
 

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Walter Hay

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seems like a dying industry

Not so much that this will completely be replaced by digital, but I can order physical signs online and get pretty quick turnaround , I mean...I guess you could go through with the due dilligence but i'm not seeing it.
I believe there will always be a demand for physical signage. Digital signs are great in some locations, but totally impractical in many applications. For example:

  • Real Estate signs (for Sale, For Lease) outside the homes/apartment blocks etc.
  • Vehicle signage, which for years has not needed a signwriter.
  • Mom and Pop shops.
  • Car Dealerships.
  • Sandwich boards are still widely used.
  • Stock signs for garage sales, savage dog warnings, etc.
  • Interior business signage, including desk name signs.
  • Safety signs in workplaces. (Stock ones are available online, but site specific signs are often needed.)
  • Construction hoarding signs advertising the builder.
  • Pull up banners, still widely used.
  • Transparent vinyl signs that self adhere to windows.
Walter
 

guerillaguy

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Questions that might help you decide:
  • Quick math shows that your effective hourly rate would be $80/hour ($8k net/month / 100 hours/month)--is that worth it to you?
  • Could you reduce the time required by delegating (to your partner/spouse, kids, or a teen/college student)?
  • Could you scale it bigger?
  • Could you increase the margin?
  • Is there the potential to do seller financing? Like, you buy the business & pay for it with the proceeds?
It probably wouldn't be too hard to scale it, especially if you outsource it while saving your time for more sales. You could scale that thing HUGE.
 

minivanman

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If you end up buying it, maybe you could come up with a cool sign for realtors that is different. Maybe some type of programmable solar led sign or just a few solar led lights on the sign.... something that makes it stand out but doesn't cost an arm and a leg. Just an idea for later down the road if you buy it..... or maybe someone has already came up with this idea, just throwing it out there.... :)
 
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tmb22

tmb22

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Thanks for all the replies and good feedback, I really appreciate it. @Walter Hay it is not a franchise, and I have always had the rule that I will not buy a franchise. And I don't think I'd want to franchise this system. I'd rather tap out the local market and sell as much as possible online.

And to answer the other questions and give more of a backstory for the situation....

He comes from a wealthy family, bought this business when he was 27 and is 51 now, doesn't need the money probably as he has several other investments. Also, he has the business set up kinda weird. He doesn't do any of the printing himself. He shares a space with a direct competitor who does all his printing for him. So, he doesn't own any equipment. He orders the materials from his supplier, has this guy do the printing for him, and then he will put the signs together like on wooden posts or whatever it is and paint the posts if he needs to and then will go install the signs for the customer. He used to do all the printing, but his printer got wiped out by a tornado and he didn't want to buy a new one at the time for like 25k, so he started doing it this way and just loved it. He pays the competitor $200 a month in rent just to have a place to go and work on stuff. They have a great relationship and don't go after each other's clients. In the beginning, I will definitely need to keep that relationship going until I learn how to do all the printing myself or I can just keep it that way forever and focus more on sales and growth. But, to sell online I will definitely need my own printer to cut costs.

So, I would just be buying good will and no assets. But, his clients are mostly big commercial real estate development companies that he has had forever. He bought the business in like 1997 from somebody who had most of these same clients and that guy went on to build a huge real estate business too.
 

minivanman

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I have 0 experience with loans but I think the great thing will be.... you don't have to worry about getting a loan from any institution because there is nothing for them to give you a loan for! lol The only thing you are buying is air...... hopefully it doesn't turn out hot.
 

Dramolion

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Why would you buy a business while you're busy with your own (unrelated) business ?
Even if the business you're buying is doing good, it would only mean you'd have to pay more (investment) for it.
More importantly, why isn't he selling to his direct competitor who's doing half his work anyhow ?? That guy is already in the same market and it would make sense for him to want to expand by buying up a competitor.
 

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I should have clicked on this thread sooner. I was best friends with my sign guy for years before I moved away from SC. We bartered but he was busy af. Total perfectionist. Best design guy ever. To this day I still see advertising differently because he taught me a few tricks.

seems like a dying industry

Not so much that this will completely be replaced by digital, but I can order physical signs online and get pretty quick turnaround , I mean...I guess you could go through with the due dilligence but i'm not seeing it.
Hi. I’m a 39 yr old internet savvy business owner who has been researching for signs off and on and I ALWAYS look for local places because I can’t ever find anything besides vista print, which I don’t like using. There are MILLIONS of us out in the world... who would rather do business with a real person.

That said. Now that you’ve given me a site to go to I’ll be trying them out. ROFL.
And thank you!!

The nearest sign guy is 16 miles away and I can’t get to him during business hours. But I would if he was close. In a heartbeat. I hate formatting. Sigh.

I believe there will always be a demand for physical signage. Digital signs are great in some locations, but totally impractical in many applications. For example:

  • Real Estate signs (for Sale, For Lease) outside the homes/apartment blocks etc.
  • Vehicle signage, which for years has not needed a signwriter.
  • Mom and Pop shops.
  • Car Dealerships.
  • Sandwich boards are still widely used.
  • Stock signs for garage sales, savage dog warnings, etc.
  • Interior business signage, including desk name signs.
  • Safety signs in workplaces. (Stock ones are available online, but site specific signs are often needed.)
  • Construction hoarding signs advertising the builder.
  • Pull up banners, still widely used.
  • Transparent vinyl signs that self adhere to windows.
Walter
I agree wholeheartedly. As much as the SEO world says that everybody needs a website and GMB and 1st spot on google.. .. the reality is that a LOT of us are out there making money with crappy websites and gorgeous local signs. Hell, I made 24k a year at one of my businesses w/ nothing but a phone number and a sign above the door. (Obvi I was NOT committed to growth but still..)

The only thing.. small businesses don’t buy signs often so variety is key.

Just my .02
 

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@tmb22 So you know your situation better than anyone. If for example, your living expenses were only $1,000/mo and this is the best thing you've got right now, it might make perfect sense to work, bank, and do another biz. I haven't done research on the trend for b & m sign businesses, but my gut tells me they're not going away anytime soon...just doesn't make sense.

If you negotiate with this guy, keep in mind, the one that can walk away from the deal wins. Good luck and keep us posted.
 
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tmb22

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Thanks @Bigguns50 sound advice and exactly how I see it too. And to update everyone, I am still waiting for him to send me all the numbers for the past 3 years. He did tell me that he's doing one job right now for 18k
 

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minivanman

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Don't let the number $18,000.00 fool you. I've seen lots of people do $18k jobs that cost them $17k so they made $1k. And I've seen plenty do $18k jobs that cost them $24k so they lost $6k. Just making a point..... $18,000.00 means nothing except a number so don't get google eyed over what you might think is a large number.
 

GB81

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Excellent. Due diligence. Due diligence. Due diligence.
On the area of due diligence I would also want to see the current debtor/creditor lists. Two reasons in this scenario 1) what % of the turnover is on certain key clients - risk they go elsewhere and risk if they cease trading 2) I don't know enough about the sign business to know payment terms, (i assume the £18k order isn't all up front). If it is an element up front and an element later you may be able to raise some finance on that debtor. Not the cheapest but a potential option.

Overall I would be cautious if you were paying anything but a fairly token price for this. Looks to be a lot of goodwill. I'd really want to know the vendor well.

The fact that a competitor actually produced the signs would appear a huge problem for the law of control.
 

schazz

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I read this out of interest, but someone above had a great question. Why wouldn't his competitor buy the business (customer list)? It seems to me that it would more valuable to him than anyone else considering he already does the printing. Has your friend not offered it to his competitor for some reason? Or did he and he said no? I'd personally want to know what's going on there.
 
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tmb22

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I read this out of interest, but someone above had a great question. Why wouldn't his competitor buy the business (customer list)? It seems to me that it would more valuable to him than anyone else considering he already does the printing. Has your friend not offered it to his competitor for some reason? Or did he and he said no? I'd personally want to know what's going on there.
That was one of the first things I asked him a couple weeks ago. He said the guy is a lazy piece and doesn’t care about growing
 
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tmb22

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Ok, so to update this thread a little bit.... I still have the option to purchase the sign business, but I decided to think BIGGER (thanks @Kak ) so starting looking at buying a bigger business (inspired a little by @richardd ) and here's what I'm looking at now...

I'm gonna be a little vague for now, but it's a physical product brand that's been around a really long time. They do 60% of their sales on their website and about 40% through dealers. Not doing anything on Amazon. I can put in 10-15% of the purchase price as a down payment, the seller will probably finance 15-20% of it, and I will try to get an SBA loan for the rest. It should be doable with the amount of cash flow and the fact that the seller will finance that much and I can put that much down.

I'm thinking I can make 6-7000 a month after paying everything, including the debt service to seller and bank. Then, on top of that, there is a lot of room to grow the business. The seller is an older gentleman looking to retire and has not even tried Amazon.

Would love some thoughts @Kak @Vigilante @AgainstAllOdds @biophase @amp0193 @MJ DeMarco and anyone else I'm forgetting
 

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Ok, so to update this thread a little bit.... I still have the option to purchase the sign business, but I decided to think BIGGER (thanks @Kak ) so starting looking at buying a bigger business (inspired a little by @richardd ) and here's what I'm looking at now...

I'm gonna be a little vague for now, but it's a physical product brand that's been around a really long time. They do 60% of their sales on their website and about 40% through dealers. Not doing anything on Amazon. I can put in 10-15% of the purchase price as a down payment, the seller will probably finance 15-20% of it, and I will try to get an SBA loan for the rest. It should be doable with the amount of cash flow and the fact that the seller will finance that much and I can put that much down.

I'm thinking I can make 6-7000 a month after paying everything, including the debt service to seller and bank. Then, on top of that, there is a lot of room to grow the business. The seller is an older gentleman looking to retire and has not even tried Amazon.

Would love some thoughts @Kak @Vigilante @AgainstAllOdds @biophase @amp0193 @MJ DeMarco and anyone else I'm forgetting
I like it
 

Kak

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Ok, so to update this thread a little bit.... I still have the option to purchase the sign business, but I decided to think BIGGER (thanks @Kak ) so starting looking at buying a bigger business (inspired a little by @richardd ) and here's what I'm looking at now...

I'm gonna be a little vague for now, but it's a physical product brand that's been around a really long time. They do 60% of their sales on their website and about 40% through dealers. Not doing anything on Amazon. I can put in 10-15% of the purchase price as a down payment, the seller will probably finance 15-20% of it, and I will try to get an SBA loan for the rest. It should be doable with the amount of cash flow and the fact that the seller will finance that much and I can put that much down.

I'm thinking I can make 6-7000 a month after paying everything, including the debt service to seller and bank. Then, on top of that, there is a lot of room to grow the business. The seller is an older gentleman looking to retire and has not even tried Amazon.

Would love some thoughts @Kak @Vigilante @AgainstAllOdds @biophase @amp0193 @MJ DeMarco and anyone else I'm forgetting
Besides Amazon, a given, how else do you see improving the revenue? Are there any other things you could see doing that dramatically improve the business? What is your time committment like for this income?

Beyond all of this... Congrats! If your numbers work, and it sounds like they do, go for it!

I love when they leave low hanging fruit for you to pick.
 

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Ok, so to update this thread a little bit.... I still have the option to purchase the sign business, but I decided to think BIGGER (thanks @Kak ) so starting looking at buying a bigger business (inspired a little by @richardd ) and here's what I'm looking at now...

I'm gonna be a little vague for now, but it's a physical product brand that's been around a really long time. They do 60% of their sales on their website and about 40% through dealers. Not doing anything on Amazon. I can put in 10-15% of the purchase price as a down payment, the seller will probably finance 15-20% of it, and I will try to get an SBA loan for the rest. It should be doable with the amount of cash flow and the fact that the seller will finance that much and I can put that much down.

I'm thinking I can make 6-7000 a month after paying everything, including the debt service to seller and bank. Then, on top of that, there is a lot of room to grow the business. The seller is an older gentleman looking to retire and has not even tried Amazon.

Would love some thoughts @Kak @Vigilante @AgainstAllOdds @biophase @amp0193 @MJ DeMarco and anyone else I'm forgetting
What kind of multiple are they looking for?

Without any other info, the numbers look good.

In regards to Amazon, how confident are you that there's a market there? If you add on Amazon, how much additional revenue/profit can you add on?

What about offline?
  • How many dealers do you have?
  • How many potential dealers are there in the U.S.?
  • How did the company acquire those dealers?
  • Are there tradeshows in that industry that would make it easy to add on more dealers?
An easy way to eliminate a lot of risk is to get an option to buy the business from the owner for let's say 1 month (your due diligence period).

During that time, hit the phones. Call as many potential dealers in the U.S. as you can. Send as many emails as you can. Figure out how difficult it will be for you to grow the market. What the actual reception is from clients.

With B2B, it's easy to eliminate a bit of the uncertainty before the acquisition as long as you have the time to go balls to the wall for the whole month.
 

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