Should I buy this business?

[Kak]

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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[NMdad]

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?

 

[tmb22]

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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[Walter Hay]

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

 

[Walter Hay]

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

 

[tmb22]

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

 

[AgainstAllOdds]

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.

 

[minivanman]

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.

 

[Stargazer]

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

 

[guerillaguy]

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.

 

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[Vigilante]

I have a question as I'm still trying to value this business. They want a 3X multiple of SDE for it, but that doesn't include inventory, which will be around $200-250K. What's y'all's opinion on inventory being included or not?
@Vigilante @biophase @amp0193 @AgainstAllOdds @Kak @MJ DeMarco

Inventory is not included in valuation calculation. It's separate.

 

[tmb22]

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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[minivanman]

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....

 

[Vigilante]

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

 

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[Kak]

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.

 

[Ernman]

Does it - or can it - make CENTS?

 

[minivanman]

We were both on the same track about a salary but I was typing as KAK posted

 

[MHP368]

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.

 

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[Primeperiwinkle]

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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[biophase]

3X of SDE

I don't know how to forecast that. Any tips?

Go to Amazon and type in the search terms for the product. Then just see how many listings come and see how many reviews the listings have.

 

[tmb22]

Curious if you could elaborate on this.

Is there actually a type of deal where you literally own the business for a trial period?

If so, I'd be curious to see what's in it for the old owner to hand off the business for a trial period. Wasn't sure if you're speaking figuratively.

It just means you're under contract with an option to buy the business in 30 days giving you time to do due diligence. It doesn't mean you're running the business during that time by any means. It just means the current owner can't sell it to someone else during that time.

 

[Ronak]

Also, it might work out to rent the current warehouse space from the current owner because he also owns the building it's in.

Make sure to account for this in your calculations. If you have to pay $3000/mo to lease space that the owner didnt have to account for since he owns the property, that's a significant chunk of your cash flow. The offer should be based on a multiple of your number, not the seller's.

Re: inventory, it's all a negotiation on what's included and what's not. Personally, if I'm "buying" earnings, I would want everything needed to generate those earnings to be included in my calculations. Also make sure you're not buying "dead" inventory or too much more than you reasonably need.
You also have to add that cost to the loan or get a separate line of credit, all of which can throw the deal from doable to impossible.


Finally, dont just stick with 1 lender. Shop the deal and initiate the process with multiple lenders, even if you have to pay a little more. The people you deal with on the front end and the actual decision makers are completely different and it's not uncommon to have something derailed at the last minute, even if your point person keeps on saying, "yeah, it's all good, no problems." Some underwriters are looking for reasons to cover themselves, ie reasons to say no rather than say yes. Find lenders that have done loans in your specific industry.

Finally, good for you for thinking bigger than the initial sign deal. But what if you went even bigger? Where a few thousand a month in extra costs doesn't make or break the deal? The SBA limit is 5 million, why not try to max it out?

 

[DST]

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.

 

[Vairavan]

Ask him why he is selling that business.

 

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[minivanman]

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.

 

[minivanman]

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.

 

[tmb22]

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?

He has been trying to transition from selling to dealers to selling online. The dealer network needs some work too. There is also a licensing side of the business that has been neglected. I can go into more detail on that and really the whole business if I buy it. Their products are proprietary so I won't be worried too much about discretion once I do it. And the owner said he works about 4 hours a day. My time commitment would depend on what employees I keep

What kind of multiple are they looking for?

3X of SDE

In regards to Amazon, how confident are you that there's a market there?

90% confident but don't really have the experience to say for sure

If you add on Amazon, how much additional revenue/profit can you add on?

I don't know how to forecast that. Any tips?

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?

Thanks for all the challenging questions. I don't know how many dealers, I am waiting for a complete list from the broker. I'd say there are thousands of potential dealers. They go to one trade show a year and there should be a lot more they could go to.

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.

I like that

 

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[Walter Hay]

Looks good to me.

Walter

 

[biophase]

It just means you're under contract with an option to buy the business in 30 days giving you time to do due diligence. It doesn't mean you're running the business during that time by any means. It just means the current owner can't sell it to someone else during that time.

Yes, but isn’t this how all business sales are done? You sign a LOI or contract and then put through the books. During this time you can talk to vendors and clients to confirm numbers and in place contracts.

 

[Kak]

I have a question as I'm still trying to value this business. They want a 3X multiple of SDE for it, but that doesn't include inventory, which will be around $200-250K. What's y'all's opinion on inventory being included or not?
@Vigilante @biophase @amp0193 @AgainstAllOdds @Kak @MJ DeMarco

It makes sense, but it is also one of the easiest things to overhype.

Just make sure you are getting what you think you are getting for the money.

Just methodically pick it apart, piece by piece. I like a lot of what @Ronak said too.

 

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