Looking to buy a business

Discussion in 'Growing and Managing a Business' started by Looking2012, May 31, 2012.

  1. Looking2012

    Looking2012
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    Requesting some advice form the forum on the following:

    I have found an automobile transport company that has been in business for 27+ years and the owner is ready to move on. I have reviewed the last 5 years tax returns and P&L and the company is pulling a sustained profit of 380K+ each year.
    The real estate is conservatively priced @ $550,000. The seller bought & developed this property specifically for this business & spent $684,000 on the acquisition. Recently, the adjacent land, which is very similar, sold for exactly what the seller paid 5 years ago. Regarding the price for the business, the trucks have recently had a certified appraisal by an appraiser recommended by TD Bank for $1,009,000. If you strip the tangible assets of $550,000 (real estate) & ($1,016,650 (trucks & small assets) from the total price of $2,295,000, the intangible value of the business is priced at only $728,350. the owner would be willing to be somewhat flexible on price & terms, and will finance the business with only $600,000 down. If I have him strip out the real estate he would only require 350-400 down and I could lease the land back. I have about a 100K but need to get the rest in order to make this work.
    With the information given does this look like a good opportunity? Any ideas on how to ge the rest of the money for the down payment?

    Thanks in advance for advice and input.
     
  2. Felix07Richerd

    Felix07Richerd
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    Here I am seeing your down payment is little higher, if you can cut down it with dicuss them so it could be better for you. I think you should need to do more study or investigation, specially with industry experts.
     
  3. newbodylife

    newbodylife
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    Good luck ,dear!
     
  4. firstchoicecar

    firstchoicecar
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    Yes I agree with Felix, the down payment is very high. Try to look more options and information about the business.
     
  5. rshughes

    rshughes
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    Before considering the down payment, we need to determine if the business is priced reasonably given the "sustained profit" you assume. At 2295K, the multiple is about 6x which is quite high for a small business. IMO it should be closer to 2.5x to 3x, depending on the risk factors and stability of the business. If we consider the real estate separately, then the business w/o RE is priced at 1745K with a cash flow of 380K less the lease payments on the property. You didn't mention what this lease would cost, so for argument's sake if it's 100K per year then the cash flow is only 280K and the multiple becomes a bit more than 6.2x. Seems that looking at it this way, it's still overpriced.

    Remember too that the trucks will wear out over time, so the 380K figure (or 280K) needs to be adjusted downwards to account for replacement costs. What is the expected life of a truck? Over a period of many years, how many trucks (or fractions of a truck) would need to be replaced each year? Since the trucks are rather expensive, replacement costs really can't be ignored.
     
  6. Bharat Book

    Bharat Book
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    Before buying any business,study each and every aspect of that business.Find out the reason for selling business.Think before buying business that whether you are investing money for right business or not?
     
  7. kennyschwimmer

    kennyschwimmer
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    Its always a easy task to buy a business. Let me tell you one thing, you need be thorough with your market research and with the data which states how you are going to continue your business successfully. You need to be sure that you are buying the right one and then sure about promoting the business in the right places.
     

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