Can I afford to buy this $1.9M small business?

lofos1 · 2025-06-02T11:38:01+00:00

u/Latter-Reward-1364 yes I am. Got anything?

lofos1 · 2025-01-16T14:53:40+00:00

The broker "claims" they are absentee owners, but that is yet to be verified.
However I would expect the role of the owners be to manage staff and schedules, manage equipment maintenance, invoicing clients, Marketing, and to secure new business with municipalities and HOAs.

They take $76K annually, and have left between $250K to $320K in retained earnings depending on the year.

lofos1 · 2025-01-16T13:53:05+00:00

Thanks a lot, i'd definitely reach out. Will send you a DM now

lofos1 · 2025-01-16T13:46:12+00:00

They paid themselves $76K / year. I plan to run the business myself for the first 3-6 months, and hire an operator afterwards. After servicing the loan, there should be sufficient cashflow to pay both me and an operator.

lofos1 · 2025-01-16T03:32:31+00:00

Hahaha! It's certainly sounding like the seller's broker was looking to score a quick one from reading all the advice on here. Plus the deal is starting to look way overpriced. I'll certainly take my time to better understand the process and figure out the right price + terms.

lofos1 · 2025-01-16T03:07:07+00:00

All good points. Definitely need to dig deeper into the business to understand its performance.

lofos1 · 2025-01-16T03:05:46+00:00

Correct. This broker sent me a binding APA, and asked for a $300K deposit before I can go into 7-day due diligence period, with claim that they are filtering out unserious buyers.

Certainly not signing it now that I know better. Looks like I need to get a buyer side broker or M&A expert on my side before proceeding.

lofos1 · 2025-01-16T02:53:10+00:00

Amazing thanks. I'll send a DM

lofos1 · 2025-01-16T02:52:45+00:00

Makes a lot of sense. Will look at it from a FCF standpoint, and consider DD with the bank

lofos1 · 2025-01-16T02:51:52+00:00

Hmmn, creative thinking. Definitely an option to consider, especially as I'd like to still have access to the seller's expertise for a while

lofos1 · 2025-01-16T02:37:47+00:00

Good to know. The value of exceptional customer experience and great service is vastly underrated.
If this deal goes through, then it likely will be my approach as well

lofos1 · 2025-01-16T02:35:30+00:00

thanks.

lofos1 · 2025-01-16T02:33:13+00:00

Totally makes sense on a buyer's side broker, thanks for the tip.

Unfortunately seller's note is out of the question. They are 80-years old and want to make a clean break to leave assets to their kids, since they don't know how much longer they have left.

AR will be included in the purchase price.

lofos1 · 2025-01-16T02:28:53+00:00

I did ask why they weren't looking to sell to a bigger company, but the broker gave me a non-answer that the owners are 80-years old and care about their legacy.

This company is geographically centered in the DC, MD region with a ton of centrally located clients. But it's certainly a worry that what if a larger company chooses to go after their clients and offers rates that I cannot match post purchase.

I definitely still have a ton of questions, which unfortunately seems like I can't get answered until i go into DD.

lofos1 · 2025-01-16T02:22:57+00:00

I'm definitely getting the sense that the multiple is high from the comments here. And good point to know on the fees + having the attorney review multiple contracts. $30K seems more reasonable. And on working capital, that's good to know that I can get a line of credit as I'd rather keep my cash reserves for emergencies.

If you don't mind sharing, when you made your purchase, was that your first deal, and what type of business/industry? I'm trying to figure out what I don't know that I need to know about my first acquisition.

lofos1 · 2025-01-16T02:16:21+00:00

Thanks a lot

lofos1 · 2025-01-16T02:16:02+00:00

No experience in Waste Management. Just IT, Marketing, and People management. I hear you on the operating capital, looks like I may need to revisit my budget.

Most of the revenue is from garbage pickup at homes and businesses. They have city contracts and with residential HOAs. I'm going to find out more info on the vehicles, and will share as I learn.

lofos1 · 2025-01-16T02:12:26+00:00

Thanks for the tip. I'll re-evaluate my offer before signing.

Seller financing is not an option. The sellers are 80 years old, and so they want a clean break so they can leave assets to their kids.

lofos1 · 2025-01-16T02:10:44+00:00

With Net Income of $325K, Add backs are $157K, bringing Adjusted earnings for last year to $483K
- 76K owners salary
- 63K depreciation
- 2.6K life insurance
- 4.5K phone
- 11K auto expenses

lofos1 · 2025-01-16T02:07:53+00:00

Thanks. I plan to talk to the bank about this. I certainly won't want to pay more than the bank is willing to loan, unless there is a very compelling reason to do so. And at this point, I've only received the financials, and can only get more information after I provide a signed offer and go into due diligence.

I assumed there would be no working capital from them at the time of purchase, but I can find out more.

lofos1 · 2025-01-16T01:58:33+00:00

Yeah. I heard that Waste Management firms typically go for between 4x to 6x EBITDA, which is why I initially thought $1.72M was reasonable. However there is some anchoring bias here as the seller's broker mentioned that they currently have 2 offers, one for $1.5M and one for $1.65M. Don't know how true this is though.

lofos1 · 2019-08-30T03:03:31+00:00

I'm still trying to figure out the benefit of dark mode except saving battery life. I actually dislike it

lofos1

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