Ever bought into an existing business?

Long story short, my employers are retiring. They deserve it and I have nothing but support for them.
Their son and our shop foreman were going to continue the business, but it sounds like the son will drop out- (He's a good guy, but an idiot when it comes to some things). The shop foreman has owned his own businesses in the past, but is lacking funds-(Divorce, etc.). I could potentially step in.
I'm not sure by any means that I want to though.
I operated a retail business on my own for 5 years before I sold it, it's a lot of work and I really don't know if I have it in me anymore. That's the truth. But.... this is a profitable business, one that I know intimately. I know the contractors, the suppliers, the inspectors, the "what evers".
Because I've kept a low profile on the transition, I'm not privy to the actual P/L statements. But the business grosses around 1.5 - 2.5 mil/ yr., not counting the last few years (recession stuff).
I think I could get into this pretty cheap, just have to assume the debt. The Boss will carry for 5 years, nothing down, he wants the shop to continue.
I'm asking 'cause I would like some input from people who don't know the players, the area, or the local economics. It makes me tired just thinking about it.
Thanks, JB

 

Wow, that's a tough one. My dad bought a boiler/ plumbing business years ago, and even though it was around for 30+ years, he went into it with a partner that didn't know anything, he just had enough cash to go on with dad's knowledge and the bit of $ he had. It didn't work that well for him, the city had serious major companies leaving, with no new large corporations to fill those layoffs. So, customers couldn't afford to fix or upgrade.

It sounds like this is an entirely different situation, except for the part about you taking over an existing business.

Whatever you do, I wish you the best.

 

I run an acctg business that I paid too much for. If you can maintain the customer base and add to it without being saddled then I say go for it. If you are unsure about replacing the customers, I would avoid it. It all comes down to how much your monthly obligation is versus the growth potential. Business is tough, but I've survived through a pretty tough recession, but it never gets easier. A constant battle to add to the customers, maintain employees to service, and keep your ambition. The nice thing is that the recession will have beaten down the expectations a bit of the seller. I got in when the going was easier, so I've had to work much harder given the tougher climate.

 

I can tell when a new business will fail. When I hear a client talk about how they will be drinking fruity beverages on a beach in a few years as employees take over the day to day and the owner counts the cash, I know that's it doomed from the inception. A buyer that is realistic and knows he will work harder but may get a payout is more likely to survive that initial 10 year period needed to establish.

 

Luckily the business is firmly established-(41 yrs in May) and the client base is strong. This shop is well known but it needs a make over. There has been a lot of speculation about whether the business is closing or not, that's led to some hesitation from contractors to approach us in the last few months. I'm the point man for those talks and I wasn't at liberty to deny or confirm rumors, but I can change that. I'm not concerned about losing clients. Sad to say, when word gets out the Son is not an integral part of the company anymore, that may sway a few back into the fold. He's not a bad guy, just immature and stubborn. He's pizzed off a number of folks in the past so they've gone elsewhere. But they like me, so I've been told.
Gotta hit the sack, thanks. JB

 

IMO it don't work. Will you have 51% control? If no, they will spend your money easily, hey they didnt work for it, and move on. Negotiate terms to buy it out right, money down and a percentage until paid for. have a third party look at the P/L statements, sometimes thing don't add up. they might be making a living but when you start taking a payment out its might not work.

 

Great Point!!

 

This thinking seems a little rose-tinted. I'd expect the last few years to count more than any other years.

 

Bought out my largest competitor 18 months ago.
Got quite an education!
There is lots for you to look at & analyze.
P&L , cash flow, inventory, fixtures just to name a few.
In my case the sales trend ( downwards) had a large effect ( or is it affect?) on the price I paid.
If I can be helpful please PM me.

 

very nice gesture on your part.....................

 

Give WildWildWest a shout Beetle-Kill ... he has lots of experience with the pros and the cons... I bet his honey wildwest would agree.

 

I think the caution/concern you are exhibiting tells it all.

If you still go ahead with it, best of luck to you.

 

Actually, those numbers are pretty conservative.

 

Very generous offer. If I decide to delve into this deeper, I will PM you. More input/ experience is what I'm after.

 

I hear you, that's a large part of my hesitation. Been there, done that, as have you two.
What's funny is I was the first one asked about taking over, and at that time I demurred. So why am I re-thinking this?
- ???- I know this business is profitable, but the thought of taking on a partner .... I don't think it's worth the hassle. But I may change my mind. I. Just. Don't. Know. Yet. I'm not rushing into anything, that's why I appreciate all the input. Gives me more "food for thought", helps dilute the beer.

 

Parnerships can ruin Friendships real quick. We see a lot where one guy has the money behind it and the other guy is working the business. Neither one is happy and blames the other.

Gary