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Is this business a good buy?
Posted on 1/22/24 at 2:41 pm
Posted on 1/22/24 at 2:41 pm
The business is a well established fuel, tire, and minor repair shop. It comes with property, building, tanks, equipment, prepaid insurance, cash on hand, etc. It is clearing $130,000 a year with very little hustle. Everything is paid off as this business has been around for 50 plus years. Everything is in good shape. The asking price is right at a million dollars. Thanks.
Posted on 1/22/24 at 2:43 pm to Churchill
is the owner in the business every day hustling or is it self sufficient? is the owner also getting a salary or is he getting paid the 130k?
This post was edited on 1/22/24 at 2:45 pm
Posted on 1/22/24 at 2:57 pm to diat150
No hustle at all. Just repeat customers. He leaves three times a day for a few hours. He just has it on cruise control. He is not getting paid from the expense side. I wish he was.
Posted on 1/22/24 at 3:07 pm to Churchill
Do you have any experience with fuel, tire, and "minor repair"? Because it sounds like you will become the defacto manager. Are you cool with potentially making $130k to manage a tire shop? Do you have managerial experience and/or expertise in owning/managing/operating a business? How much of his repeat customer business is loyalty to him as the owner? Do they have high turnover of labor? I have a dozen other questions I'd want answered off the top of my head. There isn't nearly enough info in the OP for anyone to give reasonable advice imo.
Posted on 1/22/24 at 3:15 pm to Sir Saint
I manage a company now. There are only three employees. Some business is loyalty to him, but they have subdivisions springing up all around. I do figure I have enough experience to run this place. It is a three acre property on a main hwy. Potential for so much more.
Posted on 1/22/24 at 3:25 pm to Churchill
Would you be managing this place? Does the $130k include any salary paid to the owner?
7.6x earnings for an auto service shop seems high to me
7.6x earnings for an auto service shop seems high to me
Posted on 1/22/24 at 3:36 pm to Sterling Archer
I would think I would have to manage it. The owner does not take any salary. I assume he just rat holes the $130. He is willing to lease to own with no interest the building and property at $4,000 per month. I would have to come up with the $250,000 for the brand, equipment, etc. He wants another local to get it.
Posted on 1/22/24 at 3:43 pm to Churchill
There are professional business valuators (typically a specialized CPA) that do this kind of thing for a living. If you are considering spending $1m I think it’s probably a good investment to get a professional to value it for you.
I could be completely off base but it feels high to me. Unless there’s some clear untapped stream that you have insight to.
ETA: LINK This has gas stations going for 3.4x earnings and 2.75x earnings for Auto Repair & Service Shops. Which is more of what I expected
I could be completely off base but it feels high to me. Unless there’s some clear untapped stream that you have insight to.
ETA: LINK This has gas stations going for 3.4x earnings and 2.75x earnings for Auto Repair & Service Shops. Which is more of what I expected
This post was edited on 1/22/24 at 3:46 pm
Posted on 1/22/24 at 3:55 pm to Sterling Archer
quote:
Would you be managing this place? Does the $130k include any salary paid to the owner?
7.6x earnings for an auto service shop seems high to me
Yea i always thought it was 2.5x the earnings on what a business is worth.
Posted on 1/22/24 at 3:56 pm to Sterling Archer
130 isnt gonna go far when you throw in a note on a 1 mil loan. unless you have the cash. you really need to get someone to look at the whole picture including what the property is worth and maybe even any environmental remediation that would have to be done to the property if you get left holding the bag. I dont know anything about that but I would definitely do my due diligence.
Posted on 1/22/24 at 4:10 pm to Churchill
I assume the fuel tanks are in ground. When were they last replaced? And max 3X
Posted on 1/22/24 at 4:27 pm to Sterling Archer
quote:
7.6x earnings for an auto service shop seems high to me
That is way high, but what is the value of the real estate involved in this deal? That is the big question, If it is valued at 6-700K then this makes sense
Was the owner paying himself rent?
This post was edited on 1/22/24 at 5:27 pm
Posted on 1/22/24 at 5:27 pm to Tigerpaw123
quote:
but what is the value of the real estate involved in this deal? That is the big question, If it is valued at 6-700K then this makes sense
Great point!
Posted on 1/22/24 at 5:38 pm to Churchill
You should try to value the individual components on your own or with a professional. What’s the business worth? What about inventory? Property/real estate?
Cash on hand obviously shouldn’t get any multiplier, but the rest can be valued to come up with a true price where you can judge the sale price fairly.
Cash on hand obviously shouldn’t get any multiplier, but the rest can be valued to come up with a true price where you can judge the sale price fairly.
This post was edited on 1/22/24 at 5:38 pm
Posted on 1/22/24 at 6:49 pm to Churchill
There is usually an earnings "multiple" that is the average/standard for every business/business segment for sales pricing. I'd track the multiple down for that type of business. A business broker can probably help you with that. I have no idea what the margins are to arrive and the $130k, so I'm of no help. Is the $130k NOI, EBITDA?
Posted on 1/22/24 at 6:55 pm to Churchill
If the building / land is worth 600k or more this might be a decent deal.
Remember you need to pay the debt out of that $130k
Remember you need to pay the debt out of that $130k
Posted on 1/22/24 at 9:05 pm to geauxnc0308
This. What kind of environmental liability are you taking on?
Posted on 1/23/24 at 5:28 am to Churchill
If you take out a loan for a million dollars, how much of that 130k is left after you pay your note
You may be paying 1 million dollars for a 50k/year job
You may be paying 1 million dollars for a 50k/year job
Posted on 1/23/24 at 9:45 am to Double Oh
quote:
Yea i always thought it was 2.5x the earnings on what a business is worth.
There are a lot of other factors that need to be considered, and that 2.5x is typically dependent on industry.
OP needs to start with Net Income, the adjust for any owner expenses; does the owner run personal cell phone, internet, gas bills, health insurance, salary... through the company. He will then need to figure what additional expenses he'll bring to the company (his salary, health insurance...). Then calculate the EBITDA. This is typically the starting point for determining the earnings multiplier.
He will also need to consider his capital budget for the next 5 years and the effect on cash flow, and the amortization schedule for the new loan.
The adjusted EBITDA, future capital budget & amortization schedules will give OP a baseline to determine if it's a good buy or if he'll basically be working to pay the bank.
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