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Buying a business
Posted by gatorsurveyor on November 25, 2020 at 10:55 pmHi everyone,
I am a semi-recent graduate of a surveying program (2016) and finished up my responsible charge experience this year and just passed my NCEES PS exam. I still have the state exam to take in a few weeks, but I??m approaching licensure (fingers crossed of course). That being said, I have a fairly unique opportunity I??d like to get some view/opinions/experience on.
The company I work for is a well established (1987) surveying firm owned by my neighbor and family friend (well respected past president of our state society). I worked here in college throughout my internship and after graduating, and have moved up in the ranks to upper management. We have 6 crews, about 22 employees, brand new trucks and equipment. The owner has been all but absent since COVID hit and ??works? from home without much input. The only other PLS (who has been there for over 20 years) is also close to retirement and wants to work part time for me as his retirement.
The big issue with all of this is everything they have built over the years as far as files (digital and physical) as well as their financials (invoices/receipts thrown in a box by year, etc.) are extremely unorganized. Also, I have a lot of ??my? clients I??ve established a great relationship with that I would like to keep, but I wouldn??t steal them from my former boss.
Now that you have the background, my question is, do I try to buy the company or start my own? The owner and I have had very general conversations about me taking over when he retires, but nothing solid. Anything you have to offer would be greatly appreciated.
Thank you, and happy Thanksgiving!
true-corner replied 3 years, 2 months ago 20 Members · 31 Replies- 31 Replies
Put it this way – everything there of real value is already yours. If you set up shop across the street you will have most of the clients and employees within a year. Trucks, equipment, computers – all these can be more easily acquired than got rid of. So I wouldn’t be paying much for the business. There is a certain value in taking over a going concern, but there are also so liabilities. Like responsibility for everything the firm has done going back many years.
I can’t answer your question directly. But I think that you should initiate a conversation with your boss about his future plans, and keep in mind that you are in a position to drive a very hard bargain. He might be happy to just have someone he can trust to turn the business over to.
- Posted by: @gatorsurveyor
The big issue with all of this is everything they have built over the years as far as files (digital and physical) as well as their financials (invoices/receipts thrown in a box by year, etc.) are extremely unorganized.
The absolute first thing to do is review year end financial records for the past 7 years. From what you have said about record keeping that may be difficult, but there has to be tax returns to view. Was he responsible for all accounting or did he use a CPA? In a professional business, inventory and records play second fiddle to financial records. Without rigorous delving into there is no reasonable way to place a price on the business. Next comes real estate, equipment and records deprecated net, along with whatever pending liabilities (current or future). You have a considerable amount of research ahead of you. Talk to the powers in charge and be candid about everything. Good luck, I have a feeling you will make out fine, you are headed in the correct direction. ????
@flga-2
I second what he said. I faced the same situation a year ago having worked for the biggest firm in my area for almost 7 years, being a licensed PE & now becoming a licensed PLS they needed someone with my experience & licensure. I grew up in the horizontal construction side of land development & municipal infrastructure work so I had almost 2 decades of knowledge in that area & enjoyed the surveying/engineering side of things as well
Ultimately having witnessed a lot of warning signs I decided to go out on my own. Yes granted I??m only doing a fraction of what that place might earn each year. But I don??t have 20+ employees to worry about paying each week (many of whom weren??t motivated or enjoyed stirring the pot). It??s also a lot easier just worrying about minimal overhead (paid cash for my used survey equipment & laptop with software). Ultimately the biggest surprise is how the work keeps rolling in without any advertising at all.
another thing for you to consider is that if the licensed individuals or even non-licensed individuals are ready to retire then those are gaps either you??re going to have to fill quickly with some new bodies that will need some sort training/adapting or consider letting that work go on down the road to a competitor (reducing your revenue & client base)
A few points I can make from my experience watching other people go through these things and being in business since 2006. At the end of the day, a firm this size is probably going to determine a a value based on on the last x years of income and some other factors. It will be a big number. Unless you get some sweetheart deal with your owner, and that??s possible. The other thing is if you??re just coming in to your PLS, it seems like a lot to take on, unless you??re already running the show.
Some of the best decisions I??ve made in business are the things I don??t do and the people I don??t associate with. That??s hard to do when you??ve got multiple crews to keep busy.
Too bad you don??t live in the Triangle area of NC????
When I first got my license; I didn’t know, how much I didn’t know.
You will find; that there is so much more to learn, after you’ve obtained your license. You might think about that, before you get in over your head.
I hope everyone has a great day; I know I will!I have a hard time believing you’re far enough out of school to handle all the responsibilities owning such a firm would entail. You might be, but there’s a lot to learn after you’ve gotten your license. I’ve been out of school 20 years and taking over my similarly sized firm would be a big challenge.
Whereabouts? I??m just north of Fayetteville near the edge of Cumberland Co
@dougie
Agreed. To the OP don??t rush into commitment towards anyone or anything too soon. Find your own path before you borrow big money to buy out somebody else??s poor decisions
The problems you’ve cited are overcome-able.
Hire someone or subcontract getting organized and cleaning up financials – that is, the company should pay for this as a condition of negotiation.
It’s been mentioned many times on this site but it’s worth repeating: running a business and being a surveyor are two distinctly different skill sets. And sometimes, maybe even often, those skill sets are in conflict.
A business owner might conclude that an activity is “good enough” whereas a surveyor might conclude the same activity isn’t complete.There is great value in processes already in place. You don’t have to invent, for instance, how to do billing. Processes can be improved for efficiency and to cut costs, but you don’t have to start from scratch.
Here’s a quick “back of the envelope” type comparison:
(For simplicity, assume company value is 2 x revenue)Scenario 1: Start your own shop…
Starting from zero revenue when you open the doors, it’s reasonable you can get to $200,000 revenue at the end of year two.
Assume a conservative 10% growth for year 3 and for the next seven years a conservative 6% revenue growth.
Revenue at end of year 10 is $330,800 (rounded).
Company value is $661,600.Scenario 2: Buy existing company…
Assume $2 million revenue for existing company.
Value $4 million.
10% growth rate year 1. (Assumed because new ownership motivates growth)
6% growth for the next 9 years. Revenue at end of year 10 $3.5 million
Company Value: $7.01 million.22 employees after 33 years in business seems like a slow growth or even stagnant business. Lot’s of room for growth.
Make a spreadsheet, change assumptions on growth rates and value multiplier. 1 x revenue, 0.7 x revenue etc.
Me: I’d buy if I could.
PS.
Get agreements/commitments to sell in writing. Many examples of getting screwed over due to verbal agreement not being honored or misunderstood.Apex, NC, Happy T-day!!
There are several completely different issues here.
a. Looking back several years from now, you will be astonished at how much you learned after you passed the state exam. You need some seasoning first under an experienced professional.
b. Being a land surveyor is not the same as knowing how to run a business. I’ve seen very good land surveyors close their shop because they didn’t understand business basics.
c. If you’re any good you don’t need to purchase someone else’s operation. Build your own.
Been there, done that. Just from the way your wrote your email, I’d say either RUN AWAY fast, or stay and work for a few more years while you plan your OWN startup. The fact that he is absent and “working” and the financials/records are tossed in a box are huge red flags.
NFW I’d want to be taking over that liability without a really sweet deal. and even then… Nope.
Andy
I agree with much of what is stated here. If the financials are a mess as you describe them, and you are not a CPA, it is partly your fault for not being more involved in that aspect of the business. If you want to own a business, that is a major part of it, so find out what you need to learn and get with that.
In my state, you can’t own a surveying business unless you are a PLS. You might have the cart before the horse. I know someone who spent energy on just what you are contemplating but they didn’t pass the exam. I believe that it was because they were concentrating on their long term future rather than the now. The resulting breakup with partners made for a sad story.
I am closing my business, I have a mountain of records that frankly are worth less than the cabinet they reside in. Much of them are already in the public domain and you can access them for free and never have to set foot in my office or listen to my lame stories. While I will spend time looking for a PK nail we set in 1985, the current nature of this business is that it probably is not necessary for the next guy to do the same. Poof, it goes to recycling.
I was faced with a remarkably similar opportunity a few years ago. Guy I??ve known for a long time, who I count as a friend, but also who I know to be rather loosey goosey in multiple ways about his surveying, his record keeping, and his business.
In the end I came to this: what I would have acquired, mainly, would have been a phone number- one that has been dialed without thought by a list of people for several decades. And what effort I would have to place behind rehabilitating the operation and reputation of the company was likely much greater than the effort required to just get those people to both change the phone number they were used to calling and also to stay loyal to somebody who was no longer going to operate on decades-old billing rates and practices.
In other words: I figured (actually, I know, to a certain extent) his clients tend to be every bit as problematic as his operations. Didn??t seem worth it to me, in the end, to go buying those relationships.
- Posted by: @tim-v-pls
22 employees
Posted by: @tim-v-plsAssume $2 million revenue for existing company
$2M for 22 employees is horrible. Even $2.5M is awful. Glad that’s just an example albeit off kilter. ????
@flga-2
I hope everyone has a great day; I know I will!@dougie
Say??s Junior Samples father. ????
A couple years back, the company I worked for 2003-2011 sold itself to a local engineering firm that wanted to add surveying to its services. There were about 10 employees at the survey firm. Within 18 months, not a single one remained with the new company.
At roughly the same time the engineer I had been working for passed away suddenly. A very high percentage of the profitable portion of his business – well over half – had been the surveying, which I was handling. The widow had the firm evaluated. Based on annual sales, the firm was valued in the $400k range. I was asked if I was interested in buying – I was not. If I had been I might have paid something in the $40k range, which was the value I placed on the truck, instruments, and my laptop. No way was I paying for the goodwill and the client list which was already mine. She sold to an engineer that wanted to add surveying to her services (see a trend here?) for, I think, a little over $100k and I stayed there 2 years to the day. I wasn’t busting to get out, I just got a dramatically better offer and moved on.
just makes you wonder why some of these rapidly growing firms pay more money for firms than what they are worth when they come into your area. More productive? Reduce the competition? or, just plain stupid?
@flga-2
You were right (above) If you’re not grossing 3x your payroll; you’re not doing it right.
It’s easier if you’re solo; you just accept 1/3 of your money as your wage, 1/3 for operations, and 1/3 for feeding the machine.:
I hope everyone has a great day; I know I will!
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