Buying a business, scalability, continuity

Before making an offer consider signing a Non-Disclosure Agreement enabling you to review the books and tax returns for the last 3-5 years.

Congratulations on the opportunity. I cannot help with the business side but it is invigorating to hear about your potential expansion.

I was previously with a small Surveying LLC that was nearly 30 years in business and I had been there for 10 years. I was not the owner but was one of the higher ups and while I am just one voice in the crowd, here is my take:

Feeding the monster: When the economy tanked, we shrank. We cut staff and streamlined. People that had worked for us for years found themselves out of a job. It happens. And if it's the route that's necessary, it will be your job to tell them that. When the going got really tough, the two principles went unpaid for nearly a year to continue the company. They still skip a check every now and then when the accounts are low. Perhaps a more successful company in a better financial position would not require this...?

Continuity: Transition is huge. If the namesake is staying on then you will need to become his shadow. I spent a couple years attending meetings, social functions and all sorts of networking with my previous employer. I was introduced to everyone he knew and involved with every job to create a relationship with current clients. There's a lot of opportunity cost to be spent as there are two people spending time on the same jobs but it's good for retention in the long run.

Employee Retention: The LS who was passed over...? What's his take on this? If he was hopeful that he was next in line then natural human nature says his productivity is going to drop through the floor if he even stays on past a year or so. Pretty much, you're the guy coming in and taking the job that he should have had in his mind. If he's fine with the snub he has received then no problem, business as usual.

Structuring the offer? No idea. I have no knowledge of the market in your area or your position to be bargaining. Talk to an attorney before you make any offer obviously. Your own attorney. Don't share one with the current owner.

Best of luck! New adventures are always exciting!

I have never seen anyone kick themselves for getting too much due diligence. I can not say them same for the reverse.

1. What are the market sectors?
2. Is the equipment current?
3. Who are your clients? Are they loyal to the present owner or to the company?
4. Are the current clients using the company just based on price?
5. What is the overhead?
6. What is the utilization rate?
7. What are the current employees expectations? What is their current benefit plan?
8. Does the company have debt or other obligations. IE: Office and or equipment lease?
9. Is a line of credit needed to float payroll?
10. How big of a geographic area is the current business covering?
11. What drives the economy in this region?
12. How much risk are you willing and can take?

This is just the start. Good luck. It is an exciting prospect.

Evaluating a Company

I have been doing some research on this very subject for a couple of months as I have also been mulling over 'opportunities'. I have talked to several bankers specifically about structuring a deal, getting capital in necessary and there is a huge variety of information and many many different ways to structure the deal. After speaking to a good friend about it I came to the conclusion that there is no right way and that as long as the two parties have an amiable agreement then business goes on as usual.

Some pointers he mentioned:

1. Reputation and continuity. He mentioned, as have previous respondents, that reputation and getting you in the mix on all of the deals is a large part of transition.

2. Company worth. Some say a company is only worth 1.5 times last years revenues...others say equity is part of the mix...yada yada. This is where the rubber meets the road and the two interested parties need to sit down and hash out the numbers and come to an agreement (possibly months worth of negotiations on this one). I know of a company about that same size that was offered 1 million to sell out. They did all of the bean counting...talked to banks and came up with something. But they couldn't guarantee jobs for certain employees that had been there awhile and the deal fell through. The owner just couldn't let that part of it go and in truth couldn't let the business go. Probably true for a lot of mom and pop shops that started from nothing.

3. Leverage. Many times we only think of leverage in the form of going to the bank and getting some sort of SBA loan to close the deal. My banker buddy mentioned several deals in the downturn where backroom deals were made where the transition and profits were used to leverage a deal instead of just cash. For example, a guy agreed to sell and the buyer bought based on some sort of progressive buyout. You go work with him as owner in the wing and you labor and expertise is used to buy in and eventually replace the current owner. First year you basically get nothing and he gets lets say 90% of the profits, and the next 70% and so forth until he is bought out and you take over completely. Some like that...others want blood and cash...just depends.

Those are the main things I thought of from the conversation. Please keep us updated as there are many other opportunities similar to what you are describing.

It is said that "The success or the failure of an enterprise can often be attributed to one man."

If the owner has been controlling the business and making it a success, succession will be very difficult. That could be why the LS is not interested in buying. Clients may have "allegiance" to the man, not the company, that's my guess.

What about the past projects? Do you inherit the liability on those when buying a business?

Buying a survey business would be a pretty risky move in my opinion.

Safer to start your own.

> It is said that "The success or the failure of an enterprise can often be attributed to one man."
>
> If the owner has been controlling the business and making it a success, succession will be very difficult. That could be why the LS is not interested in buying. Clients may have "allegiance" to the man, not the company, that's my guess.
>
> What about the past projects? Do you inherit the liability on those when buying a business?
>
> Buying a survey business would be a pretty risky move in my opinion.
>
> Safer to start your own.

I agree 100%

Would never buy a surveying company, you can buy your own equipment, find your own people, the trick is in getting good paying clients.

I don't think any company with the head retiring can promise you that with any certainty. Projects are technical, relationships are personal.

Do you own thing, get your own stuff....

BL

I can't comment on the OP's specific situation, but I can speak from personal experience that starting cold can mean years before the client base becomes large enough to be self-sustaining. Every market is different, but for me the combination of repeat clients and reputation is what keeps things humming, and it was probably 5 years before I built enough of both to make the gig pay enough to live well. With 20 years under my belt it works pretty good now, even through the Great Recession (though definitely not near *as* well for a couple of years there), but I recall well that those first years were kind of lean. Buying an existing outfit might mean trading some up-front dollars for a ready-made book of work.

You are right Jim, the first few years can be lean.

It's a tricky one. Start on your own, firs years can be lean. Buy a company, as long as the owner is around, you will be paying, but in reality, by his presence he will be controlling. Everyone in the office will know that the old man is still calling the shots.

I guess it really depends of the approach of the old man, but I don't believe that these old guys who have invested so much in their business can step aside easily. I do not mean to say that in a disrespectful way.

It is said "Do not go to the elves surveyors for council, for they will say both yes and no." 😉

What about the records?

Hi Scaled,

Something else to consider...

Depending on the state, if like Florida, the state is a non-recording state the records of an old established company can be worth quite a bit. For example, if a Florida surveying business has been around for 30-50 years, there may be thousands of individual surveys and hundreds of section breakdowns. Having such exclusive information at your fingertips can put you in the drivers seat on lots of future surveys.

ubenhavin(?)