Got offered to buy a small "mom & pop" surveying firm that's been established for 30+ years. Very reputable, has done good work both public and private. Has some older equipment, which isn't of much value, but has a TON of records. How does one go about valuing the records of this business? It easily covers 10 counties and they've averaged 300 survey jobs a year (roughly) for 30+ years. I'm trying to figure out if what they are asking is a good price or not and trying to do my due diligence. Anyone ever dealt with this? Thanks.
hlbennettpls, post: 370065, member: 10049 wrote: Got offered to buy a small "mom & pop" surveying firm that's been established for 30+ years. Very reputable, has done good work both public and private. Has some older equipment, which isn't of much value, but has a TON of records. How does one go about valuing the records of this business? It easily covers 10 counties and they've averaged 300 survey jobs a year (roughly) for 30+ years. I'm trying to figure out if what they are asking is a good price or not and trying to do my due diligence. Anyone ever dealt with this? Thanks.
About 10-15 years ago I was approached about the possibility of selling my business and if I remember correctly the offer did not cover the value that I would have placed on my computers, trucks and field instruments, so I declined.
One thing that I have read that affects the value of the old records is if the business is located in a recording state or not. The other thing would be how good of an indexing system the old records are on and how long it would take you to find an individual record, sometimes it is easier to go to the public registry to find what you already have in your office.
I'll echo ekillo's comment about the indexing system that the mom and pop shop have in place. Without an indexing system that you can easily use to find the appropriate records, you'll end up creating more work for yourself than you have time to spend.
The indexing and cross-indexing is critical to their utility.
This is one of those "blue sky" type of things. You can attempt 47 different assessment methods and probably arrive at a wide range of potential values. It would depend on the type of clients they had, but, the contact list with the contact details for each would be worth a great deal for potential future work because, as you said, they have a great reputation. Announcing that they have entrusted their firm for you to continue would be comforting to those former clients who could become future clients. Can you take over their telephone number and cyber contact info? I still get phone calls to a number I've kept active for over 15 years simply because it appears on all surveys prior to that time. It only takes about one new job per year to cover the extra phone expense. The rest is gravy.
Be sure to make the acquisition is such a way that all liability for their surveys stays with them. There could be some time bombs out there.
Location would be another factor. Are you physically close to them? If not, you may lose out on a significant portion of the potential business. People know that the longer travel time a vendor has to provide a service, the larger the invoice. Another rule of thumb.
Having the final plats isn't worth much in a recording state, but having the computer files and notebooks can be quite valuable in the long run for future projects involving the same properties or those very close by. In PLSSia, section breakdown info may not always appear in it's full grandeur on the final plat but it's somewhere in the backup files and/or preliminary drafting.
I've seen some of the best surveyor's records sell for $20k and some of the worst for $100k.
What each got was a phone number that kept ringing and records they wanted more to keep them out of anyone's hands than to actually use them.
The only time that you would be liable for any of them was when you used their work as your own and signed it.
What is all that info worth to you and what will it save you having to invest in to get started on your own......
😉
Does the business currently pay the owners a fair wage and generate a profit?
You can make a fair wage working for someone else. If the business does not and has little possibility of generating a significant profit, then it is not a real business. It is just another job.
Dave Ramsey covers this pretty well on his radio show and in some of his books.
In general, most business owners think they own a pot of gold, but in reality all they have is an anchor job.
If the current business is turnkey, and when you purchase it you really can keep all the customers, and walk away from all of the problems, then there is some value. If you are a competitor and purchasing it gets rid of a competitor and the possibility of another competitor, that has value too.
I have seen small (3-7 employees) established companies sell for between 2 and 5 times the amount of their gross annual income. Hard gear like office and equipment are a large factor in pricing. Records are a shot in the dark; and CAN become a nuisance if everybody continually calls wanting info.
Try to break out the value between the records and the actual possible revenue stream, but that's a difficult question to figure out. Records can be great but don't neccesarily get you more work. With a smaller business where the owner is dealing with all the clients, the clients may be working with the business because they like working the owner, but wouldn't necessarily be if the owner weren't there. Don't assume you'll be picking up all this work, these connections, and good will, it may go away. I just recently picked up a phone number from a retired surveyor, I get many calls just looking for old map copies or AutoCAD files, this can be a nuisance.
I've got to say that there are old records and then there are old records. I've worked out of several offices over the years and in more cases than not the old records are little more than wads of scrap paper.
It would make sense that the chances are better of getting usable records with a bigger firm than a small firm. Bigger firms must have some sort of system in place to keep everything as usable as possible by anyone currently working there or anyone employed in the future. With small firms the indexing system may be in the head of the owner and nowhere else.
I know one place where everything was filed alphabetically under the client's name only. OK. They did a job for Bob Swartz. You can see a manila folder with a bunch of papers in it with that name on the tab. So, where was that job, what kind of job was it, who worked on it and when did it happen? Cabinet after cabinet of such files covering 20 years or more of projects.
There is a variable that is being left out of the equation here.
Sometimes some of these small family operations have one or two vital employees besides the owners that have contributed to the success of the business either through their competency, client relation skills and local experience or knowledge of the client base. Sometimes one of these employees are worth far more than firm's records.
Robert Hill, post: 370165, member: 378 wrote: There is a variable that is being left out of the equation here.
Sometimes some of these small family operations have one or two vital employees besides the owners that have contributed to the success of the business either through their competency, client relation skills and local experience or knowledge of the client base. Sometimes one of these employees are worth far more than firm's records.
Good point, Robert. I actually witnessed this happen.
Two very old school engineers had a very successful firm (this was over twenty years ago). One fell ill and the other decided to sell. Their staff consisted of (among others) three long term employees, one a licensed surveyor. Both of the principals had grandfathered surveyor's license and this one employees contribution had gone unnoticed for years. When the employees got notice the company was for sale they approached the partners and wanted to "take it over". The one remaining working engineer refused because none of them were PEs.
Long story short, the employees formed a surveying company that has gone on to be very successful. The engineers were never able to sell their company and closed the doors.
Moral of the story: None of the records or past projects were worth anything. The value of the firm was in the employees, their working relationship with each other and their contacts and relationships with the past clients...most of which they actually kept as surveying clients.
Ok, I've looked the place over since the first post. Great indexing system, and not in a recording state. They file everything by township, range, then section (PLSS state). Within the section folders, everything is cataloged by year. In the front of every section folder is a general folder with maps, worksheets, plats, benchmark, references you name it. They have flat files in 11x17 or 24x36 that have hard copy drawings in them filed by county and job #. Job numbers are the year and then the number of the project in the order it was ordered (i.e. the 1st job of 2016 was 16001). No client name involved in finding records, but they do use quickbooks and it will allow you to search by client name also, which seems handy. Owner said he didn't care for filing by owner name, he was only interested in what section a job was in. Quite easy to find stuff, but that's just the hard copy part of it. They also have a lot of their stuff electronically. CAD worksheets out bazinga that, to me, would be worth quite a lot. Most of the work they do, they do in "worksheets", which basically are based on the sections these jobs lie in, or by area (town, subdivision etc.). Most are on local coord. systems, but there may be 50 jobs on this same system! In recent years they've had a young CAD guy there and some younger field guys that have been moving most of their local stuff to SPC. I have to say, I was impressed. Oh, they have about 75% of their field books scanned and indexed on the computers. All elevation certs are stored on the PC. The PC's are backed up at the office and via the "cloud". This move would be to do 2 things, get rid of a competitor and expand my foothold on the area. Not sure what I'd do, as our offices are very close by, however I like my location a bit better than theirs. I can say this, I did not expect this, and now I'm not sure I can afford it, there is a wealth of info. in that place. They've been here longer than me and work in many more counties than I do. I don't work in them b/c of the limitations of my records. This could easily be a big stepping stone to increasing the size of my business as I see it.
Sounds very good.
What would a Bank loan on the purchase?
Could the business easily service that debt? (and still spin off Proffit)
If 3 key employees quit in the first two weeks, would it be a big hardship?
Why aren't the key staff members purchasing?
...
Just some thoughts.
It's small, so none of the staff members are licensed. The owner is a PE/PLS and has 1 EI and 1 SI that work under him. The SI also doubles as the draftsman. He has 1 crew of 2 guys, and the draftsman knows GPS/robotics and has a truck if they need to put him in the field, which they do occasionally. Other than that they have a receptionist. EI would be the only guy I'd get rid of, b/c I'm not an engineer and don't want to go that route. I don't necessarily think 3 employees would quit in week 1, but I guess it could happen. Issue for them is, this is a small town, not many jobs to go around, and not many folks hiring right now. Anyhow, I just don't see it happening. He!! the party chief worked for me, until things got so bad I had to lay him off. When he came to me he'd been with this company for 10 years. So, as you can tell it's a pretty close knit business with mine. We all know each other, so I don't think anyone will be quitting.
Robert Hill and Paden Cash hit on some really important aspects to consider closely. It is the employees that make or break a business. Records and equipment are basically worthless. Have you looked at the annual financial statements say for, the last five years? If the Company generates a 7% profit or less I would avoid it. The companyÛªs ability to generate profit is the key factor in selling a business. The real money is called ÛÏGoodwillÛ or the amount someone is willing to pay after considering their return on investment. The return on investment depends on several things especially if the current employees will stay.
Pay particular attention to the financial records, donÛªt let survey ÛÏrecordsÛ or fancy equipment blind you to the reality of profit.
Just my 0.04Ûª B-)
Having successfully bought and sold 2 engineering/surveying firms and 1 surveying firm I will say that I have found the records to be essentially worthless. I would say that possibly twice in 30 years I have found records to be of real value. As a surveyor, they have great sentimental value. As a businessman(which is what you need to be), they are more of a liability than anything. The value of a company lies in the employees, the income stream, and in the good will.
If records are worthless, then why do we keep them...?
I would say the Records are worthless for the most part when valuing the business. I'm sure there is good info there to review when you have jobs that are in the same area and it will save you money by not having to pay for the deeds again, but i wouldn't think you would use any of the data except for reference or preparing for a job. No way you should want to sign a survey based on data that the precious surveyor had direct supervision over not you.
Financial statements, added client list and employees is what makes the business. You should be prepared to give the employees a stay on bonus for staying with you after 2 years. This lets them know you are serious about their value to helping the new company succeed, it's human instinct for someone to think that they will be let go when their employer gets bought out (people are gonna panic. If the key people quit too soon all you bought was a client list and phone number and then you gotta find more people that you don't trust yet to they the new influx of work done.
I've been thru 3 Aquistions in the last 8 years with a 4th pending. Even the most valuable and level headed employees worry.
We keep records be cause we are supposed to and we need the info to remember/stand up for the decisions we made based on the evidence we had at the time of the survey. All those files are great to have but little to no value.
If someone were to offer to sell me all the records from the surveys made in my county from the late 1800s to 1950. I would want them but wouldn't be of much use in completing a survey today.
hlbennettpls, post: 370289, member: 10049 wrote: If records are worthless, then why do we keep them...?
