I'm aware something is only worth what a buyer and seller agree upon. However, my boss is contemplating retirement in the next 4-5 years and has asked if I am interested in taking over (buying) the business.
Of course I could wait until he retires and go on my own, but he could sell to someone else in the meantime.
He has been in business for 35 plus years, has had the same address and PHONE NUMBER, and experiences a good repeat clientele.
over the last 15 years he has done everything on SPC and has surveys on the grid in 10 adjoining counties.
He says his average net (for himself... after my salary and all other expenses) is $80,000 per yr. At present I make approximately $35,000, but if he sells, retires or closes, I may not have a job. I do have my license. This is a small rural business. Most of the equipment is dated (L1) and would need an upgrade, but we still function with what we have.
He tells me that he can just hand over the keys and I can walk in and GO! BTW, his hourly rates are too low, but he hesitates raising them.
Any ideas on what to offer?
I would say it depends on the client list he has. The records, though invaluable, are just not worth much. I too got a phone number when I bought a business in 2001. It hasn't quit ringing, so that is a plus. Though I didn't get any buildings, only equipment and records.
I was able to buy out my boss for about $20,000. But he just wanted out. So I was lucky.
I'm sure he has a number in mind. Ask him what he is thinking. He may think he has a gold mine and it may not be worth the investment. I would go through everything and see the value of what it's all worth, then approach him with an offer based on what you are getting. If he has long standing clients, they are worth a percentage in my book. But they are not a guarantee they may dump you if you take over. You just never know.
That is how I did it anyway. My boss is the one that suggested I do that. I inventoried everything and we agreed on a price.
If you're just wanting to buy yourself a job, there are cheaper routes than buying someone else's job. If it were me, I'd go the vulture route. Wait 'til he goes out of business and swoop in there and pick the bones. I hate to be so cold, but there's much to avoid when purchasing someone else's business. Blue sky is something investors avoid. Think like Kevin O'Leary.
Some clients are just as old as the principle of the firm you might be purchasing. They may be fixing to hang it up also.
Who is the competition? This can be a big factor.
Most sellers think their used equipment Is worth more than, well...used equipment.
Records are actually a wealth of data, not monetary wealth.
If I were thinking of purchasing a business I would look hard at the existing client base and rate them by fees paid per annum. Then after you have a "big client" list, visit those clients and try to make an assessment if their business is going to remain with the firm you're purchasing long enough for you to pay things off. Be wary if the seller doesn't like this idea.
Business is business and surveying is an art/ science. Most art/ science firms don't make it; businesses do. Think like a business man and look at it from an investment standpoint.
CHICKASAW, post: 387663, member: 12007 wrote: He says his average net (for himself... after my salary and all other expenses) is $80,000 per yr.
Does his "net" include his salary? Just because the net is $80K doesnt mean that he is not taking corporate stockholder distributions (a fancy name for siphoning off profits in a "C" or "S" corporation). How many crews is he running? That has a considerable impact on the financial information he has provided you. As for the equipment, considering its age, when factored in to the purchase price may be worth 10% of its original price, if that. Or, according to his books, may have already depreciated itself to worthless. If you are serious about buying this business you will need FULL access to all bookkeeping records, something he may be reluctant to share. Good luck!
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From a basic arithmetical standpoint: you can live on 35K annually. There's 80K available. That leaves 45K a year out there looking for a home.
How many years do want to pay the seller more money than you yourself are making? I'd offer 75K to be paid out over 5 years. This does not include any hard assets. Those should be dealt with in a different manner.
I do not mean this as a criticism; however, we have entry level people making more than 35K. Of course, they don't live in "almost heaven". If your desire is to make a living in your area, Paden's approach seems reasonable. If you want to make a more lucrative investment, you may want to consider the clients, location and factors that may be limiting your income potential. There is nothing wrong with 35 or 80K if that satisfies your personal goals.
And I thought I was underpaid. I made just under that fresh out of college 16 years ago. There's no reason at all to be making under $50k. You could have your pick of jobs (including here) for that.
Back to the issue, It looks like the equipment isn't worth much. All you're getting is the phone number, some old records with little value, and the firm reputation. Paden's approach looks good to me.
You don't mention it but I presume that you have a license to operate the company. Is it a corporation or LLC or what is the structure. See an attorney about the best solution to your liability moving forward if you take over the business.
How about receivables? I basically took over the business here for little outlay but the owner got all the outstanding receivables once they are collected. Many firms have a good amount of $ on the books that they wouldn't like to talk about. Does your boss do the books or is there someone else you should talk to privately.
Where would you run this business? Does it come with a facility or will you have to re-organize everything to suit your needs. Is there a lease or obligation that you need to worry about?
How is the client/project database compiled? Are the records going to be useful moving forward or is it just a pile of paper with no organization?
Equipment is the least of your worries although it may be expensive there are ways to make it work. What is the current relationship with the vendors in your area? That is important to obtaining and keeping things operating.
How many other surveyors will be chasing this opportunity? Is your boss an active member in your local professional associations? That counts for something and may drive the value of what it is worth. Ask around but have his permission to do so first.
There are many questions that you need answers to. This forum is a good place to start. But really, before you start. What does your wife think?
small businesses are personal.
are you Currently:
having much client contact?
answering the phone?
are you marketing?
estimating/bidding?
billing?
unless he could now disappear for a month or two without anyone noticing ... I would want a lengthy period of him sticking around for the transition...as in starting today and lasting the 4 or 5 years to retirement
I think what he really has to sell is old equipment and himself
What will you be buying? That is the question. Then you can come up with what the business is worth. If existing on going contracts are not part of the equation let him retire. Start your own enterprise and buy his old equipment cheap. In a rural area how many prospective buyers can there be? Remember when purchasing a business you also purchase old forgotten headaches.
One thing many surveyors put a large value on when thinking of a price for selling their business is their records. You are familiar with the records, you are familiar with how they are indexed. You can find what you need with them. But, remember, those files are only pieces of paper until you need them (I cannot believe I just admitted that) Then they can be priceless. Many surveyors want them to be priceless when they try to sell their business. But without the knowledge that goes with those records, they still may be just pieces of paper. Because you know how these records are indexed, he may try to ask more for the records. Older equipment may still work, and get you by, but will it keep the business competitive with the market around you? Is the software due for upgrades? Those are costly, and may be required, sometimes a printer purchase will show you how badly your software is out of date. The client list is another important thing. As mentioned, how many are long time clients who may be also about to retire? How many are going to think a price rise is outrageous and are going to look elsewhere? Do the customers know you, as well as they know the owner? Are you going to be able to operate in the same tax base? With the same insurance policies? Do you have a line of credit if a truck goes tango uniform? Do you have references if a big job comes up and you want to switch gears to go after it? There are always questions to think of. There are also many answers that work out. Think it through, don't make any quick choices, and don't feel like you have to say yes out of loyalty.
Buying a professional business doesn't make sense to me.
As someone who bought an existing biz, I'd have to say if I could go back in time, I wouldn't do it again. The records can be useful, but also a source of trouble.. For example. People always want copies of old maps and will call you ALL THE TIME. Be very careful of the liability you may be assuming. People can sue for any reason and it would cost you money to fight, even if you're right. I do enjoy running my own business and do all the field work and drafting. If you are going to be "solo" or close to it, I'd recommend that you go on your own. No hard feelings for the old boss, but I don't think the benefits outweigh the costs.
Andy
Dave Karoly, post: 387806, member: 94 wrote: Buying a professional business doesn't make sense to me.
Now you tell me!
Andy J, post: 387916, member: 44 wrote: Now you tell me!
I've done it twice and couldn't agree more!
Thanks to all that relied! Some other factors I failed to mention:
The nearest competition (in the county) will also be retiring soon. Also some of the other surveyors in adjoining counties will also be retiring soon.
His office is part of rental property he owns and would be available at a reasonable rate.
He has never had problems with getting paid.
He has said he would help in the transition. He will stay in the area in his retirement.
As far as my present income is concerned, I WANT to work and retire in this area myself. It is a great place to live.
I appreciate all of your input and especially like Mr. Cash's approach since he offered a starting (or final) figure.
At $35,000 you are horribly underpaid. It seems to me you could easily make at least that much by starting your own thing, and bypass all the risks and downsides of buying another business.
To value the business, perhaps use TVM formulas to get a present value of future cash flows, based on revenue projections, etc.
Buy his assets, not his business. Stop the liability. Buy the records, the phone number, the client list, the name if you want it, but let the business retire with him. You sound like you know the equipment needs to be updated, he probably knows that, be honest with him about it, and make it part of the deal, or don't. He can try to bolster the value by selling it separate if he wants to mess with it. Establish a 2 year transition with terms of his employment his and your rates, and responsibilities. After that it is your gig. Following, then rent his building for 2 years - under contract rent terms. After that period you are established enough you can move if the renewal terms are not favorable - or if you really like that location, put a right of first refusal on the office in your purchase agreement.
If the name has anything to do with him, and you want to chance it, make sure that it is part of the sale contract that he is promoting and establishing a new business name before he retires - that way you are getting some value for your price.
Like others have said, we all think our livelihood is worth a mint - and in all reality the actual cash value of a small surveying firm isn't what we want or think it should be.
One of the saddest things that I have done is buy the assets of a closed survey office on tax sale for under $1000. GPS, TS, tripods, desks, tables, file cabinets, metal detector, almost everything that you can think of. Older stuff, but usable. I bought it just from some pictures, as I saw the GPS, and I really wanted the file & plat cabinets. There was just so much more there. The biggest thing was I didn't get the CPUs, and the county felt the need to put 50 years of drawings and paper files into the dumpster. I so wanted to get that info to a local surveyor or firm, but the county was adamant that the files were destroyed. I hope the end of my career is better then that. In that I hope that at least the legacy of your bosses files are passed on.
My first question is how much would his business be worth if you left tomorrow and started your own place. Now at $35k a year, he has likely created a situation where this is very difficult for you to do, but I think this question affects the value. In other words, how much of the value is YOU. I don't think you should pay for that.
Second, having to essentially pay no rent (or rather to himself, his real proceeds are $80k + the rent), makes owning a business much easier. In order to make a living that your BOSS thought was ok, he apparently had real estate AND this company working. How much is the rent? and How much for him to remain around and help?
And, dont forget that if you take his place, you need to hire another one of you...and you might not be so cheap this time.
Edit: toivo1037 and Paden have it 100%
Yes, Toivo1037 has it right too! That's pretty much what I did... bought the company name, records, "good will" , etc.. But made my own company and filed as a "doing business as" with the state. It's an attempt to isolate myself from any potential liability. So far, so good!
