How to Spot a Horrible Business Deal

How to Spot a Horrible Business Deal
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[@mroberts566]

I hope this guy was paying close attention to Dave on this call. Caller, if you’re reading this, maybe consider starting your own business from scratch rather than overpaying for this business. $400k buys a lot of marketing.

[@tanpham7411]

Agree!

[@robdenker5805]

Follow Dave‘s advice and get clarity. Putting paper to pencil is a very sobering experience but clarity is and will always be your BFF.

[@bigbubba4314]

One problem when workers become managers, is that they (usually) have never sat on the wrong side of a “you are not doing this properly” conversation. They don’t know how to hold others accountable.

[@SLAYER97501]

How does one hold others accountable, specifically a manager to team?

[@mattcollins4550]

Excellent advice and insight from Dave here!

[@jamisonmunn9215]

Smart by Dave essentially the owners are being paid out of profits. Instead of getting a loan paying the current owners over time.

[@Zachary_Setzer]

Those profit numbers have to be figuring a significant haul going to the owners first. Theres no way their margins would be that low unless they are substantially below market price for their services.

[@joeriveracomedy]

A pool contractor wanted me to buy his company when I was 29. He was a pirate that bounced 3 of my paychecks. Wasn't interested in bailing him out. I was gone soon after.

[@santitoolsisthebestforanyGrant]

This was great information! This is the kind of info that needs to be given to our youth as they venture out into the world of entrepreneurship. This was very easy to understand and straightforward. Thank you *Agent Santi* for this your grants funding method!

[@sleepyjoe1685]

Those numbers are horrible.

[@Alex-mj5dv]

Set your own company up if that’s what you want. 7 employees, 5 non-owners and revenue of just over a million.. that’s tight for the payroll budget per annum after other overheads and variable costs. As you scale, more hiring is required.. where is that being funded from? These are all CEO and owner things to think carefully about. You’ve not had to before. You just sell. Can someone sell as well as you can? Maybe not. Then your revenue goes down and your burn rate catches you in the backside, because your role has changed.

[@CdnElJefe]

I bought a roofing & home exterior business this year. They have averaged $415,000 SDE over the last 5 years. Purchased it for $865,000, putting $175,000 down and financing $690,000 through the bank. On track to have it paid off in a little under 3 years. I’ve been watching for a couple years for a deal that made sense. To the caller, don’t jump into something from an emotional or in an over excited state of mind, take your time and make sure the deal makes absolute sense for you.

[@LGZEE]

Why was it so cheap?

[@CdnElJefe]

@@LGZEE The owner had just pulled out a million in retained earnings, is 67 years old and wanted to sell it quickly so he could move to his property in Mexico. He had originally asked $1,135,000.

[@LGZEE]

@@CdnElJefe nice! Hope everything works out for you. If you keep it rocking, you're gonna bank on this. If I got a hold of that, I'd make the business tight very quickly by paying a management team and once it was running like a machine, try to buy a couple more deals like this one and bundle them into one company and look to sell it all. Not sure if it's possible to pull "equity" before selling, but I'd try haha. Sorry for the grammar, I typed this on a phone.

[@CdnElJefe]

@@LGZEE The best part is he works entirely through sub-contractors and has zero employees. He also did everything, except email quotes to customers, by hand. Scheduling, A/R & A/P, all of it haha It will be easy to create major time efficiency in those areas. I’ll operate the company for probably 3-5 years after it’s paid for, bringing in necessary managers and sales people, but will start getting into heavy machinery brokering (which is an industry I know thoroughly) I’m already creating a 5 year plan to purchase land and build a shop that I will lease out to a group of mechanics I know very well for a set % of profits each month rather than a fixed dollar amount. I’ll also use that land and building to run my equipment brokering and sales business.

[@LGZEE]

@@CdnElJefe awesome! Kick some ass! Best wishes.

[@mikebassett9195]

Surely assets are part of a companies value. If the owners have vans, buildings and machines for the business you will need to pay them money for that.

[@mikehallrealestate]

earners have an unbelievably hard time coming down to the level of someone who has no interest in elevating their own earning or efficiency potential.

[@jimmymcgill6778]

All he does is need a good CEO. You think the owner now is running it. If he needs to take out a loan, then so be it. But at 50k income only. I would not buy it. He can probably start his own HVAC company and more then 50k a year.

[@AshmeetSinghArora]

Why would someone transfer 100% of the share holding without taking capital upfront. If brandon buys them out with the profits of the company then the previous owners still carry the risk. And this time without any stake in the company since Brandon already took 100% of the shares.

[@csbened16]

why would one sell for receiving only 100% of the profit, if it receives it now, by owning a business? makes no sense. If one wants a new business, needs cash now.

[@thomasdalton1508]

Yeah, his method is a great deal for the buyer but no sane seller would accept it. If I'm taking the risk of your profits being lower than expected then I need to be compensated for that. The risk is why the multiple is only 3-4 times rather than the 20 times it would be for a big reliable blue chip company. If you want me to take the risk, I want closer to 20 times... At the very least, I would want a minimum on the annual payment and a lien on your house to cover it...

[@MrMustangrick]

Yea that is horrible!

[@R290s_biggest_fan]

Wow, that sound like a terrible idea.

[@jimmymcgill6778]

Let's go Brandon.

[@elpatron7916]

Why would you sell a company for just the profits. You get that if yoi dont sell. If they run it into the ground you get nothing😂😂🎉🎉

[@blessed7fold]

This guy isn't ready to buy a business yet. He has desire but lacks a lot of education right now.

[@jimmymcgill6778]

Stop using a pandemic as an excuse. That is getting old. HVAC techs did not take off during the pandemic.

[@Scott-rc2jn]

While people are learning to act intelligently, they need to learn to speak intelligently, not this 'Me and my husband/wife...' garbage (cough, cough...John).