Looking at buying out the service part of a business from a company I work for.

[srt468]

I have been approached by my employer, who is interested in selling me the service assets for the service part of his company, and allowing me to have full access to his sales customers to perform their service. He will continue to refer his smaller individual customers to me for service. I am the only employee of the service side of the business. There are also a large number of large very loyal customers which I currently service, non of which are under any kind of contract. My service is seperate from the sales part of the company. I have a good reputation in the industry working for this company, and am sure my service base will only increase as it has more than 30,000.00 over the last 3 years. Service receipts are currently around 90,000.00 per year. It is mainly a moble service business.

I have a great working relationship with my employer and have known he wanted to sell the business, but as a whole I thought, something I had no intrest including the sales side.

He has also approached one of the salesmen who is interested in buying the sales side, who is interested in continuing a joint company relationship with me, which is to both our benefits. He is working on terms.

The only assets of the service side are:
-2 year old service van, price new, 21,000.
-The inventory inside, approx 600-700.00.
-An in house inventory of new and used parts, value yet to be determined. Not sure I want much of these parts as most are old and not used.

I have never been in business for myself, and feel this would be a great start. Question,...
Am I missing anything I should be thinking about that may be a snag to all this?

[Fulcrum]

I have a few questions:
1) Why is he selling off the service side of his business?
2) With gross receipts around 90K/year, what is the profit on that?
3) Why is he selling off the service side of his business at this time?
4) Will he grant you a first right of refusal to purchase the remainder of the business in the future?
5) See questions 1 and 3.

I think you may have an opportunity here. If you do take the plunge don't be scared to have professionals (accountants and lawyers) help you with the management side of things.

[vangogh]

It does sound like you have a good opportunity and I'll echo what Fulcrum said about not being scared, though I'll generalize it and say don't let fear stop you. It sounds like the business is already doing well and you already know and do the work. Instead of doing it for someone else you'd do it for yourself. If the salesperson buys the sales side of the business and you two keep running each the same way they run now, you should be able to continue to make whatever money the current service side of the business brings in. One of the hardest parts about running a business is just getting it off the ground and you have the opportunity to have it off the ground from the start.

That's no guarantee of course, but it seems like you have a chance to start with one of the major hurdles mostly behind you.

[Steve B]

Why would you want to buy a company that only has $90,000 in revenue? After deducting expenses (including your salary, your benefits, gas or mileage expense, parts, rent etc.) I'd find it hard to believe that the service part of the business is not losing money (and potentially a lot of money!). Unless you've not told us other details - I'd wouldn't give a penny for it.

[Fulcrum]

Why would you want to buy a company that only has $90,000 in revenue? After deducting expenses (including your salary, your benefits, gas or mileage expense, parts, rent etc.) I'd find it hard to believe that the service part of the business is not losing money (and potentially a lot of money!). Unless you've not told us other details - I'd wouldn't give a penny for it.

I have to disagree, at least in part, with this statement. Yes, there is a very low gross revenue and it should be a major concern; however, this cannot be the only reason to rule out a potential purchase of this business. In my experience many service companies can have a relatively low overhead outside of wages. For my business, margins are 60-70% before taxes and after rent/hydro (this will be higher once I start charging for delivery).

@OP, do you have ideas on how to improve margins and gain new customers? Are you able and willing to live on sub-poverty line wages (less than $23,000) for 1-2 years while pumping any and all profits back into the company? Are you willing to give up your evenings, weekends, and holidays early on?

[Business Lawyer]

Buying an existing business is a decision that requires due diligence on your part. The best advice I can give you is to consult a business lawyer who can sit down with you, learn about the specific business and help you protect and grow your interests.

[vangogh]

Why would you want to buy a company that only has $90,000 in revenue?

You might be overestimating the expenses. Like Brad said, outside of the salary (+ benefits) the expenses are probably low. Depending on where srt468 is in life and how much would be considered a good salary $90,000 could easily be more than enough to get started. I assume the plan is to grow the business too.

[Steve B]

I doubt it. It's a "mobile" business - so there has got to be a vehicle expense (unless he walks to his service calls). There also has got to be some supplies and/or parts involved. Unless he sits in a van on the side of a public road - he's probably going to have to pay rent somewhere for the times when he's not on a service call. Of course, there's the telephone service, electricity and water too. And, anyone doing a service at another location will need liability insurance along with the vehicle insurance. The best case scenario I can come up with is that he would be buying a minimum wage job for himself.

[Fulcrum]

Steve does make some good points that need to be clarified before the OP should purchase this company. I think what needs to be defined, before we can make any reasonable suggestions, is what industry is the OP in and what is his plans are to continue to grow the business. In my opinion, I do feel that the OP has something worth looking into providing he knows exactly what he's getting into and that he may not have much available cash for a couple of years.

I am biased towards this possibly being a good opportunity as I bought my company from someone who was semi-retired, only serviced and sharpened circular and band saw blades, and grossed approximately 65K in the final year.

[Chris-AthenaAnalytics]

@srt468 what type of business are we talking about here?

While the current state of the service business is important, I think it is also important to forecast the future growth potential of the service business.

Have you done any market research into the size of the market you operate in and the number of competitors you may be facing?

It sounds like you have a solid reputation in the industry and could potentially grow the business by acquiring new customers.

Best of luck!

Chris

[Paul]

I may have missed this part of the equation....but how much is he selling it for? Everything is really based on that.

He may be selling it for any number of reasons. One is that your salary is probably absorbing any potential profits for him.

Main question is will you make as much as the owner as you do as an employee? if the answer is yes and the price is resonable then why not? You have an opprtunity to grow the business and own all the equity. Work with the sales guy, you both may have "stepped in it" as they say. How many wish they had the opportunity to own the business that they are working for.

[vangogh]

Yeah, the price is going to have a lot to do with whether or not this is a good idea.