How to buy a business with no tangible assets?

Remodeling is a great business in a recession. So long as we still have employment, folks like me are not going to move and give up our 2.75% mortgage but we likely will want to fix things up. 

Ian F (Forum Supporter) said:

In reply to SV reX :

I read this and wonder if this is really what you want out of a "retirement job" - which to me is a job with income when you want/need it, and time flexibility when you don't.  This sounds more like a career shift that will not really give you much in the way of easing your work load - more likely add to it.  If that's what you want, then more power to you.  

I've been thinking most of the morning about your earlier comment (which is very similar to the above one)... 

Ian F said: 

"...to me the idea of managing employees and clients doesn't sound much like "retirement.""

You are on a very interesting track.

Perhaps there are still a few things about owning a business that I feel like I have left unfinished...

I'm an employee now, but I used to own my own company.  I was hit by the perfect storm trifecta that ended my business- my own salesmanship limitations (this took many years for me to recognize in myself), an unsupportive partner, and the economic downturn of 2008.  (We can add to that list the introduction of the internet age and what that means to business marketing).  My business didn't survive. But I still feel like I have some things I'd like to do in the business world.

I'm an employee.  Good company. They take good care of me.  But I miss my independence.  I miss the freedom to direct and lead. I miss the opportunity to succeed (or fail).I miss being on the front lines of the customer contact. I miss mentoring people.  Connecting with people.

Though I am an employee, I have no coworkers. I am a lone wolf.  My company expects me to run $10million worth of work per year by myself, and then they throw a small Christmas party. It's lonely. 

I spent the last three weeks being paid a lot to do almost nothing.  Some folks would love that.  Im bored to tears.

My business was how I connected with people.  Managing people isn't "work" to me.  It's encouragement.  It's caring.  I love enabling people to succeed, and delivering services that make people happy.  I don't play golf, and I don't fish or hunt.  Work is enjoyable to me.

If "retirement" means sitting back and not working too hard, it's probably not for me (yet).  I guess I miss having a bit of control in my life, and the ability to choose my direction.

I know. That's not for everyone. But it's part of me and how I am wired.

Thanks for that input.  It helps me recognize a few things in myself.

Late to the party but it sounds like you're asking good questions and getting good advice. The initial question is hard to answer and my experience fits in with the others, value ~= 1x yearly revenue, OR 2-3x profit but both have giant error bars based on assets and liabilities. If the "deal" is substantially better than this, make sure you are getting what you need to hit the ground running and that the number of possible surprises are limited. 

SV reX said:

In reply to Ian F (Forum Supporter) :

Yes, there is definitely work for a handyman, and I've considered it.

Pretty sure I could have a super successful business if I started a handyman company and called it "We Show Up".

sign me up......

With mortgage rates as high as they are, people are staying in their homes to avoid a mortgage rate "reset".  There's also a housing shortage which has kept prices high in spite of the higher rates and it's also keeping people from trading up.   With fewer options to move to a bigger, better place, I suspect the remodeling business will be good as people always want to upgrade their homes and lifestyles. 

Hey SV reX - does your company build anything other than car dealerships? Maybe projects involving some additional staff to mentor? I can relate to the "on an island" feeling you described and my own move to Atlanta in 2010 provided a major change in scenery and co-workers. It was a healthy change. If you like the company and they appreciate and compensate you - maybe there is a simpler way to get to a better situation??

edit: 9/10 people that I know who own their own businesses work really hard and have very little free time. 

In reply to OHSCrifle :

Yep. Company has a broad exposure in multiple arenas. 
 

I've requested. My HR director was complaining that retention was so hard (and could only recognize financial incentives). I told her I didn't need her money, and there was only 1 thing I had left to complete that she could offer me... to train my replacement. 
 

That was a year ago. No response. 
 

I'm bumping this because I've had a little forward momentum, and value your input.  It's really slow communicating with the seller, because he's on the other side of the world.

The size of the deal has changed.  He scaled back the business, which changed the price. It's actually a bit more comfortable for me now. 
 

The purchase price is now about 40% of my retirement assets (instead of 100%).  My cash in the deal will represent 15-20% of what I've got  (which I am comfortable with).  There will be some financing (about 25% of the purchase). The tangible assets of the business represent about 25% of the purchase price. So, 75% of the purchase is the good will, branding, and history and reputation of the company. 
 

The revenue is lower, but I'm confident it can be rebuilt quickly (less than 4 months).  The profits still represent twice my current income, so it doesn't feel stressful.

I still have to review the books.

After reviewing the books, I have decided to pass.  The things I was looking for simply aren't there. 
 

However, I did get enough of an inside view to really believe it's a good idea, that I could do it exceptionally well, and that there is a path forward for me that I could build a similar business from scratch.   Minimal start up cost, maximum revenue, avoiding the built-in flaws that I saw in the business I considered buying. 
 

Now all I need is the courage to quit my job...

Good luck, and keep us posted!

In reply to SV reX :

I'm really happy that you chose to build from scratch. Maybe talk to Purple Frog? IIRC he runs some sort of contracting company in North Florida. 

5 years from retirement is way to late to risk 40% of your capital, especially if you're already worried about returns.

In reply to CrustyRedXpress :

I had my own company for over 35 years. I know what is involved. 
 

(Edit): Actually, I like the idea. I'm reaching out to him. I can use all the help I can get!

I am late to the game here but can tell you a bit about my father-in-law.

He found himself needing a job when he was late 50s or 60.  He ended up buying a local gas station C-store.  His career was managing retail stores then managing a region of stores for a national chain.  He built the store up and was then ready to retire so he sold it.  The buyer was a local business owner who should have had the knowledge to run this but really didn't understand the nuances of running a business like that.  He too was looking for a retirement gig.  He closed up after about a year.  The problem was my FIL had carried the loan on this and it was his retirement.  So, at the age of 70, he had to re-open the store to build back up the goodwill and blue sky of the place.  It was shocking how fast the buyer trashed it all.

FIL got it back up to where it had been before the sale and then put it back on the market.  Most could not get financing and he refused to carry the loan a second time.  It took a while and he did find another buyer who ran a retail department at a larger store.  He got the loan and he too was closed within 6 months.

It is really hard to see all of the little details it takes to run a successful business.  I ran a repair shop with partners.  We were doing OK but it wasn't working for me.  I left and within three months they closed.  Taking over a business is not easy and learning it in a trial by fire manner is even harder.   In so many cases the owner has learned the tribal knowledge over many years and much of it is second nature to them.  It is hard to pass that along to the new guy.  Then, like my FIL, what do you do when it is time for you to get out.  Are there people out there who have the finances to do this along with the business insight to pull it off.  That's why so many businesses are passed down to family members or key employes already there.

Good luck.  I am trying to figure out this retirement thing myself.

>Scott

In reply to Scott_H :

Thanks for the input. 
 

I won't be buying an existing business, but a lot of your thoughts are relevant if I start one from scratch. 

SV reX said:

After reviewing the books, I have decided to pass.  The things I was looking for simply aren't there. 

EDITed to remove intrusive questions that really don't matter. 

Your ability to identify what's important is probably a good indicator that you don't need to buy someone else's problems. 

In reply to pheller :

I don't mind sharing. 
 

I was primarily interested in the financial investment and human resources of staff that contributed to the ability to sell. I wanted to see sales staff with a familiarity with the local area, processes, budget actually spent on marketing and branding, etc. That's the stuff I can't replicate quickly. And I would have been happy to pay well for that. 
 

What I found was he was understaffed, had no one who handled sales other than himself, and the marketing budget he claimed he spent didn't show in the books. The only thing he was selling was a crew with a couple carpenters and a few old trucks. The business phone number was his cell phone (so that wouldn't transfer either).

I can build a decent crew quickly, and I can buy a few trucks in an afternoon. The ONLY thing I am willing to pay for is a local presence and legacy that could be continuing business, and it doesn't appear that he is selling that. 
 

Bottom line... I'm pretty sure I could build what he is selling quickly for 10% of what he is charging. He should sell it quickly... I may steal some of his business. 

In reply to pheller :

Not offended by "Intrusive" question. 

Oh, and he was really underpaying his staff. That's just an opportunity for me, but not if I buy his company. 

I'm late to the discussion as I'm just seeing this but based on my idea of your retirement, I think you're making the right choice!

you spend a lot of money to buy his business and all of the pros and cons, have to manage several people and in 10 years, you have to pay back that initial purchase price plus the interest on the loan and  have to sell it, likely to pay that purchase price off.  Selling a business does not sound quick and easy, even if you price it loooow 

compared with starting your own business which id guess would cost a lot less, and you could in theory do it yourself.   I know you said no swing hammers but there are people willing to pay a lot more than the going rate for good work AND for people who will be communicative and honest and punctual. 
 

if you over communicate and do what you say you'll do, you can charge a fortune and still get as much work as you want. 
 

and if it's just you, you can take breaks whenever you want or work whenever you want.  With employees, you will take on their issues and flaws. 
 

You'd probably end up hiring a few people to help but at the end of the road when you're done, you won't have any loan to pay off and can take your time to sell it. 

In reply to CrustyRedXpress :

Purple Frog and I spoke for about an hour and a half last night. Thought you'd like to know. Thanks for the idea. 

In reply to jfryjfry :

I may have miscommunicated a bit...

I said I don't want to swing hammers for a living. I didn't say I won't, I just meant I don't want to do it as my SOLE income source.

I love getting my hands on the work, and definitely intend to.  I'm much better at it than most folks, and get a lot of joy from it. 
 

But my primary skill is supervising and design.  And I want to stretch my wings as an entrepreneur again.

I suspect this will mean that I run a crew initially, grow into about 3 crews (when I will still run a crew during busy times, but will mostly manage those crews), and resist the urge to grow so big that I can no longer get my hands on the tools occasionally.

Part of the problem is I'm wearing a pair of golden handcuffs.  As most of you know, I manage big jobs, and I'm paid fairly well for it. With decent benefits.
 

At age 62, I'm hesitant to give up my salary and start over again. But I may need to. 

Clearly a canoe but I'm interested to hear what you're up to these days. 

In reply to dyintorace :

Well, I didn't end up buying the business, nor building one from scratch. As retirement looms closely I'm realizing that the work it would take to build another business from scratch has very little appeal. I don't need the money. I need to learn how to enjoy the process of slowing down. 
 

So, what am I up to?  I'm still employed, but haven't been on a job site for 5 months. There is an upcoming project they want me on that has had permitting delays. They've been paying me full salary to wait in the wings for the job to begin. It's a $12 million job and I guess my skill set is hard to replace. They want me to do it, and are willing to pay me while we wait. 
 

Meanwhile, I've been renovating a couple house to flip (while they pay me), doing repairs on our AirBnBs, rebuilding a couple cars, repairing 5 SeaDoos with various afflictions (3 sunk), and a former business associate has offered me a 6 figure salary to manage R&D for a product he is developing- that's a part time work-from-home job that I could easily do while continuing with my other work.

Aren't you glad you asked?  What was I saying about learning to enjoy slowing down?  😂😂😂