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mike- posted:This could entirely be true, and no one here could possibly know because we don't have enough information. But with that being said, I have heard that same line so many times and I would say it's a pretty rare scenario in my experience that you wouldn't have to work extremely hard to turn around a poorly run business. Well, I'm getting a monthly PNL report from him sometime soon to see if there was any actual growth in the business. I don't think so because his way of gauging growth is to look at the bank account and not his actual numbers. I'm probably going to put his monthly Sales/Service numbers in a spreadsheet, as well as his labor and expenditure numbers to give him a pretty graph of just how little he's done.(I already have a full printout of his 2013 incomes and expenditure line items. The year he somehow went from ~500 a year in office supplies to 6.4k in office supplies). I'm not sure what other numbers I should be getting my hands on. Any advice there?
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Dec 19, 2014 18:24
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I guess I'm most confused by the amazing growth potential you see in a mom 'n' pop computer repair shop in a very small town. Honestly, I'm amazed that it's even doing 140k of revenue. Are you close to a bigger city? Doing things over the internet?
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Dec 19, 2014 18:39
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In one of my earlier posts, I said its most likely that most of the value in this kind of business would be derived from the nature of its customer relationships. You need to get as much information on the customer history and any long term agreements as you can. Also, you need to to find out what non recurring expenses he may have had in order to normalize the financial statements. For instance, you said he had a large increase in office supplies. You want to find out why. It could be that there was a onetime spend that isn't going reoccur, and you would want to adjust his financials to get an idea of what a normal level of opex would be. mike- fucked around with this message at 18:48 on Dec 19, 2014 |
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Dec 19, 2014 18:42
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Daremyth posted:I guess I'm most confused by the amazing growth potential you see in a mom 'n' pop computer repair shop in a very small town. Honestly, I'm amazed that it's even doing 140k of revenue. Are you close to a bigger city? Doing things over the internet? Because we are rural, and I want to go from primarily residential to doing fully contracted services to businesses, almost a MSP with less liability (Maybe more in the future). I also want to get more into backups and data retrieval, and maybe a few other services. I ran some numbers, and with his current customer base (Some are recurring businesses, just not contracted yet), he's barely hitting 5% of the population of this county, and I am planning on increasing our territory and advertise more heavily than he did to get more potential customers to know we even exist. The closest Best Buy to this area is 40 miles a way, that's the biggest "name brand" big box store people know about. There a few Staples stores scattered about, but I doubt people know about their services really. Other than this guy, there is no real competition for both residential AND business customers for quite an area. Maybe I'm dreaming, but there are things I would do incredibly different that I think would draw in quite a few more customers.
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Dec 19, 2014 19:42
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Your forecast 3 year p&l doesn't have a tax line item, is there any particular reason for that?
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Dec 22, 2014 04:51
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Three of Clubs posted:Your forecast 3 year p&l doesn't have a tax line item, is there any particular reason for that? Are the payroll taxes the only ones I'm missing? e: added the 6.2% + 1.45% payroll taxes that I have to pay. Gothmog1065 fucked around with this message at 05:04 on Dec 22, 2014 |
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Dec 22, 2014 04:59
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Gothmog1065 posted:Are the payroll taxes the only ones I'm missing? It may be the different taxation systems in our countries, I was referring to income tax. Clearly if 30% (or whatever your marginal tax rate is) of forecast profit is going to disappear in taxes, your forecasts should take this into account. If that's not how small business works in the USA then please ignore this.
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Dec 22, 2014 05:55
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Three of Clubs posted:It may be the different taxation systems in our countries, I was referring to income tax. Clearly if 30% (or whatever your marginal tax rate is) of forecast profit is going to disappear in taxes, your forecasts should take this into account. If that's not how small business works in the USA then please ignore this. If you're referring to Income/Payroll taxes, most of those are withheld from the employee's check. I thought it all was, but was mistaken on that part. Looks like there are some taxes that the employer pays as well (6.2% social security and 1.45% medicare taxes) on the federal level, and probably on state level too, but since NC is a shithole and can't pay it's debts, it looks like I'm going to have to talk to a tax pro to get the current rates. If you're talking about profit/income taxes, those are taken out and paid at the end of the year after you file taxes, and AFAIK those aren't included in most PNL reports. Maybe they're added in a different way, not sure of that.
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Dec 22, 2014 14:17
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Generally speaking if you post a net profit in one year, the subsequent year you will pay quarterly estimated taxes of at least the appropriate amount as if you would make that same profit again. Now, you do not have to do this, but its a simple way to meet the requirements of the safe harbor provisions and prevent the IRS from levying a fine for not paying enough of your taxes on time.
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Dec 22, 2014 15:33
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You will pay quarterly estimated in your first year of operation too. There are ways around this, for example if your taxable earnings are less than 100% of your earnings the prior year, but don't be foolish and wait to come up with the cash at the following tax day. If the company is a sub S or Partnership/sole proprietorship, the taxes are pass through and the liability is held by the owners directly. On 100k net profit, MFJ, you probably should hold back ~25% and pay quarterly estimated taxes. You will have ER payroll tax of 7.65% plus state unemployment tax (~2%?) for all W2 employees, and maybe other state or local taxes. Google and local tax authority websites will explain it in layman details. Your employees also need to be W2, regardless of if they are 1099 or not with the existing business. You may have health insurance/ACA implications depending on size of business and hours employees work, but you also will get a tax credit if you provide benefits as a small business.
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Dec 22, 2014 16:51
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How big is this town? I find it really hard to believe that there is only 1 computer company. My super-tiny town has 8 that I know personally, and I'm sure there are others.
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Dec 22, 2014 21:52
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Gothmog1065 posted:If you're referring to Income/Payroll taxes, most of those are withheld from the employee's check. I thought it all was, but was mistaken on that part. Looks like there are some taxes that the employer pays as well (6.2% social security and 1.45% medicare taxes) on the federal level, and probably on state level too, but since NC is a shithole and can't pay it's debts, it looks like I'm going to have to talk to a tax pro to get the current rates. Regardless of whether or not income ("profit") tax normally appears on a P&L in the USA, the value of a business in your hands (and the maximum you should be willing to pay for it) is the present value of the net cash flows it will generate for you. In assessing that net cash flow you need to estimate how much tax you will pay on the business income, and subtract it. In any event, it looks to me that you have some huge data integrity issues to overcome before you can assess a value of the business, particularly surrounding how much he is taking out of the business off the books. The answer to that will most likely make a huge difference to your valuation. Ultimately it's very unlikely that you will get to the bottom of it (it would require analysis of his personal banking records), and for me this would be a do-not-pass-go issue due to the risk. Briefly on the topic of your 3 year forecast P&L (and setting aside the loan funding of $100k in year 1 and annual repayments of $12k in years 1, 2 and 3, which are only capital structure decisions), you're projecting a loss of $76k in year 1, and profits before tax of only $7k and $14k in years 2 and 3. You won't be making back your 1st year loss any time soon, let alone the purchase price. Other issues worth considering include: (a) Your labour expense looks low. While in practice you may pay yourself as little as possible while you're establishing your business, when valuing a business your labour costs should reflect market rates, i.e. the amount it would cost you to hire someone else to run your business for you, even if you plan to run it yourself. This is based on opportunity cost logic that if you weren't running your own business, you could go and run someone else's business and earn a reasonable wage. (b) As stated before, you need to consider the income tax that you will have to pay on the business' profits (or its distributions, however it works in your situation). (c) Key person risk - if you get sick or injured (for a day, week or month) can your business continue to operate? (d) Risk that the vendor will start up another hobby business after selling the existing one to you for $100k (or whatever you pay), leveraging off his existing relationships with your client base & reducing your forecast profitability. (d) Risk that your forecast success will spur other entrants into the market. It seems to me that the barriers to entry in this market are very low. (e) Future capex requirements - you have an equipment purchase of $43k in year one, as well as $24k in construction expenses. That will eventually wear out and need to be replaced. (f) You, like the business, don't have a proven track record. I know you believe in yourself but maybe you shouldn't. (g) Reliance on being able to secure a loan to fund the first year losses of $76k. Why would a bank loan you money, when the business (according to tax returns) has been making nothing for the past 4 years? Three of Clubs fucked around with this message at 03:20 on Dec 23, 2014 |
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Dec 23, 2014 02:44
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Spermy Smurf posted:How big is this town? I find it really hard to believe that there is only 1 computer company. There is one other actual "shop", I think there's about 3 guys who have some sort of prescence out of their houses, but it's not a lot, which is why I want to get in, get the base and go from there. Three of Clubs posted:Regardless of whether or not income ("profit") tax normally appears on a P&L in the USA, the value of a business in your hands (and the maximum you should be willing to pay for it) is the present value of the net cash flows it will generate for you. In assessing that net cash flow you need to estimate how much tax you will pay on the business income, and subtract it. I'll try to answer some of your points here. First off, I won't be buying the business, that's pretty well out, and he's proven he knows even less than I. So I'm going to leave that pile of poo poo alone. I will try to work some more taxes into my PNL, and try to expand it to a 5 year, and maybe even try to get the loan paid off in that time frame. I can also make some adjustments in some other categories (Construction and some of the equipment costs) to offset those. Those costs are actually high, so I do have wiggle room for some stuff (especially my first year). A> That labor is 2 people. 1 Myself at $600 a week which for around here is pretty drat decent. The other is $400 a week which is $10 an hour. That will be the menial work person, and that will go up (even more so than my pay). That may not be good for bigger cities, but for this area (Very rural), it is. I can always up this some. B> I will work these in C> Yes, I will be able to get someone in. If I'm incapacitated, that might be a different story, but my wife would handle that. D> They are, but people have very little expectations for this area, and they're probably going to be wrong. I would like to be on the forefront of this though. E> You're right, I should be spreading extra construction costs and modifications over a longer period, as well as equipment upgrades (Or do like the current guy has and use the same low-end gear for 6 years and wonder why I keep losing connection). F> And yet I can't prove my track record if there's nothing to prove. But you're right, but I will believe in myself, and I will believe I can pull this off. G> This is rather moot since I'm not going to buy the business, but I was going to show how I planned on growing, blah blah blah. I will continue to pursue this, but I'm not going in with my fingers in my ears and screaming. This is why I asked for help, and it gives me other things to look at and research. I'm also not hedging my bets on this either. I've got other options lined up.
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Dec 23, 2014 04:06
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As an aside, would anyone be willing to critique my actual written proposal?
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Dec 23, 2014 04:07
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I'm confused about what you're even doing. You say you're not buying the business, then you say you are. I can't be the only one that thinks spending $76k to pay yourself $15/hr is retarded.
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Dec 23, 2014 16:31
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My Rhythmic Crotch posted:I'm confused about what you're even doing. You say you're not buying the business, then you say you are. I've decided not to after thinking about it, the fact he's NOT going to come down on his price, and basic advice from this thread, I'm not going to buy it, hence me editing that fact into the OP. A> That labor [$52000] is 2 people. 1 Myself at $600 a week which for around here is pretty drat decent. The other is $400 a week which is $10 an hour. That will be the menial work person, and that will go up (even more so than my pay). Not sure where you're getting $76k from this? And how that is paying myself $15 an hour? The only time that number is mentioned is by Three of Clubs, and that looks like he's going off an older version of the spreadsheet before I added labor taxes, and that's my losses from the first year.
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Dec 23, 2014 16:42
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Gothmog1065 posted:I've decided not to after thinking about it, the fact he's NOT going to come down on his price, and basic advice from this thread, I'm not going to buy it, hence me editing that fact into the OP.
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Dec 23, 2014 17:16
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SiGmA_X posted:The 76k is your first year loss IIRC. The $15/hr is what you just stated in your last 2 posts. 600/40=15.... Yeah, I'm trying to figure out how I'm using $76k to "pay myself" when, in fact, it's $32k (as a base salary). Most of the net loss is going into the initial startup things anyways (Inventory, Furniture, office computers, initial advertisements, etc) which is kind of the point of a loan, or am I mistaken on that part? Even if I drop it to a 50k loan (Which i have set up), it's not going to change the overall numbers. There will be less loss, but there is also going to be a lot less purchased.
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Dec 23, 2014 17:29
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I am amazed that you can simultaneously describe $600 a week as "pretty drat decent" but act like a loan/seed capital of $100,000 is no big deal.
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Dec 23, 2014 17:43
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OP: What is your education level and what skills aside from computer janitorial services do you have? Computer janitor isn't exactly a huge growth area, is there some reason why you can't pursue a degree/certification/apprenticeship/etc in order to build some more valuable skills. If you feel like $600/week is 'pretty drat good' I'm going to guess you're quite young in an area without many good job prospects. I think you should step back - like you did from the idea of buying this business - and think about what a longer term life plan for yourself should be.
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Dec 23, 2014 17:50
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Gothmog1065 posted:Yeah, I'm trying to figure out how I'm using $76k to "pay myself" when, in fact, it's $32k (as a base salary). Most of the net loss is going into the initial startup things anyways (Inventory, Furniture, office computers, initial advertisements, etc) which is kind of the point of a loan, or am I mistaken on that part? Even if I drop it to a 50k loan (Which i have set up), it's not going to change the overall numbers. There will be less loss, but there is also going to be a lot less purchased.
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Dec 23, 2014 18:06
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Droo posted:I am amazed that you can simultaneously describe $600 a week as "pretty drat decent" but act like a loan/seed capital of $100,000 is no big deal. I know it's a big deal, and for this area, yes 600 a week is decent. It's not good, it's not great, but it's decent. Yes, I want to make 100k+ a year, it's be fantastic, especially in this area. n8r posted:OP: What is your education level and what skills aside from computer janitorial services do you have? Computer janitor isn't exactly a huge growth area, is there some reason why you can't pursue a degree/certification/apprenticeship/etc in order to build some more valuable skills. If you feel like $600/week is 'pretty drat good' I'm going to guess you're quite young in an area without many good job prospects. I think you should step back - like you did from the idea of buying this business - and think about what a longer term life plan for yourself should be. AS in Civil Engineering AS in Geodetic Surveys A+ Working on my Net+ Young, no. Poor job prospects, yes. Most of the basic Network Admin jobs run $40k a year. Of course, you move closer to the cities, that number goes up. I'm not looking at staying at $32k a year for the rest of my life, but it's a good starting off point. I'm not planning on being a "computer janitor" for the rest of my life, but it's a starting point. I'm also not hedging my bets on this. I do have another job coming up soon. This is something I would like to do, and it's a needed market in this area, for a few years at least. Again, I'm not planning on staying with that market as my main focal point forever, I do plan on continuing my cert paths and work into CCNAs, the MSCE certs, and branching from there, and again, moving into businesses that need this kind of support but can't pay for their own techs.
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Dec 23, 2014 18:19
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From what I can see, the level of service people get for computer janitorial work is almost always terrible. People frankly don't know any better, and if you show up and are polite and charge reasonable rates they won't be able to tell much difference between someone who is really good at their job and not so good. What is your intended career path with the MCSE type of certs? What is preventing you from getting one of those 40k/yr network admin jobs? What is preventing you from using your AS skills in engineering/surveying? What are the benefits of the ~$32k/yr self run business over one of the above career paths? Just because there is a need in the market for a better computer janitor doesn't mean that it's a viable job/career.
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Dec 23, 2014 20:09
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n8r posted:From what I can see, the level of service people get for computer janitorial work is almost always terrible. People frankly don't know any better, and if you show up and are polite and charge reasonable rates they won't be able to tell much difference between someone who is really good at their job and not so good. The MCSE, I'll probably shoot for the Desktop and Server certs to help show my experience in dealing with that then move down the CCNA path. From there it depends on whom I am working for and what they need. Other certs will be looked into at that juncture. I'm working on the 40k a year Network admin job, but there's few posted within reasonable distance. I almost had one in a town 1.5 hours out, but they chose someone closer to them. I've actually got a contract helpdesk job for the rest of the school year, but I'm not going to stop looking for obvious reasons. Engineering is pretty sparse down here. There's not a whole lot of those jobs available, I'm ~5 years out of the diplomas, and would have to relearn a lot of it (not like a lot of what we did in school is really much relevant to the field). Being a land surveyor can net some money. Basically when I was ready to graduate, it was 2008, and the housing bubble burst hard where I live, and all the guys that I was in school with who were with engineering firms were laid off. I could pick it up fast enough, but I'll be rusty for awhile. Then I'd still have to get 6 years of experience to get my professional license. The benefits of the small business is it would be mine. Hours I would set, and I could do other things as well, work on my certs on downtime, get those certs and expand into more fields again. It's a flexibility thing.
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Dec 24, 2014 02:23
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