View Full Version : Need information to pull this together
Okay, we spent 3 hours last night talking with the current management at the Limousine service that we are looking to purchase.
We need to get more information, but have some good information thus far.
I wanted to get some feedback from the group though.
One person told us that if it cost more than $100k, we might be better off starting from scratch. Our question on that matter would be as follows:
Is that number meaning purchasing all assets, or is that assuming leases on vehicles???
This company has 3 paid off vehicles, and one under lease. All of the vehicles have fairly low mileage. (Only one is in the 6 figure ballpark.)
I am unsure of what the total debt is, but it appears that the current outstanding loans on the business total around $145k. The owner told us $80k would purchase the business, but we need to find out if that would mean assuming the remainder of that amount. We have posed that question to the owner, but do not know yet.
When the current owner purchased the business, our understanding was that it was near death financially (heavily in debt) and making almost nothing each month.
Now it is bringing in enough to pay the bills each month, with a little above that, but we are going to dig into the books to see what the real picture is, not just the picture on paper.
Another thing that we are looking into is, if we purchase this business or start our own, we believe that there would be a great market for a specialty vehicle. There do not appear to be any antique limousines in our area. There are "party buses", Navigators, "party vans", and a company that is taking a poll to decide on whether to get a hummer or a 30 passenger Navigator.
What do you think about something old? And do you think that it would need to be a limousine, or do you think that an antique vehicle would work?
In checking out the other services in our area, we believe that we would need to add a couple of other limousines/sedans to the group to compete, but also to set the company apart from others in the area.
Also, can someone give me some advice on what the monthly depreciation on each vehicle should be? According the financials, we think that the depreciation that is currently being figured appears to be kind of high.
Any assistance you can be to us would be greatly appreciated.
Ann and Richar
Business valuation is tricky and there are no hard-and-fast rules about it.
Personally, I think a good measure of valuation is 3-5X net earnings. (PE Ratio of 3-5 which is actually quite low)
You mention a lot of things but make no mention of DOCUMENTED NET EARNINGS.
If you are paying 80K, and assuming 145K (loan) you are actually paying 225K for this business.
What are the gross and net earnings of this business which can be documented? Without this information, I cannot give you my personal valuation of what the company is worth, and what I would pay for it.
If you want, I would suggest going on a detailed fact finding mission, posting the data here, and let our forum members would post their opinions of business value. This perhaps would be most beneficial to you to get a cross-consensus of what this business is worth to those in the industry.
o Assets: $92,000 (4 cars)
o Net Earnings 2001: $59,000
o Revenue 2001: $602,000
o Employees: 4
o Liabilities: $145K
What's it worth??
The only figures that I have so far are for Feb - May of this year (2002). We are supposed to get the rest Monday, but we already know that they will not be spectacular. This owner is doing a little better than the last one as far as supporting the business, but they do no advertising currently other than Yellow Pages and word of mouth. And they are operating on a bare bones budget for everything right now in order to get cash flow into the business.
Current Assets - $14,945.97
96 Cont 8 Pass - $38,480.00
96 Cont 10 Pass - $40,980.00
98 Cont 14 Pass - $61,380.00
Accum Deprec - -$78,400.00
Vehicles Other - -$ 2,045.50
Total Vehicles - $60,394.50
Fixed Assets - $66,703.71
Total Assets - $81,649.68
(There is a 4th vehicle, but is is on lease so it is not a part of the total assets, and the depreciation looks very high to us, but we could be wrong.)
Net Profit (4 months)
February - -$4,457.43
March - -$5,663.90
April - -$1,709.48
May - $14,816.67
(And according to our calcuations so far, the April figures had a major discrepancy, and rather than losing money, actually appeared to show a profit of $1878.17, but this is based on preliminary data.)
Revenue (4 months)
February - $9,071.50
March - $7,264.36
April - $13,507.82
May - $19,995.56
Employees: 13 part-time drivers
Liabilities - $146,095.23
Supposedly, if we were to purchase the business, it would pay off one or more of the current liabilities. So the final liabilities would be whatever our loan is, plus about $65,500. The person has said they would sell for about $80,000, but we have to verify that on Monday when they are back in town.
I hope that this is enough information to get a good picture of the situation. Let me know if I need to factor in anything else
You seem to be doing a good job on the financials but my only question is what else are you getting for the money? Are they servicing some good corporate clients, do they have a good reputation in town, what is thier repeat business like, where does most of thier business come from?
From what you wrote:
" but they do no advertising currently other than Yellow Pages and word of mouth"
It would seem to me you could start your own company and compete on an even playing field with this company. Any reason you couldn't?
So some questions I would ask:
Who are the largest revenue clients and how much have they used them in the past three months?
Are you going to get some type of data base of clients contacts to use for your new marketing?
Call 10 of thier customers at random and ask what they think of the company, will they use them again, and if not why not.
Look into what it would cost to buy similar (comparable) vehicles and other assets that you are getting and take that figure and compare it to the 145,500 you will be assuming. That diffrence amount is what you are paying for the companies reputation and image. Is it worth it? Thats up to you but I tell ya it aint looking to good from my point of view!
Why are you buying the corporation and it's associated debt? You could just buy the hard assests plus whatever you deem proper for the customer list, phone number, and anyother intangibles. Also, you don't know if the corporation has any pending suits or other hidden problems. Good Luck but I agree, you may want to pass on this one.
Thank you to those of you who have responded. This morning I heard from the current owner, and am leaning more towards getting away from this than getting into it.
When we originally, when we spoke, he had told us that he needed $80,000, but now, when I asked him how much it would take to get the business "free and clear", he has stated $165,000.
That is a lot more than I could even imagine! According to HIS figures, the assets are only worth about $81,649.68.
That would mean that I would be buying another $83,350.32 in debt.
Now, granted, this business does have a good standing in the community, and has been in business since 1998, with only one complaint to the BBB, and that was well over a year ago, and it was labeled as "resolved". However, I cannot imagine that it would be worth it to buy that much debt.
If the cars are only worth $66,000, and the remainder of the assets are only worth $15-20k, what are we actually buying???
We had thought, when we were told $80k, that we could get a loan for about $150k, and use the remainder to purchase 3 other vehicles (a sedan, a 6 passenger, and an antique specialty vehicle) and work on the advertising portion of the business. However, I do not think that we could, or would even want to, take on $230k+ in debt to grow the business.
I guess we have answered our own question, but we have appreciated all of the insight.
Now, we just have to look at a feasibility of whether we want to start our own service. It takes ALOT of work, and I'm not sure we know enough yet to know what we would need to do in order to do so.
Thank you again,
Ann and Richard McNall
In 1998 I was offered a company with $400K a year in sales. My opinion of the seller was very low at the time and I trusted him, NOT! I did have a very high opinion of the service level he offered his clients and those clients included the top executives at a company in my area (with 2200 employees) that I just couldn't penetrate.
He wanted me to assume the notes on four sedans and a limo van. In addition, he wanted to hold paper on an additional $200K. Including the balance on the vehicles to total purchase price was close to $400K. Way way to much money and I would own his corporation. Rule #1 in acquizition is NEVER buy the corporation. There is no way to know what outstanding liabilities there are until the debtor comes knocking on your door.
Here's what I did. I considered his offer for about 50 seconds. I countered with "I'll buy your phone number and client list for $10,000 cash. I'll give you 10% of what ever revenue comes my way from those assets for 48 months." He laughed like hell and walked out of my office.
A month later, when he figured out that I would not negotiate, he took the offer.
48 months is up in August this year. The seller has received a total of about $110,000. The sales from those assets have been about $20K per month. It was not a $400K company at all, but I don't feel bad about buying it. Sales from that one account I wanted , the only thing I really wanted out of his whole company, are now about 100K per year! Nope, no regrets here.
There's the story and here's some pointers;
1) Never buy the corporation
2) The seller ALWAYS wants 2 to 3 time more than it's really worth.
3) Decide what it's worth to you, offer that amount and forget about it until your offer is accepted.
4) Remember always that you can start a limousine business for less than $5000
AAA Guaranteed On-Time Limouisne, Clinton NJ
June 26th, 2002, 02:39 PM
Can anyone provide a guesstimate of what one would expect to generate for various vehicles based on MSA of 1.2 million people. Plenty of limos in the market, but only a few serious players.
I need to finish my business plan, but I don't have a clue as to the numbers I should put on the financial pages.