MLM Directory

Thoughts on purchasing a business?

I have been working with the current owner of a small company over the last few months with intentions on purchasing it on Jan 1, 2009. The business distributes, direct sells and installs wood furnaces, solar panels, wind turbines, passive solar and radiant floor heating, with two new products slated for introduction next year. Dealer network of 6 active, 6 non-active, with open potential to develop dealers throughout the west. At first, the owner wanted to be involved for 5 years and finance half of it, Now he wants all cash up front and only wants to be involved for 6 months. Last years sales were $680,000 with net profit in the $300,000 range. Next year he is estimating sales of $230,000 due to the economy and the depressed price of oil and energy. Gross profits will be in the $75,000 range. The company does not have auditable financials, he does not have to sell the business. Sales price is $400,000 with $200,000 in good will, $150,000 in marketable inventory and $50,000 in assets. Financing would be $400,000 @ 8% over 7 years, first two years interest only payments required, with $50,000 extra cash as working capitol. New owner has business management experience, strong interest in entering the alternative energy market and a small network of entrepreneurs for advice. So the question is: With energy prices, the economy depressed and credit hard to come by, would purchasing this business (on credit) be a good investment? Thanks for the answer Getalife. After additional analysis and advice, an offer would be $225,000, max bid at $250,000.

Public Comments

1. Absolutely not. The existing owner is looking for an easy way to cash out and walk away. YOU are stuck with an overly burdened operation that will be struggling to dig out of debt for the next 5+ years. With that kind of investment and your experience, why can't you start your own and COMPETE against him? I never buy a business unless it's valued fairly and the owner will carry at least half for a long term. This guy doesn't even have credibly audited financial statements so how do you know what you're really getting? You don't. Take your money, sign up your own dealers and beat him at his own game. If you're successful, you'll be buying up HIS operation for pennies on the dollar in a couple years. If not, you learned your first lesson as an entrepreneur. Win-win for you.
2. You have not signed a non-compete clause. Open your own business. Do not keep the other guy in any fashion. You can pay him a consulting fee if you need advice..