Am I Nuts? Help Me Out

dryblls

after being out of excavating for about 16 years I am thinking of getting back in. I owned my own small business for a while and worked for 3 other contractors doing commercial and residential dirt work, grading, septics, trucking etc etc. Obviously, I have been out for a LONG while. I have made some money but I am not loaded by any means. I have always missed construction and thought I would have been happier running my own company. I read the paper and being a finance guy I am acutely aware of the current economic state. I have an opportunity to buy an existing well know firm in northern new england. There are 5 excavators, 2 wheel loaders, D6, JD450, grader, roller, 5 pickups, 2 one tons, 3 tri axles, 3 tractors, 2 low beds, extensive snow plowing gear, sanders etc. a large gravel pit and another piece of land for the shop etc.---i understand that there is little detail here to base a value on. I am doing due diligence now and just want your thoughts--the asking price is in range of 1.5 to 2 million depending on who pays off the existing $400k in debts---I will be seeing tax returns soon and understand that last year was better than this year will be etc etc.

A W Smith

is there a client list? accounts? business name? or just the equipment, property and debt?

__________________
Al Smith
http://www.awsmith.com

dryblls

thanks for your reply....client list and business name is included. The current owner will stay on and be paid a reasonable amount to help me for 1 to 2 years. He is well known in town and has strong long standing relationships which are a priceless asset. There is also a key guy who I have not met yet. He runs the bigger jobs and is described as being very important. I intend to retain him with financial incentives etc. The current owner is 58 years old and has been at it 30 years or more. I will need to get a survey as to what the usable life of the pit is. I am told that it has 5 years left at current run rates. I am told (net yet verified) that the snow plowing business is close to 300k per yr.

A W Smith

access to overhead costs per year? Can you track fuel costs and see how it impacted profitability in the past? what about debt service? Liability costs? If they are in debt and falling behind will their credit rating negatively effect yours? Can the gravel pit be use/converted to raw land for other use five years into the future? industrial park? Condos? (they do that around here for sand pits) or must it be restored? Covenants? liens? use restrictions? Noise or traffic restrictions? Are you familiar with local politics? Have their been complaints or issues in the past? like dust control or runoff? Are they involved in the community to promote a good neighbor atmosphere? Is there equipment thats little used that can be sold off to cover debt? Can you cut operating costs somewhere to make this company more profitable to get back in the blue?

please understand i am not an excavator, but my dad taught me to be a pessimist and cover all bases before jumping in and losing it all. but those are the questions i would ask.

__________________
Al Smith
http://www.awsmith.com

dryblls

Al, I am with you and was also brought up to ask questions and never go blind into a venture. All good questions. I was told last summer fuel costs were in the $30,000 per month area. The owner is popular in town and a member of local government. it is basically a rural area especially where the pit is located. i plan to engage with a engineering firm to give me advice on what land use can be. I will need to speak to his insurance agent and see policies in oder to verify insurance costs as well as see what he is deducting for it on his tax returns.

gallerytungsten

Perhaps you can make all or part of the deal on an earnout basis, meaning that the current owner gets paid over time according to results.

JDavis21835

You need someone to verify the value of the equipment also. See if you can have a dealer do an assesment of each machine. If you are getting iron that is tired, you will have a hard time turning a profit. Downtime can be a big killer. I would almost get rid of the trucks, but im sure they are set up for snow removal. Trucks are expensive when you consider there are tons of truckers out there starving for work.

backhoe1

Lots of good advice here. I do haveto laugh alittle about how every one is so quick to tell
guys they don't need trucks, I guess it must be different elsewhere, because here the
only people that have trucks are excavating co's. If I didn't have my own trucks I wouldn't be
able to bid on ANY job that required hauling material or equipment because I'd haveto hire my
competition to do the hauling. Just my .02

JDavis21835

backhoe1, that may be true for your area. Around here we have several trucking companies that have 20-30 Michigan trains. It used to be common for them to work by the hour, but when fuel went up a lot of companies changed how they were doing things. Instead of backhauling empty, now they pick up a load and get as close to the site as possible. So now most charge by the yard.

In michigan, Trucks are expensive, as they are most places. But we generally have more axles, which means more tires, more breaks, more everything. Around here i see most small outfits work without much in the way of their own trucks. In my opinion, A single axle with a tag trailer will do a lot of what you need to do. That single axle will get into back yards, or narrow alleys. Combine that with one semi. You have a lowboy for moving equipment, and then you also have a 30 yard lead. That way you have a truck that can haul enough material to do a sewer repair at times you cant get another trucking company to bring you material. This would be at nights, and on weekends.

dryblls

there are actually 2 trucks that stay set up as plow trucks I did not include them specifically above. They are older but appear to be good set ups for plowing. Much of the business in the past has been stumping lots for new custom homes. Without trucks much of the profit would be gone I feel. Most of the iron is fairly new. The excavators and wheel loaders are not more than 3 years old. All of the firms I worked long ago only ran one lowbed, my bet is I could liquidate one lowbed set up to raise cash (i know prices suck right now)--I have spoken to a heavy equipment appraiser, I have also been researching what similar stuff has been selling at auction for, I found auction results through Google. I will probably be engaging the services of the appraiser to examine and inventory all the stuff. I spoke to the state about the gravel pit and was told that it is in good legal standing. I will be contacting an engineering firm to tell me how much useful life the pit has.

dayexco

Prussman? i'm 40 miles north of you, and trust me, i can't own trucks other than for my convenience, and my trucks are NOT fancy. i can get triple axles for $65-70 an hr.....here, i couldn't keep em busy enough to justify that rate.

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someday, i'll be as patient as Nick.

backhoe1

Day, You're right there are trucks to be hired, just not that aren't owned by people that do the same type of work that I do. How would it look if I won a bid and then had to ask the other bidders to do the hauling? I also agree that you don't make money by hauling, you save money by not waiting

dryblls

Day and Back hoe any other thoughts on my possible venture? thx

rustyjames

I would have the equipment looked over by someone who really knows the nuts and bolts. An appraiser doesn't usually crawl around and give it a through inspection. As we all know there's nothing cheap when it comes to repairs.

dayexco

hard to sell "blue sky" in the construction business. many times, small construction businesses are worth what their equipment will bring at an auction unless there's a pile of profitable already signed contracts in place. if you're looking to buy blue sky, want to move to south dakota?

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someday, i'll be as patient as Nick.

dryblls

too far for me --but you have me thinking about buying the "goodwill" also know as "bluesky" and weather or not it makes any sense--thank you

A W Smith

don't forget to include a no compete clause,

http://www.vault.com/nr/newsmain.jsp...31&cat_id=1244

in one or two years when the current owner and key person are gone they could just as easily hand off your client lists and inside info to a son, nephew or sibling. in fact they could be doing it right now before the sale and benefiting by referring clients to another company already in existence. And selling you just the hollow shell of a company.

__________________
Al Smith
http://www.awsmith.com

Vinny

Am I nuts????


Yes Welcome aboard anyway, you'll be in great company

__________________
Roccies Asphalt Paving
The Right Way Driveway Company
If you say you cant, your a loser. If you say you wont, your a quiter. Which one do you want to be?

dryblls

I agree with the non complete agreement. I am very familiar with them and will definitely require one.