Surly Thread of Business Owners/Managers, Etc. & Current Business Climate

[Cheeseweasel 26,438]

12 minutes ago, VABuckeye said:

I operate at gross profit of 65-80% before labor on a project.  I'd kill myself at those margins.

Yeah, most "rules of thumb" numbers are meaningless unless you know what the business is. Manufacturing usually requires massive PP&E so assets are going to be higher on a balance sheet vs. Bob's Electricians Inc. But Bob's Electricians Inc. probably goes under as soon as Bob retires.

[VABuckeye 2,472]

Very true.  We're also a mostly labor model but I pay and charge a premium for our labor.  It's very specialized.  Also can be tough to get the right guys but when we do we work to hang onto them.

[Incredulity 11,682]

1 hour ago, Snacks said:

Your first sentence I get.

Your second sentence... If someone is selling a business at 3x EBITDA of $500k, That's $1.5MM sale price.... 

and if I'm looking at a few rules of thumb:

Using 1x Revenue -- expect $1.5MM revenue

20% Net Profit margin = $300k

10% Net Profit Margin = $150k

Seems reasonable to me considering low costs of capital... especially if I think I can find ways to +rev/-exp.

 

20% net profit businesses are pretty rare, in that, that kind of return usually draws some stiff competition.  
 

I’m not trying to talk you out of anything, but I would count on any business you buy to needing some(alot) of effort to get to a 20% net.

 

 

[Incredulity 11,682]

1 hour ago, VABuckeye said:

I operate at gross profit of 65-80% before labor on a project.  I'd kill myself at those margins.

As I read it he was talking Net Profit not Gross Profit.  Not sure if he means pre-tax or not.

 

[Cheeseweasel 26,438]

3 minutes ago, Incredulity said:

20% net profit businesses are pretty rare, in that, that kind of return usually draws some stiff competition.  

[Slacks 6,860]

1 hour ago, VABuckeye said:

I operate at gross profit of 65-80% before labor on a project.  I'd kill myself at those margins.

You'd kill yourself at net margin of 25%?  

1 hour ago, Cheeseweasel said:

Yeah, most "rules of thumb" numbers are meaningless unless you know what the business is. Manufacturing usually requires massive PP&E so assets are going to be higher on a balance sheet vs. Bob's Electricians Inc. But Bob's Electricians Inc. probably goes under as soon as Bob retires.

For sure.... I'm not buying Bob's...  And not so sure I'd want to buy Mfg, unless it was established and the management really liked running the thing.

1 minute ago, Incredulity said:

20% net profit businesses are pretty rare, in that, that kind of return usually draws some stiff competition.  
 

I’m not trying to talk you out of anything, but I would count on any business you buy to needing some(alot) of effort to get to a 20% net.

 

 

I know people who are at 25%+ and starting new lines of business that run at 15% at a very conservative minimum.  Like you said, it just depends on what the business is.  My "rule of thumb" was to point out that the businesses are out there.  Even margin is 15% in my example, it's a decent business to consider.

 

I'm interested in what it is you guys are doing that you say has such low margins... (either that, or I am misunderstanding, because this is internet...)

[Cheeseweasel 26,438]

Just now, Snacks said:

I'm interested in what it is you guys are doing that you say has such low margins... (either that, or I am misunderstanding, because this is internet...)

Manufacturing. We make a decent net margin (8-10%) which is good for our industry. 

[Incredulity 11,682]

2 minutes ago, Snacks said:

You'd kill yourself at net margin of 25%?  

For sure.... I'm not buying Bob's...  And not so sure I'd want to buy Mfg, unless it was established and the management really liked running the thing.

I know people who are at 25%+ and starting new lines of business that run at 15% at a very conservative minimum.  Like you said, it just depends on what the business is.  My "rule of thumb" was to point out that the businesses are out there.  Even margin is 15% in my example, it's a decent business to consider.

 

I'm interested in what it is you guys are doing that you say has such low margins... (either that, or I am misunderstanding, because this is internet...)

I would be very interested in hearing what line of business is producing 25%+ net profit.  Those are Apple type profit margin numbers.

PE guys drool over businesses with half that for net margins.

 

[Slacks 6,860]

42 minutes ago, Incredulity said:

I would be very interested in hearing what line of business is producing 25%+ net profit.  Those are Apple type profit margin numbers.

PE guys drool over businesses with half that for net margins.

 

Buddy of mine has an Oilfield Services (mostly staffing) business. He does quite well. 

Another buddy has a law firm and real estate brokerage.

 

I can see manufacturing being low margin... but services should not be.

 

[T’Boo Ted Marshall 2,739]

Those recent examples are high labor/wage type businesses where the margins are usually higher. They require little to no equipment or materials to operate them other than the people.

[VABuckeye 2,472]

1 hour ago, T’Boo Ted Marshall said:

Those recent examples are high labor/wage type businesses where the margins are usually higher. They require little to no equipment or materials to operate them other than the people.

Exactly.  Pay $45-$55 an hour and charge $115-$135 for highly skilled labor is what we do.  Yes I still buy some materials but my prime supplies the expensive gear.  We install and program it. 
 

I will admit we are in an unusual circumstance but it took years to build the relationship to get here. 

Edited September 22, 2021 by VABuckeye

[VABuckeye 2,472]

3 hours ago, Snacks said:

You'd kill yourself at net margin of 25%?  

For sure.... I'm not buying Bob's...  And not so sure I'd want to buy Mfg, unless it was established and the management really liked running the thing.

I know people who are at 25%+ and starting new lines of business that run at 15% at a very conservative minimum.  Like you said, it just depends on what the business is.  My "rule of thumb" was to point out that the businesses are out there.  Even margin is 15% in my example, it's a decent business to consider.

 

I'm interested in what it is you guys are doing that you say has such low margins... (either that, or I am misunderstanding, because this is internet...)

Your example that I responded to was 10% net. Hence my reply. 

[Cheeseweasel 26,438]

13 hours ago, T’Boo Ted Marshall said:

Those recent examples are high labor/wage type businesses where the margins are usually higher. They require little to no equipment or materials to operate them other than the people.

And barriers to entry are practically nonexistent. 

[Brew 3,049]

14 hours ago, T’Boo Ted Marshall said:

Those recent examples are high labor/wage type businesses where the margins are usually higher. They require little to no equipment or materials to operate them other than the people.

They also typically have ownership serving as part of the labor pool. Most professional service firms are shooting for 33% nets. Construction trades are up the last couple of years as well. Subs especially electrical are running in the 20%+ range, concrete guys are killing it, generals are up as well but not like subs, etc.

It’s going to be hard to find a business to write a check for that pays the bills. Most, outside of retail type operations, are relying on industry relationships/experience and that’s typically what you are paying for. The best bet is generally to take something you are good at and start growing it. There also isn’t a lot for sale right now. I get information from all the regional brokers and they are all soliciting companies right now because they don’t have much. What is for sale that’s worth something is getting bought up by PE groups and stupid multiples. We’re working on a deal now for a pest control company that will end up trading at 3x gross sales and about 20x EBITDA.

[Cheeseweasel 26,438]

8 minutes ago, Brew said:

We’re working on a deal now for a pest control company that will end up trading at 3x gross sales and about 20x EBITDA.

Holy shit. Did they cure cancer?

[Brew 3,049]

1 minute ago, Cheeseweasel said:

Holy shit. Did they cure cancer?

No, the PE is trying to hit a certain level of annual contracts to flip their whole package to the next level up PE. This one is way high side of what they have been paying, but they have all been at stupid multiples. They are consolidating operations so they are cutting overhead significantly, but it’s still crazy. It’s also the market that everyone is competing in, there is a lot of cash out there and each PE size in the market is trying to accumulate to flip to the next size up.

[Slacks 6,860]

3 hours ago, Cheeseweasel said:

And barriers to entry are practically nonexistent. 

While true, I could hang a shingle, in the highest margin case, I'd have no shot at making money for years, because I don't have the relationships and expertise.

In the other, it's just how much time do I want to spend building the thing (almost none) vs. buying and/or augmenting an existing org.

I've been contemplating for so long that I should have had something for 5 years already...

[Slacks 6,860]

2 hours ago, Brew said:

No, the PE is trying to hit a certain level of annual contracts to flip their whole package to the next level up PE. This one is way high side of what they have been paying, but they have all been at stupid multiples. They are consolidating operations so they are cutting overhead significantly, but it’s still crazy. It’s also the market that everyone is competing in, there is a lot of cash out there and each PE size in the market is trying to accumulate to flip to the next size up.

A roll-up in pest control... interesting...

ABC Pest Pool and Lawn did it at the local level... makes sense.

[T’Boo Ted Marshall 2,739]

2 hours ago, Snacks said:

A roll-up in pest control... interesting...

ABC Pest Pool and Lawn did it at the local level... makes sense.

Home and Commercial Services.  You can add Garage Door to that portfolio.  

[VABuckeye 2,472]

8 hours ago, Snacks said:

because I don't have the relationships and expertise.

Yessir.  It’s taken a long time to develop trusting relationships where a client hands a project to you and says to do your thing.  

[Wally Pryor 5,262]

Need some temp accounting (Sr. Accountant-type) help in Austin. Let me know if you know of any contracting companies you've worked with.

TIA

[deadshank 24,653]

Last day for my office manager.  She’s been with us for 7 years.  
 

An outstanding employee that graced us with personality, pleasant nature, no bad days, hard work, attention to detail, a sense of proprietorship, never a bad word, long on beauty and a smile that melted polar caps.  
 

Put herself through college and grad school with no student loans and all on her own dime.

She will be missed as she pursues her career in psychology.   I told her she has the happy hunting grounds for psychos at our office but she said we are beyond help.  
 

That lady will be sorely missed.   
 

Damn.  Few and far between.  

[Cheeseweasel 26,438]

Losing good people to better opportunities is so bittersweet. 

[DefinitelyNotHollywoodColt 12,301]

Still pretty wild to go back and read through the PPP days where the bootstrap crew is openly bragging about receiving welfare without a hint of self-awareness. Covid really did turn the world upside down.

Anyways, decided it’s time to move on and we’re taking our business to market. Obviously the markets have changed since the heady days of 2021-early 2022 but we’re up 50+% YoY and have some inbound interest from large strategics with whom we have commercial relationships.

Choosing a banker now in prep for running a process and trying to mentally prepare for the shitshow that cometh. The thought of trying to run the business and make sure growth doesn’t slow while running this process gives me panic attacks.

Anybody done it and have advice (read: a good drug dealer)?

[Incredulity 11,682]

[Brew 3,049]

19 hours ago, DefinitelyNotHollywoodColt said:

Still pretty wild to go back and read through the PPP days where the bootstrap crew is openly bragging about receiving welfare without a hint of self-awareness. Covid really did turn the world upside down.

Anyways, decided it’s time to move on and we’re taking our business to market. Obviously the markets have changed since the heady days of 2021-early 2022 but we’re up 50+% YoY and have some inbound interest from large strategics with whom we have commercial relationships.

Choosing a banker now in prep for running a process and trying to mentally prepare for the shitshow that cometh. The thought of trying to run the business and make sure growth doesn’t slow while running this process gives me panic attacks.

Anybody done it and have advice (read: a good drug dealer)?

One of our companies only deals in transaction advisory services. The capital markets have been strange since last August or right around then. Everything has slowed down significantly and things aren’t selling like they were before or for the same multiples. We’re still seeing interest in good companies, but seller expectations are skewed with where multiples were in the low rate / high cash environment. It has picked back up recently, but a lot depends on the numbers and the company type. The other issue is your last paragraph. There are a lot of companies kicking the tires on selling because they are done with the current operating environment and buyers know that so they are focusing on the cram of the crop.

[Slacks 6,860]

On 9/22/2021 at 12:48 PM, T’Boo Ted Marshall said:

Home and Commercial Services.  You can add Garage Door to that portfolio.  

[DefinitelyNotHollywoodColt 12,301]

1 hour ago, Brew said:

One of our companies only deals in transaction advisory services. The capital markets have been strange since last August or right around then. Everything has slowed down significantly and things aren’t selling like they were before or for the same multiples. We’re still seeing interest in good companies, but seller expectations are skewed with where multiples were in the low rate / high cash environment. It has picked back up recently, but a lot depends on the numbers and the company type. The other issue is your last paragraph. There are a lot of companies kicking the tires on selling because they are done with the current operating environment and buyers know that so they are focusing on the cram of the crop.

When you say operating environment, are you specifically talking about their inability to fundraise?

Our attorney works for a firm that focuses on M&A advisory services and he said most deals being shopped right now are fire sales due to an inability to fund their next raise. We’ve been profitable for well over a decade and are definitely not in that boat, which seems like a position of strength right now.

By the way, you bankers are a bunch of used car salesmen. No offense or nuthin’!

[T’Boo Ted Marshall 2,739]

When you say operating environment, are you specifically talking about their inability to fundraise?
Our attorney works for a firm that focuses on M&A advisory services and he said most deals being shopped right now are fire sales due to an inability to fund their next raise. We’ve been profitable for well over a decade and are definitely not in that boat, which seems like a position of strength right now.
By the way, you bankers are a bunch of used car salesmen. No offense or nuthin’!

The cost of Capital is not favorable in the current environment.
We have ~$80m in LOI out right now. Creeping to $100m by year end.

[Brew 3,049]

25 minutes ago, DefinitelyNotHollywoodColt said:

When you say operating environment, are you specifically talking about their inability to fundraise?

Our attorney works for a firm that focuses on M&A advisory services and he said most deals being shopped right now are fire sales due to an inability to fund their next raise. We’ve been profitable for well over a decade and are definitely not in that boat, which seems like a position of strength right now.

By the way, you bankers are a bunch of used car salesmen. No offense or nuthin’!

No, we’re seeing a lot of owner’s looking to get out because they are tired and the last three years haven’t been much fun. Employees, interest rates, supply chains, customer demands, etc have all made life more difficult. Flip side is most (outside of our manufacturing clients) are having record years each subsequent year which also has them thinking now is the time to jump.

We aren’t dealing with any fire sales but the vast majority of our client base is family owned entities with valuations from the mid seven figures to mid nine figures. I have one manufacturing client that is looking at selling at equipment value but it’s a stupid number that isn’t far off what his best value was on earnings because of the industry he is in. I have others out on the market now that aren’t getting interest even though everything about them says they are good buys with excellent potential.

Multiples are down from the high point and money is a little more scarce right now, but the market is still moving.

[Hefeweizen 5,328]

We’re always acquiring, and valuations are way more reasonable than during the Rona.  Still higher than before 2020 but at least private equity has gotten the fuck out of this space.  Those guys Fuck everything up for players in the market just looking to expand.  They buy at inflated value without regard to what works in the industry.

[Brew 3,049]

2 hours ago, Hefeweizen said:

We’re always acquiring, and valuations are way more reasonable than during the Rona.  Still higher than before 2020 but at least private equity has gotten the fuck out of this space.  Those guys Fuck everything up for players in the market just looking to expand.  They buy at inflated value without regard to what works in the industry.

It’s kind of interesting how they follow each other around with industry investments and how everything ebbs and flows around it. PE investments are on fire right now in the accounting industry. Multiples are through the roof, every PE/family office is chasing an investment and it will be interesting what happens when that valuation bubble pops.

[T’Boo Ted Marshall 2,739]

We’re always acquiring, and valuations are way more reasonable than during the Rona.  Still higher than before 2020 but at least private equity has gotten the fuck out of this space.  Those guys Fuck everything up for players in the market just looking to expand.  They buy at inflated value without regard to what works in the industry.

What types of companies are you acquiring?

We are quasi PE backed. Mostly family offices but many of our deals we are acquire are proprietary so the multiple is much lower. We have sellers roll equity and a small earn out.

[Hefeweizen 5,328]

1 hour ago, T’Boo Ted Marshall said:

What types of companies are you acquiring?

We are quasi PE backed. Mostly family offices but many of our deals we are acquire are proprietary so the multiple is much lower. We have sellers roll equity and a small earn out.

Engineering and surveying.  Throughout the southern part of the country.  
 

PE is good if it’s patient money.  I have no use for the kind that overpays, thinking they can either split the business up (and resell) or just increase prices to justify the price paid.

[T’Boo Ted Marshall 2,739]

The way we are acquiring we should be out in 24 months or less with a conservative 4-5x return on rolled equity.

[Cheeseweasel 26,438]

On 6/10/2023 at 10:23 AM, DefinitelyNotHollywoodColt said:

Still pretty wild to go back and read through the PPP days where the bootstrap crew is openly bragging about receiving welfare without a hint of self-awareness.

Almost as wild as the "shut it down to save Grandma" crew bitching about inflation. Unemployment remained at record lows considering the massive disruption. PPP was a success despite the assholes who cheater. Blaming business owners for cheating is like blaming gun owners for murders...Oh wait you do that too.

[DefinitelyNotHollywoodColt 12,301]

3 minutes ago, Cheeseweasel said:

Almost as wild as the "shut it down to save Grandma" crew bitching about inflation. Unemployment remained at record lows considering the massive disruption. PPP was a success despite the assholes who cheater. Blaming business owners for cheating is like blaming gun owners for murders...Oh wait you do that too.

Brainworms.

[tbone_ 14,147]

Losing good people to better opportunities is so bittersweet. 

It is. But one of the best things in life is helping someone else grow. Even if it means growing up and out.

[Cheeseweasel 26,438]

11 minutes ago, tbone_ said:

It is. But one of the best things in life is helping someone else grow. Even if it means growing up and out.

Indeed. Makes all the bullshit worth it.

[Cheeseweasel 26,438]

16 minutes ago, DefinitelyNotHollywoodColt said:

Brainworms.

Do you own/run a business? 

[DefinitelyNotHollywoodColt 12,301]

Just now, Cheeseweasel said:

Do you own/run a business? 

Can you read?

[Slacks 6,860]

This site... I can't help but laugh. 

[Cheeseweasel 26,438]

3 minutes ago, DefinitelyNotHollywoodColt said:

Can you read?

I don't read your CR bullshit.

[DefinitelyNotHollywoodColt 12,301]

23 minutes ago, Cheeseweasel said:

I don't read your CR bullshit.

You just asking questions?

[Cheeseweasel 26,438]

Nah. I have all the answers I need. Good luck with your sale. I hope you use your profits to practice what you preach.

[Incredulity 11,682]

3 minutes ago, Cheeseweasel said:

I hope you use your profits to practice what you preach

[DefinitelyNotHollywoodColt 12,301]

3 minutes ago, Cheeseweasel said:

Nah. I have all the answers I need. Good luck with your sale. I hope you use your profits to practice what you preach.

Thanks.

I’ll be starting a non-profit with funds from George Soros. I haven’t picked a name yet but we’re going to send packages of wigs, makeup and sequined dresses to schools along with the lyrics to Dancing Queen.

[Cheeseweasel 26,438]

Send me an invite. Sounds like a good time.

[Brew 3,049]

4 hours ago, Cheeseweasel said:

Almost as wild as the "shut it down to save Grandma" crew bitching about inflation. Unemployment remained at record lows considering the massive disruption. PPP was a success despite the assholes who cheater. Blaming business owners for cheating is like blaming gun owners for murders...Oh wait you do that too.

I don’t believe that PPP will be looked upon as a success when the history books are written. It combined with ERTC and the other funding mechanisms have been boondoggles of the highest order. Are there businesses that legitimately needed the funds, definitely. They could have been funded with a much more restrictive process than what we got that actually put money where it was needed and where it was proven to be needed.

[Cheeseweasel 26,438]

2 minutes ago, Brew said:

I don’t believe that PPP will be looked upon as a success when the history books are written.

We'll never know what would have happened as an alternative. I think the fact that businesses survived, the unemployment rates stayed low, etc. are pretty good measures of success.

 

2 minutes ago, Brew said:

They could have been funded with a much more restrictive process than what we got that actually put money where it was needed and where it was proven to be needed.

I agree. The funding end was good, the "forgiveness" part was a sham. The should go after the abusers.