[robert_shaw82]

Hi,

I'm looking to buy a rubbish removal and decease estate business. The net income is $15000, it is increasing. The business would come a contract with a local real estate and many customers. It also has a trailer and website. They are asking $35000. I felt this was an extremely high valuation. Does anyone have an opinion on this? Any knowable advice would be welcome.

Thanks
Robert

[joypulv]

35K for 15K/yr? No way.
What equipment, what property? A truck at least, that isn't more than about 7 years old?
This is the sort of business you could start on your own, especially the 'deceased estate' part. How many of those happened in the last 12 months? Maybe two?
Forget it.

[ArcSine]

Impossible to say without a lot more data.

• The built-in contract and the "many customers" parts are certainly positives, but how many dollars they add to the economic value of the biz is a function of the underlying details. Expected customer retention rate, degree of revenue concentration across a small subset of the customer base, terms and expiration of the contract, and several other issues must be evaluated. (As a side note, make sure that contract is indeed transferable.)

• You mention the net is increasing. Both the actual (expected) growth rate, and the stability vs. volatility of the cash flows are key. 5% annual growth and 15% annual growth are two very different things in terms of valuations, and the degree of certainty or uncertainty surrounding those projections will swing the valuation significantly.

• Joypulv mentions a very good point: How much would it cost you to replicate this biz from scratch? Consider everything in this analysis, including the opportunity cost of your time, cost to build up an equivalent client base, website, the works.

• What is your relevant expertise in this kind of operation? To twist an old saying, value is in the hands of the beholder. Value is owner-specific, and a biz worth 40K to you might be worth only 25K to me, if you have the superior know-how that translates into operating cost efficiencies, stronger growth, better cash flow, and so on.

• Savin' the best for last, and this one's huge: Is that 15K bottom line before or after a reasonable salary to you for the time you'd spend working the business? If it's the former, then you're just spending 35K to buy yourself a 15K-a-year job. If it's a 15K/yr job you're after, the classified ads would be cheaper by around $34,999. But if the business could pay you a salary commensurate with the time and effort you'd be putting in day to day, and then another $15K on top of that, that's indeed a different story.

Given all the variables that influence the pricing of a business (and the foregoing is by no means an exhaustive rundown) you can see that you'll need to evaluate several factors before you can say whether the 35K is realistic or fantasy. If you have an accountant, rent a little bit of their time to help you crunch the numbers. Best of success with the investigation!