I entered the due diligence period, and I have until December 31st to back out. This is my first business purchase, and I want to make sure I am making a good decision. Here is some information over the business. Established in 2013. Over 300 Google reviews (4.5 stars). In 2023, approx $6m in revenue, $1.5m in A/R. currently showing negative $100K loss ( $1.4m net if all A/R is collected). The business has 14 employees.
The purchase price is $1m + $75K from A/R.
The owner says he is selling because he wants to focus on real estate and will sign 3 year non-compete.
A way I can see improving the business is by trimming the unnecessary expenses (currently $270K per month) and focusing on keeping A/R account low.
Does anyone have any experience or advice in purchasing a business for the first time, or in roofing/ construction? What are the most important questions I need to ask the current owner? Are there any red flags I should be aware of?
This is a huge decision and I am looking for any advice or guidance!
Approximate numbers.
6m revenue 3m cogs 1.6m Op expenses 1.5m in AR
AR is irrelevant for this discussion.
That’s a net profit of $1.4 million. No one sells a business that makes $1.4 million for $1 million.
That’s why I said the A/R was a bit of a red flag… because without it they are operating at a -100k loss… I’m betting that big chunks of those A/R are uncollectable without a lot of effort… the numbers as presented just don’t really add up to a million dollar valuation… either the business is worth Millions of dollars or not very much money really at all… but at a Million dollars it feels wrong…