Business for Sale, Would I Buy It? | Electrical Service Company
In this version of “Would I Buy This Business”, we have a highly profitable specialty electrical services company. So what does highly profitable mean? Let’s see. The asking price is 1.9 million. Gross revenue [1,093,695], so just under 1.1 million. Cash flow [622,944], so an implied profit of 56% or something. Which is, I mean, anything over 30% and start to get pretty interested, over 50% is almost unheard of. So a business with an almost 60% profit margin is definitely pretty unique. But a lot of times what it means is there’s only the owner or the owner and one or two people. And the owner’s doing a ton of the work and that’s why the profit is so high. So let’s see if there’s more information about what a specialty electric services company is. Well, they’re saying 35% average net profit margin. That doesn’t add up to the almost 60% that they’re claiming, so I’m not sure. Immediately I’m suspicious of one of those two numbers. Either they don’t know what average profit means, or they had some anomaly year in the year that they’re saying they made a million in revenue, 600K in SDE. Something is already off. Develop sophisticated systems and processes. Deliver consistent 35% profit margins. They’re claiming it again. Uses custom trusted contractor and vendor relationships. Minimal overhead, no brick-and-mortar expenses. Essential home infrastructure sector. So, I don’t know what they’re doing, maybe home alarm systems or home AV, or low-level, low-voltage lighting or something. I’m immediately turned off though by the fact that they’re not sure the difference between their profit margin and their cash flow and why those are such a discrepancy. So something is already immediately off and raising red flags to me that they’re not talking about. They’re talking about one number that’s grossly different and less than the number that they’re projecting as their cash flow and using as the basis of pricing. So there might be something here like I said, I mean over 30% profit margin is still solid, but they’re pricing it on their almost 60% profit margin. Something’s off, something doesn’t make sense with that. So I could be interested in this one but I’m immediately going to discount whatever they’re asking back down to what their likely number is and would want to understand more before getting too excited about it.
More about this series, CapForge’s owner and founder gives us a little behind-the-scenes on what a good or bad business would be. CapForge helps tons of clients either buy or sell business and Matt was a business broker before starting CapForge. Let’s look at some of these businesses up for sale and see if Matt would be interested in buying them.
