Issue link: http://psai.uberflip.com/i/1084319
73 2019 INDUSTRY RESOURCE DIRECTORY Buying or Selling a Portable Sanitation Business Of course, there is a lot that is subjective in any analysis of whether to acquire a competitor. So bear in mind that the values you should use in formulating your offer are the values to YOUR business, not necessarily what is showing on the existing company's books. For example, if you need a pumper truck, the book value of the pickup truck someone wants to sell you as part of the deal is interesting but less important than the question of how you will acquire the pumper truck necessary to support the business. Tools created by any organization can only get at the "hard" facts. In addition to the data they provide, remember there are always intangible considerations that worksheets or other tools cannot capture. In general, the more financial flexibility you have (i.e., ready cash to spend without going to a financing source), the more you can also consider intangible or "soft" information—like the value of removing a competitor from the market or customers' perceptions about the acquired company. For example, you will likely want to make some sort of subjective estimate (risk evaluation) on how much it is worth to own the competitor's business and not be competing any longer. American Express published an article in 2011 that is still relevant. It is entitled, "Questions to Ask Yourself Before Acquiring a Competitor," and it can be found online at www.americanexpress.com/us/small-business/openforum/articles/5-questions- to-ask-yourself-before-acquiring-a-competitor/. Do your homework and trust, but verify. If you are inclined to seriously consider a purchase, don't be shy about requesting information before signing any documents beyond a confidentiality agreement. Potential pitfalls abound, making it essential to make a number of your own determinations as early in the process as possible, such as: • Is the seller's price reasonable? • How do you, as a potential buyer, value the business? Is there a reason the business might be worth more to you than to the seller, for example, as an equipment hub or warehouse? Can you realize any economies of scale and/or other efficiency enhancements by integrating the seller's business with yours? • What assets will you actually receive? Are those assets actually owned by the seller, or are some owned by another company controlled by one or more of the seller's principals? • Are those assets sufficient to generate the revenues reported by the seller? Or, as suggested above, might some critical assets be owned by another party, such as vehicles owned by one of the principals of the seller and used in, but not owned by, the business? • Are the seller's inventory counts accurate? • What is the actual state of the equipment—age, hours, environmental compliance, maintenance, etc.? • Has the seller been maintaining its equipment fleet and facilities or attempting to save money and inflate its income by, perhaps, foregoing important service and/or maintenance issues? This can be important because it may understate the actual maintenance and/or repair expense required to operate the seller's fleet, it may result in material assets being unrentable and/or in need of disposal after closing, and it may result in a significant overstatement of the value of the seller's business. Remember: every dollar of unspent maintenance and repair cost goes to the seller's bottom line profitability, which is then typically multiplied by an industry multiple—usually between 4 and 6.5 for privately held rental companies—to arrive at a sale price. So, $200,000 in unspent maintenance and repair costs could yield a sale price overstatement of $1,000,000 at an EBITDA multiple of 5 or more. • How good is the seller's location in terms of access, potential for growth, visibility, traffic, crime, existing or potential use restrictions, infrastructure, and Better worksites. Better weekends. Better world. EXCLUSIVE MEMBERS-ONLY CONTENT REDACTED Join us now at www.psai.org for access to this valuable information.