Comments on: 4 more questions to ask when buying a business …

By: Businesses for Sale Liverpool

Businesses for Sale Liverpool — Wed, 27 Jan 2010 16:39:06 +0000

Hi there,
some really good points well put, thanks for the post. Far too many people dive into a business commitment without fully understanding the business and how it works. Its wise to spend time at the premises to understand the workforce too.

Cheers

By: Blogging Banks

Blogging Banks — Wed, 27 May 2009 15:07:14 +0000

Interesting concept. However how much do similar businesses earn, and what the ratios on similar businesses are?
How often do you get to buy new airplanes?

By: Adrian

Adrian — Tue, 19 May 2009 00:38:20 +0000

@ Andee – Thanks for your advice; it comes from experience and we appreciate you sharing it with us, here

@ Jeff – I had two major businesses and I nurtured strong relationships with the CEO’s of my largest competitors in each of those businesses; I still play golf every Friday with one and am proud to say that I count the other as one of my closest/best friends even though we are separated by the breadth of the Pacific Ocean. In short … great idea!

By: Jeff

Jeff — Mon, 18 May 2009 17:29:40 +0000

Andee – thanks for the additional insight.

I guess in this situation, my due dilligence would include…

1. Learning about the air charter business from a third party, established and successful air charter company. I’ve identified a company here in the Boston area that is running the type of business I hope to own someday. Looks like it’s time to take the owner out to lunch and start building a friendship.

2. Having the planes inspected – not too different from buying a car (or airplane for personal use). One red flag I came across in the financials is that maintenance costs have decreased significantly. That sounds like deferred maintance to me, which is usually a train wreck of broken airplanes and high costs waiting to happen.

3. Getting three years of financials. I asked for 10 years, and recieved three. Overall the profitability trend is downward over that time with a blame/reason/excuse identified as the overall economic environment.

Thanks again, Jeff

Gre

By: Andee Sellman, One Sherpa

Andee Sellman, One Sherpa — Mon, 18 May 2009 06:38:00 +0000

Hi Adrian,
I would suggest that the term due diligence is applied to ALL areas of the business not just the financials.
When looking at a business I think that you should look at a minimum of three years history. If this is a business which is an add on to an existing business then really important to check the shape of both the Profit & Loss Account and Balance Sheet compared to your existing business.
If you are new to the business then find someone who has been in this sort of business for a long time and ask them about the shape of P & L and Balance Sheet and then check the target complies with the shape.
A key part financial due diligence is to compare any selling financials to the tax returns of the business. This can come up with interesting differences which need to be understood.
Also check that ALL tax and coporate filing is up to date.
Other than that there are specific due diligence items for each acquisition which are about the risk of the business.i.e. currency in some businesses is a huge risk and exposure needs to be identified and understood

By: Adrian

Adrian — Mon, 18 May 2009 06:23:11 +0000

@ Andee – I wonder if brad meant a full independent audit or if he meant some form of ‘due diligence’; what due diligence do you recommend Andee, once you find a suitable business and want to investigate a little deeper to see how much the business has been dressed up for sale? Or, in your opinion, is this an impossible task?

By: Andee Sellman, One Sherpa

Andee Sellman, One Sherpa — Mon, 18 May 2009 05:48:11 +0000

There are a number of issues with getting an audit of financials.
We all need to remember that an audit only does selective checking of transactions and tries to pinpoint discrepancies in the business.
So much ‘dressing up’ goes on in the selling process that in my view that sometimes the cost of an audit can outweigh the benefit received from it.
Sometimes it gives peace of mind that an audit was done but if there really is something wrong with the business it is not an easy process to get reimbursement from an auditor after the event.

By: brad

brad — Mon, 18 May 2009 04:17:03 +0000

get an audit of their financials before buying.

By: Adrian

Adrian — Sun, 17 May 2009 12:51:17 +0000

@ Jeff – I’m not sure that the air charter business @ $595k is a one-to-one replacement for your $20 Mill. concept; rather it is a (much) lower cost way to start very small and build from there.

What a business like this may allow you to do is to start small and test your ability to manage/grow a business in this industry before you find a way to aggressively expand.

To that end, it may very well ‘fit’ Andee’s criteria (relatively speaking) and/or you could buy/start a small business ‘on the side’ right now – provided that it doesn’t conflict with anything that you are currently obligated to – (doesn’t need to be airs services-related) to hone your commercial skills.

Either way, if these are the aircraft that you might choose to start with and the location acceptable, then you would be buying a business for the reasonable cost of the aircraft, so any business goodwill that you can salvage (customers, staff, operating procedures, etc.) would be a ‘bonus’.

By: Jeff

Jeff — Sun, 17 May 2009 04:32:49 +0000

I thought $825K is starting small. To start things in the manner I had originally planned would require close to $20M by my last estimates.

The entry price on this deal has gotten even lower as this air charter is now listed at $595K. It’s tempting. I paid almost that much for my house.

Thanks for the insight everyone. Unfortunately it’s too early for me to pull the trigger on a purchase like this yet. I’m about three years out from being in a position where I could step and run it full time.

But it’s not to early to start hunting and practicing the analysis.

Oh and Adrian….my answers to the questions above are….

1. Do I understand the business? – Mostly. I understand flight operations from a military perspective, but not yet from a civilian “for profit” perspective.

2. Am I comfortable with management? – Of my own….yes. Of those currently in place…no.

3. What is the business worth? – Not sure

4. What do I have to pay? – $595K now.

5. Do I want to own an air charter business? – Yes

6. If I did, would this be the TYPE / LOCATION of air charter business that I would want to own (at least, to start out)? – Not really the location I want to be in but it could work. Not really the operation I ultimately want, but it could be molded into my dream over time.

7. If I still did, would these be the type / qty / age / condition of aircraft that I would want (or, at least, could work with)? – I could work with these aircraft for now, but will need to replace them over time to take the business where I want to go.

8. What is the current value of the aircraft (what it would cost you to buy similar aircraft … NOT the value that they list on their books)? – I think the 5 aircraft would cost me about $550-$600K USED on the open market.