Adventures with lyrical - buying a business

Eomer · Oct 3, 2012

I don"t mean relative to other contractors in the same industry. I mean relative to other types of trades. The largest are GC"s, the smallest are specialty guys like landscapers, millworkers, glaziers, pool equipment guys, elevator installers and so on. The more specialized, the smaller they tend to be and the less competition there is. And they also tend to have much higher overheads, so their gross margins need to be that much higher.

Maybe I shouldn"t mention elevator installers, they"re a very unique case, as it"s basically a friendly oligopoly between 2-3 HUGE global companies, but otherwise you can see what I mean.

Izuldan_foh · Oct 4, 2012

Lyrical said:
It is kind of Micro Econ 101. Companies that have high fixed costs and low variable ones ratchet up as revenues get higher in a certain range. The cost behavior is such that just 20 percent more revenues can be a huge jump in profits.

Trust me, I understand all that, that"s why something like the airline industry sucks, because they have such variability in fuel costs, and their margins are extremely thin, like 1-2%. Things turn on a dime for them very quickly. Same with big box stores like Best Buy, or the big 3 auto companies. It always amazes me, they are grossing hundreds of millions of dollars, but netting very little (relative to their gross) to sometimes even losing money.

I am operating at about 100-200% above my break-even point, and like I mentioned, I am netting about 35%.

You seem to be doing about 300%, and netting 50%. I think if I was doing 300%, I could probably push to 40%. So I still find your 50% mark impressive.

I think part of it is I have higher variable cost due to production, whereas you have very little in the way of variable cost. Also I think your fixed costs are lower? You probably just have salaries, benefits, advertising, and equipment loans as overhead? I have to worry also about office space, also wages for my white-collar workers are much higher, so my break-even point is higher than yours and it takes me longer to ramp up to profitability.

Blazin · Oct 4, 2012

Izuldan said:
Blazin - are you a contractor by yourself, or do you have your own company/firm? I was trying to see ways you might save yourself on taxes. Of course, as already mentioned, paying everything off is noble but doesn"t make the most sense tax-wise.

Run my own company it"s an LLC taxed as a partnership ie income flows to me via K-1. I know there are some great deductions to be had on capital expenditures for equipment, but because I work all over the east coast I still end up renting a lot of equipment because the cost to haul it over the place would be prohibitive. I spend around 40,000 a year renting equipment that has a value of about $500,000 or more. I could write off in a single year a huge chunk of it, if I did buy it would then bleed me to death with storing and trucking it.

My biggest issue right now is the self employment taxes (FICA) on what are corporate earnings not my salary. People tend to steer clear of C corps because they are concerned about double taxation, but I may need to take a detailed look at how I would fare if I can get more income allocated as corporate profit instead of Salary. I think pass thru entities are great up to a certain size and they end up losing their appeal as profits/size increase. Now that my revenues are well into the millions it, which I hadn"t planned on when I started, I may have to form a new entity.

Blazin · Oct 4, 2012

I was looking at some Class A space today that is near new, for sale currently being leased by a physician"s office. There is 7 years left on the lease at $144,000/yr and they are asking $1.6MM for it. Beginning to be tempted to just dump my money into that and shut down or sell my business and do something else with my time, the headaches of being a contractor just to hand half of it over to the government is zapping my will to keep it up.

Which begs the question, to the other business owners here, what is your motivation and goals for yourself and business. Lyrical do you have savings goal you are shooting for? Do you hope to sell the company some day? The odd part of being fiscally conservative is that you some day achieve your goal and no longer "need" money, some people stay driven because they always want more but if you want a simple life what else is going to keep you pushing the next year.

Corndog · Oct 4, 2012

Blazin said:
Which begs the question, to the other business owners here, what is your motivation and goals for yourself and business. Lyrical do you have savings goal you are shooting for? Do you hope to sell the company some day? The odd part of being fiscally conservative is that you some day achieve your goal and no longer "need" money, some people stay driven because they always want more but if you want a simple life what else is going to keep you pushing the next year.

That"s an interesting question. My goal is to offer an experience in fish that is rarely found right now . With the hopes that it"ll pay for a house and retirement someday. So I"d say my end goal is to work a job I like instead of a grind I don"t like to get ahead.

So my goal is to have a business that has a good home life with doing something I enjoy. Instead of say, I want to be a millionaire.

Awanka · Oct 4, 2012

Corndog said:
So my goal is to have a business that has a good home life with doing something I enjoy. Instead of say, I want to be a millionaire.

Have you thought of a name for your store? Here"s my contribution: "Big Fish"

Blazin · Oct 4, 2012

Corndog said:
That"s an interesting question. My goal is to offer an experience in fish that is rarely found right now . With the hopes that it"ll pay for a house and retirement someday. So I"d say my end goal is to work a job I like instead of a grind I don"t like to get ahead.

So my goal is to have a business that has a good home life with doing something I enjoy. Instead of say, I want to be a millionaire.

Home life is a big part of owning my own business, gives me far more control over time with my wife and kids, hard to put a dollar value on that.

As far as your new venture, the other "family" business in our family has always been Pets Stores and Fish but it"s one that I"ve never got involved with because I"ve never been able to get too excited about retail, but I wanted to share a story with you.

My Uncle has owned and operated a pet store with heavy emphasis on fish for several decades now. It"s been a real tough business because of the big pet retailers that have moved into the business (dog food helped pay the bills for a long time) A few years ago my cousin decided he wanted to open his own store and be the owner like his Dad, but he went the route of hiring a lot of personnel including a store manager, that has now proven to be a disaster. The store never really took off other than the initial boom of opening a new store, and the payroll drained him causing him to lose money in months he could have easily run the cash register himself and turn a profit.

He is now $250k in debt, is 7 months behind on his lease payment and is starting to miss supplier payments. I agree with Lyrical that an owner has to be able to step back and steer the ship but I think a successful business requires an owner to put the blood and sweat in at the start and make the company profitable, then he/she can step back from the operations more and expand the business, start hiring, focus on growing sales.

If a business can"t turn a profit with the owner putting in 60 hour work weeks with minimal payroll then it has no chance to turn a profit when you start filling the roles with inefficient and less motivated employees. So long story short keep costs low to start build something that works and soon as not hiring people is costing you money then start hiring and grow. Don"t invest in employees with hopes of growth, invest in yourself and hire employees when they make you money.

Corndog · Oct 4, 2012

Blazin said:
As far as your new venture, the other "family" business in our family has always been Pets Stores and Fish but it"s one that I"ve never got involved with because I"ve never been able to get too excited about retail, but I wanted to share a story with you.

My Uncle has owned and operated a pet store with heavy emphasis on fish for several decades now. It"s been a real tough business because of the big pet retailers that have moved into the business (dog food helped pay the bills for a long time) A few years ago my cousin decided he wanted to open his own store and be the owner like his Dad, but he went the route of hiring a lot of personnel including a store manager, that has now proven to be a disaster. The store never really took off other than the initial boom of opening a new store, and the payroll drained him causing him to lose money in months he could have easily run the cash register himself and turn a profit.

He is now $250k in debt, is 7 months behind on his lease payment and is starting to miss supplier payments. I agree with Lyrical that an owner has to be able to step back and steer the ship but I think a successful business requires an owner to put the blood and sweat in at the start and make the company profitable, then he/she can step back from the operations more and expand the business, start hiring, focus on growing sales.

If a business can"t turn a profit with the owner putting in 60 hour work weeks with minimal payroll then it has no chance to turn a profit when you start filling the roles with inefficient and less motivated employees. So long story short keep costs low to start build something that works and soon as not hiring people is costing you money then start hiring and grow. Don"t invest in employees with hopes of growth, invest in yourself and hire employees when they make you money.

Yeah I understand that. 1 extra employee will cost me more than my rent etc. It"s part of the reason why I want a "small" store. The place that I might sign on is 1500 sqft. You start getting bigger then that, and you can"t adequately keep an eye on things, and help people. You wouldn"t walk into a best buy and expect only 1 person to be working. But a small radio shack? Sure 1 person would be acceptable. What"s perceived as acceptable goes a long way in business.

I"m hoping my hours will help with this. Store hours will be noon till 8pm each day. Hoping I can do some product searching etc before the store opens at home etc.

Eventually in the space I"m going to rent. I see it being a 2 person store. Ultimately I think even the guy with the birds eye has to work some shifts so he sees whats going on. The fish game can change to whats hot etc. If you aren"t watching close you don"t realize your bringing in the wrong things.

Shonuff · Oct 4, 2012

Izuldan said:
You seem to be doing about 300%, and netting 50%.

Only when the stars align, we have lots of emergency jobs, everyone is focused, and we don"t have any bug equipment repairs that month. That has happened three times in the last four years where there are no problems, and customers are signing up and paying what we ask.

Shonuff · Oct 4, 2012

Blazin said:
Which begs the question, to the other business owners here, what is your motivation and goals for yourself and business. Lyrical do you have savings goal you are shooting for? Do you hope to sell the company some day? The odd part of being fiscally conservative is that you some day achieve your goal and no longer "need" money, some people stay driven because they always want more but if you want a simple life what else is going to keep you pushing the next year.

I want get to the point where we are doing 100k every month, instead of 60k, at which point, I"ll make roughly 50k net profit. A few years from now, the business will be paid off, and then we"ll be that much better off. And then I want to own several more businesses this size. I want to have reliable Managers and Assistant Managers. I want to be able to do more for the community and charities. I also want to be able to pass a good business down to each of my children, but that"s only if they have a head for business.

I"ve already got enough money, but it"s not about the money, it"s about the game. Staying busy and being industrious makes my dick hard. No one gave me anything, I earned it, and that makes it more fun. If you aren"t doing new things and taking on more challenges, what"s the point of life?

I"m nowhere near my long-term goal. But as I"ve learned, money makes more money. I get offered all sorts of business deals all the time with buy-ins that are comparable to the business I have now. One day, I"ll jump.

Shonuff · Oct 4, 2012

Blazin said:
I agree with Lyrical that an owner has to be able to step back and steer the ship but I think a successful business requires an owner to put the blood and sweat in at the start and make the company profitable, then he/she can step back from the operations more and expand the business, start hiring, focus on growing sales.

I know you aren"t disagreeing, but business owners can almost never step back. They do the same things they did 30 years ago. For example, I drove around bidding jobs today (picked up 5k in work, not a bad day), and one of my competitors was following me around trying to bid behind me. It"s slowing down for them, but our backlog right now is until mid-November. Since my employees are all related to people at other companies, they are telling me the other companies are so desperate for work that they are driving around and ringing doorbells. We"ve never had to do this, because we have a good reputation, the best equipment, and we actually advertise. Some of these guys treat customers poorly, have crap equipment and do no advertising. My phone rings off the hook, theirs is so slow they are canvassing neighborhoods for work and running out of gas money. And some of them have been scraping by for decades.

You have to be able to step back, and not be "store blind." That"s a saying I learned in business a long time ago. Some owners come to the store and get so caught up in the menial tasks that mean nothing, and don"t actually work on their business.

I learned it a long time ago, the people that were Millionaires many times over planned what they wanted their business to be. The competitive environment changes, you need to be ahead of it. The ones that don"t do as well or lose money let the environment dictate to them, instead of dictating to the environment.

Shonuff · Oct 4, 2012

Lyrical said:
I know you aren"t disagreeing, but business owners can almost never step back. They do the same things they did 30 years ago. For example, I drove around bidding jobs today (picked up 5k in work, not a bad day), and one of my competitors was following me around trying to bid behind me. It"s slowing down for them, but our backlog right now is until mid-November. Since my employees are all related to people at other companies, they are telling me the other companies are so desperate for work that they are driving around and ringing doorbells. We"ve never had to do this, because we have a good reputation, the best equipment, and we actually advertise. Some of these guys treat customers poorly, have crap equipment and do no advertising. My phone rings off the hook, theirs is so slow they are canvassing neighborhoods for work and running out of gas money. And some of them have been scraping by for decades.

You have to be able to step back, and not be "store blind." That"s a saying I learned in business a long time ago. Some owners come to the store and get so caught up in the menial tasks that mean nothing, and don"t actually work on their business.

I learned it a long time ago, the people that were Millionaires many times over planned what they wanted their business to be. The competitive environment changes, you need to be ahead of it. The ones that don"t do as well or lose money let the environment dictate to them, instead of dictating to the environment.

And that being said, I just realized that the last two days I ran bids, we sold 25k in work. We always raise more when I"m there. I worked in sales awhile, I need my estimator and secretary to sell as well as I do. The secretary is where she should be, but my estimator, who is a technical type of guy is not where I want him to be. I can"t run them all, nor do I want to, we have thousands of customers.

Corndog · Oct 4, 2012

What cost turnaround should I be looking at for a startup? I"m trying to choose lighting for my aquariums.

I have been costing them out by the 2 year lease I plan on signing, figuring that if I"m successful I could upgrade down the road.

I have 3 options.
T8 Lighting Cost for 2 years including initial Purchase, and cost to run them for 2 years. $2,110.22
T5 Lighting cost for 2 years including initial purchase and cost to run them for 2 years. $2,547.69
LED Lighting cost for 2 years including initial purcahse and cost to run them for 2 years. $2,910.08

Initial Costs:
T8 750
T5 1400
LED 2400

As you can see the LED really saves on electricity, and by my numbers only starts to "save money" at around the 4 year mark. Where the T8 fixtures are 1/3 the cost of the LED they consume more watts.

There some other factors I haven"t put in yet. Like using more Watts at once with the t8 may require an extra breaker or 2 with conduit run to support them. Which would edge led in the right direction.

So it"s basically, shoot for the long game? Or So lets say the first year budget is 50k. Do I spend 750 or 2400 on lighting? It"s 1.5% of my total budget for T8 vs 4.8% of total budget for LED. Thats of my initial funds from day one. 2 years in, the difference is ~800.

rinthea_foh · Oct 5, 2012

Surely you can get LED"s cheaper?

Shonuff · Oct 5, 2012

Corndog said:
What cost turnaround should I be looking at for a startup? I"m trying to choose lighting for my aquariums.

I have been costing them out by the 2 year lease I plan on signing, figuring that if I"m successful I could upgrade down the road.

I have 3 options.
T8 Lighting Cost for 2 years including initial Purchase, and cost to run them for 2 years. $2,110.22
T5 Lighting cost for 2 years including initial purchase and cost to run them for 2 years. $2,547.69
LED Lighting cost for 2 years including initial purcahse and cost to run them for 2 years. $2,910.08

Initial Costs:
T8 750
T5 1400
LED 2400

As you can see the LED really saves on electricity, and by my numbers only starts to "save money" at around the 4 year mark. Where the T8 fixtures are 1/3 the cost of the LED they consume more watts.

There some other factors I haven"t put in yet. Like using more Watts at once with the t8 may require an extra breaker or 2 with conduit run to support them. Which would edge led in the right direction.

So it"s basically, shoot for the long game? Or So lets say the first year budget is 50k. Do I spend 750 or 2400 on lighting? It"s 1.5% of my total budget for T8 vs 4.8% of total budget for LED. Thats of my initial funds from day one. 2 years in, the difference is ~800.

You are talking $100 a month? Just buy the ones with the cheaper outlay initially, and sell one more fish a month. It"s like Robert Kiyosaki said, when you own a business, if you want something, just go out and sell more widgets. Keep the extra money for working capital, you"ll need it until you get an established clientele.

Corndog · Oct 5, 2012

rinthea said:
Surely you can get LED"s cheaper?

I can find them cheaper, but ones that"ll hold up and produce enough light. Right now there are huge differences between a crappy LED light and a good LED light. Lighting is probably the most important thing for my business. If a fish looks good it sells. I"m waiting on my samples to arrive from this company to do a test among friends and family. They won"t know the cost of each fixture. But 6 different tanks will be setup with the same fish. Then just quiz them on which tank looks the best.

bofa_sl · Oct 10, 2012

not trying to fag up the thread with political nonsense and hope that most of you can handle the subject in a mature fashion. seeing that whoever takes office will impact small businesses in one way shape or form, I was curious to hear what some of your thoughts were as small business owners are on the upcoming election. to be honest, i didn"t really plan on voting again this year as i don"t really care for either of them. yet after watching the last debate and hearing both sides of their ideas on the economy etc, it would seem that Mittens has far more business acumen than our current commander in chief. i would say he left me with a far better feeling in my stomach vs obama when it comes to my future financial en devours.

i personally feel it"s going to take someone with a savvy business mind / experience to get us somewhat back on a more promising fiscal track and pull america back out of where we"re at today. granted they"re politicians and are 90% full of shit with what they say, however I do know that small businesses create the majority of jobs here in the US and if i"m forced to provide lets say mandatory healthcare for my guys, I can say for sure that it will put a strain on me wanting to hire more, anytime soon.

again, don"t turn this into a political shit show, the upcoming election directly relates to this thread and most the people that post in it. BE NICE!

Shonuff · Oct 10, 2012

bofa said:
not trying to fag up the thread with political nonsense and hope that most of you can handle the subject in a mature fashion.

We"ve taken a viewpoint in Business and Finance that we don"t talk politics. A guy a few pages back got infracted for it. Politics is just something that can"t be intelligently discussed on FOH.

I know what you are trying to say about having a mature conversation, but we don"t need any of the trolls from the political thread messing this forum up.

Maybe the argument should be moved to another forum thread in B&F, because this thread is for people that are or want to be entrepeneurs.

Cutlery · Oct 10, 2012

No,you"vetaken the viewpoint that you don"t want to discuss politics in business and finance. Other people know they"re related and it"s not easy to discuss one without the other. No one else here cries about it, just you.

And I didn"t get infracted for it. I was told to stop hurting your delicate feelings.

Tuco · Oct 10, 2012

Cutlery stop hurting Lyrical"s delicate feelings.

bofa, if you want to talk about what small business owners think about the election, use the political threads or feel free to make a new thread about it.

Adventures with lyrical - buying a business

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