# Buying into the Business



## Mike Finley (Apr 28, 2004)

BT006 said:


> I can lose 50% of the business and survive. However, I have an agreement (will be in the contract) that if I lose 3 of the 7 contractors within 6 months I can turn the business back to the owner and get part of my down payment back. I would lose $50k which would hurt but it wouldn't be catastrophic.


That's very interesting. I'd love to know what the sellers real motivations are for agreeing to that.:whistling



> I would think showing up on time, finishing on time, doing the job right, and communicating well would about cover what most GC's are looking for.


#1 Wow! These are painters we are talking about aren't they? Are you familiar with painting employees? Are you familiar with painters habits and reputations in the construction industry? How good are you at herding cats?

#2 This is new construction work you are talking about right? You are familiar with what new construction work is all about?

Don't take this the wrong way, I'm not saying it's going to be impossible or anything, I just hope you come around to the understanding of how much of the business you are buying is really the seller himself, and as he goes away so does all of that with him.

Also - what type of new construction is this? Are they doing mostly custom or semi custom homes? Tract housing, commercial work?


----------



## Mike Finley (Apr 28, 2004)

BT006 said:


> Mike, I'm pretty sure I have purchased more companies than you have and I don't agree with your assessment of the value of the owner financing the company - it does have meaning. It doesn't mean everything but it has some weight.


You're probably right on all accounts.

I quickly pulled up 4 pages of painting companies for sale nation wide. Could be just blind luck, but the first 3 say:



> Just Listed! A very successful Commercial Painting Business. There is over $400,000.00 in work that is booked going forward!! More than the asking price. Rent is only $800.00 a month. All workers would like to stay on. 19 years of business under the same name! Plenty of goodwill!! *Owner* *Financing: 100,000 /5yrs / 7%*
> 
> This highly profitable company operates with 9 crews/27 employees. They are highly respected for their quality work and service. The Seller does not currently "work hands" on but coordinates and oversees all day to day operations. There are key employees/managers in place who are willing to stay on. The company obtains their work through different general contractors/building companies in which they have established long standing relationships. *Owner willing to fiance* $*245,000 over 36 months at 8%*
> 
> Est. in 1971, company specializes in commercial & institutional (80%) & lrg residential (20%) painting & decorating. Great reputation for quality work completed within budget. Repeat business and many referrals from satisfied customers. Backlog generally runs 45 days. Large list of references available. Member of Nat'l Home Builders Assn, Gulf Coast Home Builders Assn. Owners wish to devote some time to a new non-competitive venture. *Financing: $160,000 X 48 @ 9%=$3,981.61/mo*


----------



## BT006 (Jun 22, 2007)

I have experience working with janitorial staff and auto mechanics and I have no doubt as a group they are just as difficult to work with than painters - if not more so. My recipe for that type of employee is to pay way above average and only keep the good ones. You have to hire 5 and keep one. Fire problems quickly - because they drag down everyone else.

I have been reading about painting but I am sure I don't have a clue as to the issues surrounding new construction painting. I haven't talked with the employees yet. I haven't discussed in detail the quality control methodology with the owner yet. If, after doing so, and talking with the contractors, I don't feel very confident that the journeymen can handle the technical side of the business I will back off.

There is nothing magical about the construction industry. Below a certain size and structure I would be an idiot to get into a business if I wasn't an expert at the technical side of it. Above a certain size, and with the right structure, it turns into a real business where you manage employees, managers, work flow, scheduling etc.

So tell me, other than constant scheduling issues, what is are the biggest problems you see with new construction?

I think this business is in the second category but I have more DD to do.


----------



## BT006 (Jun 22, 2007)

zzzzzzzz Mike lots of owners will finance the sale of their business. However, if they are selling a pig with lipstick they are much less likely to do so. You made a definitive statement that owner financing meant nothing. That is simply not correct.


----------



## Vermaraj (Mar 6, 2007)

Two things would determine whether or not I continue with you as the new owner:
1) What does the current owner offer me that makes me want him as a sub? I'm 99% sure its not price.

2) What do you as the new owner offer me as a sub?

To answer your other question. I would not tell you at our first meeting whether or not I would continue doing business with the firm under your ownership. There are too many variables. Will suppliers extend you credit? Can you properly schedule jobs? Will one of your painters, that I like, jump ship?

Now, Question #1 above (What does the current owner offer me that makes me want him as a sub?) has at least 27 parts:

Are we related? 
Did we work together before going into business?
Do we belong to the same lodge, golf club, fishing...hunting...???
Is he connected to the building inspector? An Electrical contractor, Plumbing contractor that is tough to hire?
How flexible is his schedule? Will he make his guys work 24hrs/day (on shifts) to make my delivery work?
Will he commit the entire firm to my one development for the next month? (no major customers is a very relative concept)
Will he extend me credit or wait for payment until I close a sale?
Does he require written contracts or a phone call?
Does he spend hours taking Mrs. Jones through all of the color combinations and possibilities without compensation? (Is that on the cost list)
Does he eat change orders?
etc... etc...

In this type of business the relationship is usually a greater determinant than pricing or financial statements.


----------



## Mike Finley (Apr 28, 2004)

I think you have a good handle on a lot of the issues, with the one exception of possibly under-estimating the owner of this business being the business itself. You certainly could be looking at the exception to the rule.



> There is nothing magical about the construction industry.


Oh yes there is, believe me, you'll find this out whether you want to or not. You and I are very similar, just in different stages. You'll never believe the self-sabotage, the lack of basic business skills, the lack of basic management skills, the lack of just about anything you would take for granted in business as you will find in your competition. They will do their absolute best to go out of business everyday, yet still hang on and drag everybody down with them.

Sure, the easy answer is my competitions faults will just make my strenghts shine. Unfortunately, you won't be operating in a vacuum. Your competition will do it's best to destroy the market, each and every day, pull down profit margins, destroy general reputations and lots and lots more.



> Below a certain size and structure I would be an idiot to get into a business if I wasn't an expert at the technical side of it. Above a certain size, and with the right structure, it turns into a real business where you manage employees, managers, work flow, scheduling etc.


True, however a commercial painting company with only 10 painters on payroll may not be as large a company as your are assuming it is and able to support the structure you are considering installing. As I have said, the one really big problem you may discover is that the owner of this company is really the company, and you may horrifically discover there is a reason for that.

A very good friend of mine has run a commercial painting company for 20 years with about 15-20 painters. The stories he tells me make my toes curl. When he returns from a week away from his business it takes him a month to glue all the pieces back together again.:laughing:

There are a couple of people who have broken the mold in painting here on this site, I would hope you get to hear from them, they can give you much more insight than I can about the industry itself.

Make sure you read all the posts in the painting area of this site.

Especially the ones about employee issues. Painters are, how do you say it nicely? They are like nobody else I have ever ran into in any facet of construction. Reading some descriptions of some painters, you don't know if they are talking about painters or 3 year olds, painters or the homeless.

Make sure you get a good understanding of new construction painting and all that goes with it. I can't stress enough how important it is for you to find out how ugly it is and the bidding process is something you better have down pat. Make sure you figure that out with him, it might scare the crap out of you once you find out what that is all about.

Good luck with everything.


----------



## BT006 (Jun 22, 2007)

Mike I appreciate your posts - they are adding that extra measure of paranoia that I need - in fact they have helped push me toward considering some approaches to the purchase that might be more expensive but safer.

I have a lot of confidence and it bites me from time to time. It is good to hear voices of caution.


----------



## BT006 (Jun 22, 2007)

Vermaraj:

Had not considered this one: Is he connected to the building inspector? An Electrical contractor, Plumbing contractor that is tough to hire?

Prices are not low. They only paint Mon -Fri 7-4 with few exceptions. The current owner doesn't paint. All accounts are on net 30. No exceptions. There are contracts in place but they cover the overall relationship - not individual projects. Most individual projects are set up with a phone call and there is no bid given - just a bill sent. Any work outside the scope of the contract is time and materials. Until I actually meet with the accounts I am pretty much in the dark as far as your other points.

Appreciate the post.


----------



## realpurty2 (Aug 18, 2005)

BT006 said:


> If there are any general contractors reading this - from your angle, if I was being introduced as the new owner - what would you be looking for?


You aren't going to like our answer, but it's honest.. what would we be looking for? A new sub, even if we were happy with the previous work. Any change in upper management always has a temporary adjustment period in which the kinks has worked out and we wouldn't want our customers to be part of the natural learning curve because it would negatively affect our customer satisfaction. Ultimately, the GC has to take the heat for all of their subs and employees in the eyes of the customer because the sub wouldn't have been there if the GC didn't request it. 



BT006 said:


> What would mitigate my lack of experience in your mind?


Still being in business a year or so down the road with the same reputation as the previous owner had. As they say, only the cream rises to the top.



BT006 said:


> And what do you look for in painting contractors in general?


Same criteria as any sub- timeliness, attention to detail, professionalism, are they a financially stable company, community reputation, etc. 

I know your eager to jump in and buy, and no one here can make that decision for you. I think the negative responses you are getting comes from people trying to give you valid obstacles you WILL face eventually. You already know the positives and how to deal with those, but the advice you are getting here is everyone's attempt to help you think through this decision with eyes wide open. Your admitted lack of experience is enough to cause natural pessimism from those who have done this day in and day out because all of us know those obstacles are very real and can be catastrophic if you aren't prepared in advance to deal with him.

I don't know you or your full situation, but you seem very intent on going forward with this. You were right with one statement, there isn't anything magical about the construction industry, but I'd be willing to bet if the "old timers" here were honest, you'd find out it is a beast of it's own on some days. ( 6 out of 7 in fact  ) I don't think anyone here was trying to talk you out of it as much as they were trying to take off your rose colored glasses and prepare you for the hard smack you might well receive from the unexpected twists and turns this industry has.


----------



## BT006 (Jun 22, 2007)

Well I'm not sure how I came across as eager. I do think there are a lot of strengths here. I have looked at over 100 businesses in the last 6 months and this looks the best - at least for the businesses I can afford. There were several multi-million dollar opportunities.... lol

The responses have been good. I have a backup plan in place now that I can use if I don't get solid commitments from the contractors.


----------



## atlas06 (Nov 19, 2006)

If the painting was done by the crew all these years, and the owner being only a suppervisor, I will definitely consider you for the sake of continuity in quality of work. I'll be checking a little closely, that's all.
On the other hand, if the quality work was performed by the key guy all of these years, I wouldn't give you any preferential treatment.


----------

