Veteran-Owned Business For Sale

Last week I had a veteran reach out to me who is in the process of selling his business. He thought I might be interested or know someone who is and agreed to have some of the details shared with the audience.

If, as you read this, you feel like you want to know more, then just reply to this email and I can connect you with the seller.

I thought I would use this as a learning opportunity to share how I might look at an opportunity like this.

Big Picture Stuff:

Location: Kansas

Industry: Remediation (this usually means they repair water, fire, and mold damage)

Earnings:

• 2019: $1.15 million

• 2020: $692,000

• 2021: $716,000

• 2022: $414,000

• 2023: $856,000

If you want a further breakdown, here are some numbers from the teaser:

Terminology

A few items to note if some of these terms are new to you:

EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization

Basically- what is the earning potential of this business?

NWC: Net Working Capital

NWC is the difference between current assets and liabilities for the business. It’s used to assess short-term financial health of a business.

CapEx: Capital Expenditures

In a business like this, it likely means larger purchases like trucks, dryers, wet vacs, etc.

SDE: Seller’s Discretionary Earnings

This is a term used in small businesses, where often the business is owned by a single person, to capture the full picture of financial benefits an owner may receive. They may have a car or a cell phone that is expensed through the business, meaning they get the benefit without paying with after-tax dollars.

Deal Breakdown

Let me share a few immediate thoughts:

Pros:

(+) This business is a good size to purchase. It earns enough that you can pay yourself a decent salary, service a bank loan, and still have money left over to reinvest in the business. It also gives you a little more room to screw up as a new owner.

(+) Great margins! The unlevered cash flow margin averages 28% across this period, which is really great.

(+) I like that the current owner and the previous one both did not have industry experience. That makes me as a potential buyer a lot more comfortable that I can figure it out.

(+) The top 5 customers only make up ~30% of revenue, meaning that the business is well diversified.

Cons:

(-) I’d want to find out what happened in 2022. Revenue and cash flow all took a hit, but margins stayed very healthy at 32%.

I actually got this note from the seller about this: Regarding 2022, we’re a project-based business, so revenue fluctuates as we win (or don’t win) large projects.  We had large projects that were primarily in 2021 and 2023, but didn’t have any very large projects in 2022.  Our OpEx is largely fixed, so EBITDA margins fall when we don’t land large projects, even though gross margins are flat.

(-) Look into the customer relationships. A solid chunk of their work is done through insurance companies and general contractors, meaning they have a relationship. I’d want to get a sense that I wouldn't lose those customers.

How to Approach This Deal

If this sounds interesting to you and you think you might want to talk to the owner and learn more about the business, here are what the next steps would look like:

1. Reply back to me with a brief summary of who you are and I can make an intro to the owner.

2. Talk to a bank and see if they might be interested in lending to you on this deal. Bankers like to see deals before you make an offer. If you don’t know a banker, I can make a few intros.

3. Make an offer on the business.

4. Complete due diligence and fundraising for the business.

5. Close and execute!

Go crush it,

Mark

P.S.

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In total transparency, my long-term goal is to use this newsletter to stay connected to the veteran community, help other veterans transition from the military, and (eventually) find veterans who are doing cool and exciting things that I can invest in. I’m a big believer in the power of veterans as entrepreneurs and want to put my money where my mouth is.