Buying recycling plant -- Need advice

[tinks]

I'm really interested in purchasing this recycling plant. It seems pretty straightforward. Since this is a big first-time purchase, I'm worried about messing up. Here are screenshots of the sales statement: the sale is $2.4 million with a 5% down payment and 95% SBA financing.

Outside of statements from prior years, is there anything worrisome about the one provided?

https://docs.google.com/spreadsheets/d/1gPa9wJjbGdFC2JbrRIunz-4F1IFHxUoLLap2S7l65nY/edit#gid=0

 

[matt123]

@tinks You are considering investing $2.4 million. If you do not have the expertise to evaluate this purchase, for the love of God - it's time to hire accounting and legal help. This is not DIY or ask randos on the internet territory.

 

[marilynliddell]

@matt123 OP has $2,400,000

OP must not have the $299/hr the lawyer will charge or the $1400 the accountant will charge

Wait, that math doesn’t add up

 

[phananh]

@marilynliddell OP plans to put 5% down, so I guess they have $120k.. but no money for a CPA or lawyer.

 

[613jono]

@tinks Sure. Looks good. Go ahead.

Signed,
Rando on the Internets

 

[rondaloveschrist]

@tinks A $2.4M business is not a simple purchase. And you can’t go by financials alone.

Due diligence should include (not all inclusive)
-financial review by accountant who has experience with acquisitions. At the transactional level where possible. 3 years of tax returns, tax liens, IRS issues
-legal review: any outstanding lawsuits, issues, employee issues, contract problems, liens, etc
-employee related review: chow many, how long, location, harassment/employee relations issues, osha requirements, etc
-regulatory items: I have to imagine there are environmental considerations in a recycling business

This is the tip of the iceberg.

Good luck!

 

[phananh]

@tinks Ok I'll bite. You're paying almost 5x profits, and the financials aren't audited and you haven't included a balance sheet. This business (I think) has a lot of equipment and probably land too. Balance sheet is really important to see in this case.

But as others have said, you really need a lawyer and CPA on this. For example, there could be huge liabilities (not on balance sheet) if this plant has been improperly disposing waste and the environmental inspectors levy fines; or there could be some new regulation coming up that means the plant will incur higher costs or have to change how they operate.

 

[mcpugh]

@tinks Income statement does not give true picture of what you are facing with this business.

For example, labor cost and payroll expense should not be included in cost of goods unless they are truly variable. In other words, the expense is tied directly to each unit of production.

If COG is recast to include materials, utilities, equipment maintenance, purchases, you will see this business has considerable operating expense (fixed cost).

Depending on what you are recycling, this can be very cyclical business.

When demand dries up in my area, recyclables go to incinerator or landfill.