This feature in Pumper reports noteworthy conversations that take place at the Pumper Discussion Forum, an online forum for industry professionals found at www.pumper.com. Pumper Discussion enables exchange of information and ideas on septic and drainfield installation and maintenance, trucks and equipment, portable sanitation, chemical and additives and much more. Information and advice in “Overheard Online” is offered in good faith by industry professionals. However, readers should consult in depth with appropriate industry sources before applying such advice to a specific business situation.

Question:

I’ve reached retirement age and am interested in knowing if there is a formula for putting a value on the business. I’m in New England and do about $350,000 in business annually, half in pumping and half in installation and repair. Anyone had experience buying or selling? Trash companies buy your accounts. For example, you would sell your commercial accounts for whatever 10 months of revenue would be for that account. Insurance companies sell based on their yearly billings. I need to know how to value my business.

Answer:

Your location can make a big difference in what your business is worth. Do a bit of checking in markets of about the same size in your state. Way back when I was taking a few business classes, the magic number was one and a half to two times annual sales. Now that I have been out in the real world, I have seen most small businesses basically close and sell off their inventory and equipment at auction.

In the last 40 years, only one septic company has been sold within 60 miles of me. It was the one I bought. Right now there are two for sale. From my experience with buying mine, I was told by the money people that they would front me with new equipment but not to buy this company because the equipment was too old and too specialized for them to evaluate. New equipment was easy to evaluate as they had the receipt from the dealer.

My credit rating had nothing to do with the loan other than getting me qualified. To the bank, it was all about how the numbers looked on the business loan, not about how well the business was going to do. They wanted 20 percent down and 120 percent collateral. Sales numbers be damned. It took a bit, but with a little creative financing I got the money. It was the best thing I could have done because I’ve made money from day one. I had an established client list and I had to keep them happy.

Keep in mind that financing is tough to get now. Be sure you can produce at least three years of certified tax returns and about five years of clients, indicating customers who call every cycle. From my experience, paperwork will make or break the deal. It all comes down to how much you can prove you are doing.