In this episode of The Sweaty Startup, I was invited to sit down with the guys from Acquisitions Anonymous. Run by great entrepreneurs, in their podcast, Michael Girdley, Mills Snell, and Bill D’Alessandro talk about and break down businesses that are for sale, evaluating if they’re a good investment or not.
In today’s episode we tackle two exciting deals in this cross-posted episode: a $900K moving and storage company and a $500K rural self-storage facility.
$900K Moving and Storage Business Deal
The first deal we cover is a moving and storage business that has been in operation for 25 years. The owner of this company is retiring and wants to pass his business to new ownership, and is willing to provide some training. The company claims to have an outstanding reputation with the community and mentions that its customer base is mainly residential homeowners moving to or from the area, or locally. Lastly, the owner would prefer to sell the real estate with the business.
Below is a breakdown of some additional pieces of information that the company provides, including the asking price and cash flow:
- Asking price: $900,000.
- Cash flow: $305,00
- Gross Revenue: $1,730,000
- EBITDA: N/A
- FF&E: $300,000
- Inventory: $5,000
- Real Estate: $1,005,000
After covering the business details, Michael Girdley asks, “What sort of things would you do if you owned this business tomorrow to turn it into a home run?” In answer to his question, I responded that I’d replace the back-office staff with a Filipino call center and admin to cut 50% to 75% off the labor cost. I also said I’d optimize my Google business location, build a business website, get some SEO and videography work done, and focus on the management.
When covering a business deal like this one, you need to ask yourself how and where is this company getting its recurring revenue from? Also, another important question to ask is: What is the market value of the equipment? This company, for example, says it has $300,000 worth of moving trucks. However, Bill asks whether that means the company bought $300,000 worth of trucks, and now they’re fifteen years old? Or, is that the market value of the trucks? Diving into the nuances of what a business says can prevent you from making a poor purchase.
$500K Storage Facility Business Deal
Next, we look at the second deal, which was a $500K rural storage facility. I already underwrote this deal with my team, which makes me familiar with this one.
The company states it owns over 17,000 square feet in its listing. But if you dig in and account for parking and a few other things, it’s more like 11,000 to 12,000 rentable square feet. If you have $100,00 to $200,00 and want to make a family money, this is not the deal for you, but this business is good for entrepreneurs just starting out who want to take a risk with storage rentals and who have $1million to $2 million on the side.
Also, when I look at acquiring a self-storage facility and determining whether it’s good or bad, I want to dive in to find out how well it’s operated. I want to know if they’re collecting rent and what the competition is in the area. If there are REITs (real estate investment trusts) in the area, which can be both good and bad, then I can gauge what the true market rates are for self-storage in the area. However, there are two questions that I try to answer: How much can I raise the rent? And what’s going to happen when I raise that rent?
A lot of people ask: Are storage units profitable? And how much can you make owning a storage facility? The short answer to the first question is yes. The answer to the second question is: it depends. What these questions have in common is you need to analyze the possible outcomes of a business deal. If you acquire an asset the right way, it’s really simple to operate a self-storage facility. But if you go into a purchase without doing your due diligence, it could come back to haunt you.
Three Key Takeaways:
- How does a company make recurring revenue? It’s one thing for a company to say that they make recurring revenue, but understanding how they do it can help you determine whether a business deal is a bad one.
- What is the market value of a company’s equipment? Sometimes a company may say they have $100,000 worth of equipment, but it turns out they bought it twenty years ago. It’s all in the details.
- How well is the business operated? Find out if a company is collecting rent or payments. This can give insights about whether you will have to auction off storage units because the rent roll is lower than what a business claimed it to be.
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Self Storage Consultation
- $2,500 consultation package deal.
- Google folder that shares everything about how I do business.
- My monthly cash flow projection model.
- A list of items you need to get from the listing agent or owner in order to analyze a deal.
- My Due Diligence list (after you’re under contract).
- My list of software and tools I use to do a market study and operate a facility.
- My prospectus that I send to potential investors.
- My LOI template you can use to put an offer on a property.
- 1 hour phone/zoom call with me to walk you through the process of underwriting a new facility
- Google folder that shares everything about how I do business.
- Visit https://sweatystartup.com/storage/ to set up your consultation.