This Shed Business Makes $800K… So Why Did Everyone Say No?

0:00Today's deal received a universal consensus vote from the three hosts here today. We actually went through a deal up in Maine that we all felt very strongly about. So myself, Heather Anderson, and Will McCurdy had a good time talking through it and stick around at the end to see what we thought. Here's the episode.

0:30Just the plus inventory line. This episode of Acquisitions Anonymous is brought to you by Quiet Light Brokerage. And I'm sitting here to tell you I have both sold businesses with Quiet Light and bought businesses from Quiet Light. And in my opinion, they are extremely high quality people, very, very rigorous, and they're really straight shooters. One of the things that differentiates Quiet Light is every single broker at Quiet Light has been an operator. They have been an operator of an active business and they have sold it Many of them have also bought businesses So they really understand what it means to be in the seller's seat and how important that is to you And they also really understand what it means to be in the buyer's seat So they don't bs you, but they really do know how buyers think all of the transactions I did with quiet light In fact, one of them they took over a sale process that another broker had not been able to get done And they got it done for me inside of 90 days So I've had very positive personal experiences with Quiet Light, and I do recommend them wholeheartedly to a lot of people.

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2:06All right. Heather, are you sitting down? I am indeed sitting down at my desk. The answer is yes, because I could see your video. You know that I am. Doing well. So I did bring a deal today. uh it is a fascinating one and i think perfect because today we have a guest co-host uh welcome will mccurdy thank you for having me it's it's great to be here so will is this your first time on a podcast this is my second time on a podcast i was on a podcast a few years ago actually it was my brother-in-law's podcast but it was had nothing to do with business it was more sports and pop culture so what uh oh sports and pop culture yeah really like what angle was it like one of those boston podcasts where like people yell at each other and stuff or how did this work no i wouldn't i wouldn't say that uh close though um it's it has since discontinued so i didn't i didn't do them any favors i guess well if you haven't Uh-oh.

3:11This is Michael. It's not sounding good. Well, so before we get to my deal, I would love for you to give me an opportunity to introduce yourself because you and I are business partners, which I'm very excited about. So maybe take a minute and tell us all about the Will McCurdy current venture and journey to get here. Yeah, definitely. So I'll give a little bit of background about myself before diving into Bedrock, but I'm a CPA. I started my career in the big four doing financial statement audits. I love numbers. I love number crunching. That's what I've been doing my whole career. And the last five years, I have been working at another large national accounting firm focused primarily on quality earnings and financial due diligence engagements.

4:02And our clients were mostly private equity firms on deals from 50 million up to a few hundreds of millions of dollars. So that is my experience. And that is what led me to join Michael in launching Bedrock Quality of Earnings. And Bedrock, we are a quality of earnings provider in the lower middle market in Main Street. So, you know, we help buyers and sellers get a clear understanding of the financial performance of the business, identify key risks, really anything that you should know before signing a personal guarantee, going into debt. We make sure that the risks in the financial earnings are clear.

4:57And yeah, that's a little bit about Bedrock and myself. and heather he signed his first client two days ago so way to go congratulations right thank you thank you yeah very exciting thank you and even better they paid us some money which is the most which is the normal thing you want out of class exciting yeah i know super well i did pull a deal with a lot of numbers so that'll be perfect for you well so let me present this to you guys uh it is a shed and garage construction business located in central Maine. And I also picked this because Will is in Boston. So it's basically South Maine, is how I think about it.

5:40That's all right. You live in North San Diego. Heather, just so you know. Oh, no. No, don't dare say that. Heather lives in SoCal in Orange County. So this is in Augusta, Maine, which is in Kennebec County. And I guess Augusta's kind of inland from Portland. Is that where it is, Will, in the state? Yes, I believe so. Yeah, don't quote me on that, though. Yeah, I will not because I don't know either. Okay, the asking price is$3.2 million. Cash flow in terms of sellers' discretionary earnings is$840 ,000. They have some pictures here of sheds. and kind of like out, I guess if you're in Maine, this is where you would put your wood and stuff, like if you were stacking it or you put your lawnmower.

6:32It was established in 1993 and they did 3.1 million in gross revenue last year. So interestingly enough, they switched to the business description here. They basically repeat the same numbers again in terms of sales. However, they changed the year that the business was established from 1993 to 1992 as we work out through the listing. And it says, here is a rare opportunity to acquire a long-established, highly profitable construction business located in Central Maine. Specializing in the design and construction of custom sheds and garages with 32 years of successful operation, this owner-operated business has earned a strong reputation for superior craftsmanship, reliable service, and a loyal customer base.

7:13Its consistent year-over-year performance and strong financials make it an attractive acquisition for an experienced owner. And here they list the same business highlights again They have a strong regional presence with high repeat and referral business. They are fully equipped with streamlined systems, skilled and experienced team in place. And there is an opportunity to expand in new markets, product lines, or services under an active growth-minded owner. This is an owner-operated business and not suitable for absentee ownership and is ideal for an individual or company with construction expertise seeking a profitable hands-on operation.

7:47Financials are seller-provided and have not been audited by InBAR Group. financials are available with signed nda for more information please contact charlie mcpherson business broker from nbar group there's 300 000 in inventory included 100 000 furnitures fixtures equipment nine employees and their seller is selling for retirement reasons they are located in leased property 6 000 square feet of a building and they pay two thousand dollars a month in rent Yeah, maintenance is so cheap. So Heather, how would you describe what these guys do? It almost feels like the market is home services. You know, it's homeowners, it sounds like, who need a standalone garage or a shed, you know, like you said, to store their tools.

8:36So it's almost like kind of a version of home services in the marketing sense or on the sales side. But other than that, it's a small contracting business. It sounds like they've got a crew of nine people who build these things. And, you know, it's fairly low volume, annual sales of just over$3 million. I don't know how much one of these costs, like their average project costs, what that would be. But it's kind of, to me, a little bit of a cross between home services and a contracting business. Does that sound right to you guys? Well, they have this sentence here about the design and construction of custom sheds and garages.

9:16um so i think that's it right will do they they build these kind of custom sheds and that can be transported and then garages that are built on site is that how to read this yeah that's my understanding and it sounds like with the high custom sheds and it sounds one-time project based But they also say down below, it's probably repeat customers coming back. So I don't know how often are people buying and getting new sheds. I don't think it's that often. So that's something that I would probably want to look into a little bit more. Maybe in Maine, they wear a little harder. I don't know. But I also wondered about, don't you see these kind of sheds that look like this in a prefab version at Home Depot and places like that?

10:04So is there some reason you need a custom one because of what you're going to put in it? It needs different specs, different sizes. I don't know. That would be one of my questions is how do they compete with the prefab Home Depot type? Some of these look almost identical to the prefab ones, here in the photo at least. Yeah, they do. And I guess above a certain size, they're more difficult to transport. But these look like the size you put on the back of a trailer. So I guess I'm kind of confused. Yeah. What is this? Are they just installing? Or was this one of those stock photos that somebody just grabbed?

10:39And this is not a good depiction of what they actually do. I don't know. something i really do like uh and will you may have a comment on this but it's like at least for once this is a seller not coming out and saying hey you can take this business that the owner's been running for 30 years and suddenly run it absentee at least they're being straightforward and honest that the that the owner is hands-on in this business as it appears to been building these things for 32 years and if you're going to take over this business you got to come in and be hands-on. This is not an absentee ownership business.

11:12I like that the broker's actually saying this. Yeah, agreed. A lot of times the broker and the selling materials, they'll say the owner is working passively in the business, but I feel like that's rarely the case. And you have to consider post-close what replacement costs will you need? How many hats is the owner wearing that you will need to take over, especially with something like this that's customized, it's specialized work that if you don't have the skills, the handyman skills, then you need to find specialized labor. And up in Maine, it might be difficult to find employees. So that's another thing to consider as well.

11:59It reminds me of a business one of our clients bought a number of years ago that was making camper shells, like custom camper shells that go in the back of a pickup truck. And during COVID, of course, it boomed. And the buyer went in there, and he was an engineer, and none of the designs were specced properly. Everything was really kind of in the owner's head and some of the key employees' head. They had nothing that was standardized at all in their manufacturing and construction process. So that would be a big question of mine. Are they not really doing these prefabs at all? And if they're doing their own designs, how systematized is that?

12:44You know, how transferable, I guess that would tell me how transferable the business is. I mean, is there a world in which this business is not one old dude or woman out selling and designing and you know basically doing all the prospecting and and making proposals and then their spouse is back at the office doing a part-time office manager like is there a world in which this business is not right that way it's doubtful that it's anything other than that exactly yep so therefore you have something that not only that is one guy that's it's you're too dependent on him or her, but, you know, it's also maybe if they are competing with the prefab stuff at the Home Depot, that that guy has a lot of community goodwill that you're going to lose if you try to buy this business.

13:38You know, people go to them because they know him and his work and, and a new guy comes along and you could lose a lot of your community goodwill that may be driving sales. I'm guessing about that, but that's, this is the kind of business where you feel like that could be the case. Is there even a Home Depot in Kennebec County? Because look, get this. I guarantee there are more people that live with a mile of you, Heather, in Orange County than live in Augusta. So Augusta, Maine in 2026 has 19 ,000 people. It actually shrunk in the decade leading up to 2020. So I'm asking Claude, is there even a Home Depot in Augusta, Maine?

14:22Well, and what you just said, is it shrinking? So any small business you buy that's in home services or something like this, if you have any intention to grow it, you need a growing metro market, not a game one. So that's a little scary too. There is a Home Depot in Augusta, Maine. It's open 6 to 9 p.m. weekdays and Saturdays and 8 a.m. on Sundays. Wow. All right. So they're big enough for that. They do have a Home Depot. So there is competition with those prefab sheds. And I wonder if this is seasonal at all. Just with this company being up in Maine, the winters get pretty harsh and cold and snowy.

15:01So I wonder how slow the December through March period is in the year and how many sheds they're building, how many sales they have during that period. And do you keep your nine employees on? One of the biggest risks in entrepreneurship through acquisition is buying a business with fragile systems, unclear demand, or a single owner who holds all the knowledge. Franchising approaches that problem differently. You are buying into an established brand with documented systems, unit-level data, and repeatable operating playbooks. The hard part is knowing which franchises are actually worth evaluating.

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16:04All right. And Maine itself, I did just ask Claude, Maine is not growing, but it is growing but unevenly most of the growth is concentrated in the southern third of the state not the interior far north so all those counties kind of down towards the new hampshire end i guess of stuff it's basically just greater portland sprawl of portland maine is growing but the uh the other counties including this one are barely hanging on i think is augusta is Augusta the capital or is that something else yes it is I believe it is Augusta Maine yeah so you got that going on you at least have the state capital going on in terms of this stuff and you got that so there's a Home Depot so we don't have to worry about somebody coming in from Home Depot and running out of business with prefab stuff it's already there um yeah what are the upsides of this business he's been around for 30 years he's making good money i mean 840 000 pretty darn good business for building sheds for people right and he's not asking for very much of a multiple there what is a three point well i'll take the 840 as my usual math and i'll i'll say it's really 740 because you got to take pay yourself a hundred thousand salary.

17:27So$3 ,190 divided by$740 is 4.3. Well, that's a little high for where it is, but it's a 4.3 multiple is what they're asking. But that's the asking price. You don't have to settle there. So it does have a decent amount of cash flow, but I just wonder how much of that is really tied to this owner and how much would really transfer to somebody new. Feels like it it would be a lot less. Yeah. So Heather, if you wanted to borrow under an SBA loan to do this, how would the math kind of work on it? My rule of thumb is max, I would not borrow more than 3.75 times EBITDA. So 3.75 times 740 is 2 million 7, almost 2.8.

18:15However, I would not borrow that much for this business, just based on everything that we've already kind of pointed out. I would probably go for no more than three times leverage on this. So 740 times three, 2.2, maybe 2 million. It just because I'd want to be really conservative with the amount of leverage you put on here, not knowing how much of this revenue is really going to transfer to a new owner. And then this is the kind of thing, because it is contracting, it is construction. This is not for everybody. This is for a buyer who has the license and some skills in the construction industry, which, you know, there are not many business buyers out there from that field.

18:54That's always a problem for businesses like this. People come along with maybe a financial background or a sales background and want to buy these businesses, but when they're this small and seller dependent, you're going to find lenders are going to want someone with more of a direct industry background. This definitely feels like it's priced at a level where the seller's not in a hurry. Yeah. It's like a high end of reasonable. Yeah, right. So what am I actually buying here, Heather? I'm buying nine staffers, a lease premise, and like an established book of business I've sold to in the past that hopefully will come back and buy new sheds for me when their old ones wear out or their friends do.

19:33Is that what I buy in? I think that's all you're getting. And they mentioned nothing about sales or marketing. So it is probably just kind of relying on their name and hoping people come back, you know, which is a little scary for a buyer. Yeah. I don't think your dog likes it. Yeah, I know. Sorry. He didn't like the deal, is what he's saying. Did the description say it came with inventory? Was that included in the purchase price? Yeah. But it wasn't very much. So I wonder. $300 ,000 in inventory. Actually, yeah. Not nothing. Yeah. I don't know if that's just raw materials or if that's actual sheds.

20:16is something to think about. Yeah, because this looks like something that if it's not prefabbed or at least come from factories and kits, and you and your team go out and install the pad, the concrete, if there's electrical wiring, you do that, you get it permitted, all that kind of stuff. So it wouldn't surprise me if these are prefab kits and they're sitting on some inventory that they have. Well, it just reminds me of like I just put a sauna in my garage and there was a contractor that specialized in putting them together, but it's the same thing. I had the kit delivered and I hired a contractor that just specializes in doing saunas and that's what they did.

20:51It's starting to remind me of that kind of business. And if it is, I don't feel like that would be very transferable at all. Unless maybe another contractor in town wanted to add sheds to their repertoire and wanted to buy the customer list. And then you'd just be buying the customer list and the inventory. Yeah. Yeah. All right, well, that's a bummer. Will, how would you go about doing the financial diligence on this? Like what would be the process and what questions would you have? Yeah, definitely. I mean, I would start just understanding how the business has performed over the last few years.

21:30Definitely looking at revenue. They say repeat customers. So is that true? Do customers actually come back after maybe a year or two? definitely want to dig into the margins and inventory. What that really represents from a working capital perspective is if you're going to include working capital in the purchase agreement and you're going to negotiate that, what number makes sense? And also equipment. this business has been around for 30, 40 years so how old is the equipment is that going to need to be replaced is there any deferred capital expenditures that the buyer post close will have to come in and buy new equipment it could just be manual labor but there's probably equipment that may need to be replaced soon those are the few items I'm curious Will So how do you, I assume doing financial diligence, you don't do a physical inspection of the inventory.

22:38So what do you look for to point that out to somebody that they might have deferred, you know, CapEx? Yeah, so we look at their fixed asset listing and we do a fixed asset roll forward. And we really talk with the seller to understand, you know, how often they're buying new equipment. what's the monthly or annual maintenance expense that they typically spend. And we can sometimes see that in the fixed asset list thing. And if we see that, let's say the seller is getting prepared to sell the business and in 2025, they decided to not do any maintenance, not buy any new equipment. You can really see that in the numbers dip just from a trending perspective.

23:24and so we ask the questions, really get a good understanding of their whole fixed asset policy and then go from there. Yeah, that's great. You know, I think they're very clear here that this listing does not have audited financials. There's a pretty decent chance and Heather's laughing, there's a pretty decent chance that the financial statements are, hey, here are my bank statements. So, I mean, how do you as somebody who looks at numbers 24-7 from companies like this will think about the merits of having reviewed or audited financials. And how does that kind of lack of audited financials affect the marketability of this deal, do you think?

24:05Yeah, I mean, I've done deals with companies that were audited and it gives you some assurance that they're recognizing things properly. But an audit is in the quality of earnings engagement. So it wouldn't deter me from a deal if a company wasn't audited. The closest thing that we do to an audit from a quality of earnings perspective is they banked a book reconciliation, tying revenue to cash deposits and expenses to cash withdrawals from the bank statements. We also reconcile the tax returns to the financial statements and typically payroll is the biggest expense in a lot of businesses. So we pull the third-party payroll reports from the payroll processor, whether that's ADP or Gusto or those reports.

24:56And then we reconcile the payroll to make sure that the numbers kind of check out. And yeah, we kind of try to triangulate to make sure we're comfortable with the starting point. Yeah, it's an interesting business. I think most of these tend to transition on some sort of different model than this type of multiple. Because I think you're right, Heather. I just struggle to pay this amount of money. Even if what Will's saying and the numbers shake out like they say, 100 % of the time, it's not really going to be$840 ,000 in SDE. Even if the numbers did shake out, which I doubt they will under scrutiny by a quality of earnings firm.

25:36Like it's just, I struggle. I'm not really buying anything for$3.2 million. Yeah. And I would definitely with a small business or if this is owner operated and the owner's spouse is running the financials and doing the bookkeeping, then it's questionable whether there's actually financial statements available. This is a little bigger, but that's just something when you're looking at a small deal to really make sure what the financial function and the accountant bookkeeping process looks like. Yeah, and I guess we should have noted this earlier, but if the EBITDA is really 740, that's a 23 % margin, which I guess you could make that doing sheds, but it feels high.

26:24Yeah. I mean, it is a moot for this business, right? They're probably the only people doing sheds in Augusta. Everybody knows this owner is the shed guy. They've probably known him for 30 years. I bet he's a member of the Chamber of Commerce. Or she, either way. I doubt it's a she. So, yeah. This feels like one of those ones where you just, like, I don't know who buys this. It's just really confusing. Well, that was a bummer.

26:57for will's inaugural podcast we picked a crappy deal just to no i mean it's it's great just there's other ones you look at it you're like i'm not actually buying anything i don't know will you were saying something no no i agree with all that i'm sure there's a buyer out there that this makes sense for someone in maine who does builds his own sheds or is very handy and just wants to run a business like this, I'm sure it could work out. But I wouldn't say this one is for me. Yeah. So Heather, where are you? Thumbs up or thumbs down? Thumbs down. Sorry, passing on this one. I'm a big old thumbs down.

27:39I don't even know if this is a good business to buy. Unless you would live in Augusta, Maine. But man, who has$3.2 million to buy this business that lives in Augusta, Maine? Good luck to Mr. McPherson and the NBAR Group. for marketing this one. If they get it sold, kudos to them. Cool. And Will, your thoughts? I would say thumbs down just given the owner involvement and my experience and skills do not line up with this business. Yeah, that's where I am too. All right. Well, cool. Heather, where can people find you if they need an SBA loan? Come to visocap.net, V-I-S-O-C-A-P.net and come to one of my Tuesday webinars to learn about what we do, the advantages of working with us and our whole process.

28:24They are good. I've attended them and they're super fun. And Will, where can people find you? Yeah, you can find me on LinkedIn. My name is Will McCurdy. You can also go to bedrockqoe.com and you can schedule a time to meet with me. Email me at will at bedrockqoe.com and I look forward to hearing from you. Nice. All right, everybody. see you next week, thanks for being here and I hope you enjoyed the episode catch you next time