Buying a $120K SDE business - is this the worst idea?

February 14, 2024

by an intermediary from University of Georgia in New York, NY, USA

Trust me, I know this is a bad idea. TLDR: I connected with a great guy who bought an oil change business 1.5 hours from home 1.5 years ago. His dad is sick and he just doesn't want to drive there every day.

It does $550k in sales and about $120K in SDE. He is working 6 days a week, so there's essentially no profit after his salary. He wants 4x SDE or just shy of $500K.

Great location, great demo, contracted work with a dealership, etc. My goal is to make $1m/year in 10 years. Is this a starting point into entrepreneurship or am I buying myself a headache?

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I concur with the comments already made. The multiple is too high for so little EBITDA and you are just buying yourself a job. Very hard to scale without opening up new locations. There typically is only so much volume you can run through this type of business. Are you even getting the real estate for that price? If not, I would definitely stay away. Without controlling the real estate as well there is even less value in the business.

Reply by a searcher
from Miami University of Ohio in Lexington, KY, USA

Is it a franchise or independent quick lube? I took a hard look at the franchise route. You can pull FDD's from the major franchise players to see financials. The hard part is growth requires adding additional stores and they are expensive to build from the ground up. To scale a lot of capital is required.

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