HVAC/Home services Searchers - questions about financials

by a searcher

9 months ago

Has anyone else who's searching in HVAC/home services come across business owners that take large amounts of cash payments for services?  Does that affect your decision to acquire them? 

How do you weigh the amount of cash income in the valuation and offer on the company? 

Its not unusual that many home service businesses take cash and the books don't reflect that and some of the information that these owners are saying about taxes, cash and paying people off the books is a liability. Has anyone acquired a service company that was paying people off the books and then acquired it and put people on payroll?

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searcher from Harvard University - Harvard Business School

A lot of cash is a red flag - you are never going to be able to complete a good QoE, so unless you are paying bottom of the barrel price for it I would walk away

8 months ago | like reply | 0 likes

searcher from University of California, Berkeley - Haas School of Business

Couple of quick thoughts on this. Firstly, Yes, I agree that simply knowing that someone has been operating their business in a legal ,'above board', can provide a tremendous amount of confidence when entering diligence and negotiations. At the end of the day people can hide things from you so having a sense of their character is helpful. A business that has been using alot of cash should be carefully investigated, but I would only do an asset purchase and leave any liabilities with the previous owner. Lastly, the cash has to be reflected in the valuation- if the owner doesn't agree with your valuation then they need to assume some of that risk in some type of payout over time. It's quite common for small business owners to build property, pay people, or buy condos in miami. Essentially they've already benefited well from the practice- when it comes to selling the business they may have to take a hit.

8 months ago | like reply | 0 likes

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