Steel Fabrication Business Key Risk Items

July 09, 2022

by a searcher in Dallas, TX, USA

Looking at a steel fabrication business in Western US doing 8 figs revenue. Any thoughts on where the bodies are buried for something like this? If anyone has experience would love to hear how it went and what to watch out for. We have heard inventory is a big one.

Thanks!

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Reply by a lender
from University of Missouri in St. Louis, MO, USA

Joshua, the main variable I would want to fully understand is how they are paid. If the company is a sub that is involved in larger commercial construction then they would likely (not always) have progress billing and retention. This will have a dramatic impact on your cash flow, especially in year one. The working capital need at close would be substantially higher than many other types of businesses. The person who drives this businesses success would likely be the estimator(s) so you would also want to make sure that role is fully engaged unless your background is in that space.

Reply by a searcher
from Harvard University in Fort Wayne, IN, USA

Looked at a great one a while back. Key concerns included: supplier risk (really only two domestic and some questionable international suppliers), project work heavily subject to customers’ customers funding, safety/OSHA history, and beware of union shops. And often sales are done by owners using decade long relationships that will be hard to take over. Finally, margins are tight so you’ll have less slack to reinvest.

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