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I’ve looked at thousands of businesses for sale, and learned to read between the lines. For every issue, we'll take a deeper look at a listing, learn something, and I'll rate the deal at the end!
This week’s listing: It's not a business, exactly… a defense contractor selling its complete inventory. It’s military stuff—industrial electronics, aircraft and ship parts, hardware and machine parts, etc.
The numbers: They list a potential value of $9M, and they’re asking $400K.
Green flags
Let’s look at the numbers here. This person did $100K in sales last year, with a $75K profit. It looks like it’s a bunch of stuff sitting in a warehouse, and they move stock when the government calls them up. Logistically, not a complicated job.
I notice the seller is willing to finance the deal. That opens up an interesting angle for a side hustle:
Offer to take it off their hands for no money up front, but 40 cents of every dollar that comes in as you sell it. You can buy the side hustle without risking all the cash. All you need is a warehouse.
A seller open to financing might be open to a deal like that, too.
Overall it comes down to, are you the right person to sell to the government?
Maybe you’re a vet with connections. Maybe you browse the government RFP database for fun. If you’re fluent in this stuff, maybe you get a great deal here.
Red flags
Or, more likely you buy a warehouse full of crap that nobody wants.
Your first thought might be, “Great! I can sell this stuff to all sorts of people!”
Think twice. If you buy this stuff, it’s very possible that only one customer would have any use for this stuff: the United States Department of Defense.
The seller also notes that it’s mostly NATO-era (1990s-2010s) stock. I suspect this is a bunch of stuff the government doesn’t want anymore because it’s so old.
Lastly, it’s probably a hassle. Dealing with inventory is a pain at the best of times. And outdated equipment is not the best of times. If it were me, I’d want this as a side hustle at most.
While $75k is not zero, they pay Starbucks managers more than that these days.
And you aren’t stuck paying to store a warehouse full of crap.
What I’d ask
What’s going on with the annual earnings?
This is a key question in a deal like this. The guy made $75K last year, so how about the years before that?
My suspicion is they’re dropping year over year. And eventually, that’s going to zero. Your job is to guess how soon that’ll happen.
Then ask yourself: is this worth your opportunity cost?
I’m not saying it isn’t. If you’re into this stuff, and you can spot a deal, this might be easy money for you. Having a spare warehouse lying around would help, too.
My rating
Listen: people relax in all kinds of different ways. Some people do jujitsu. A friend of mine likes to build IKEA furniture.
If your thing is sitting around in a warehouse full of NATO-era war parts and categorizing it… you’ll be in heaven.
But that’s not me.
Seeing stuff like this makes me even stronger on service businesses or intellectual property. I want stuff that scales without a ton of Cap Ex. So, it’s a pass!
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Check out the deal yourself on BuyAndSellABusiness.com.
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What do you think? Did I get this wrong?
Hit reply and let me know!
Michael
