Is it worth a career change? Part 2

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I appreciate all the advice and insight I got on the original posting called "Is it worth a career change?" But let's suppose I'm either dumb or stubborn or both and wanted to open up a business despite your admonishments not to. Yes, I've decided a Woodcraft store is probably not the right thing to do. But now I'm "kinda sorta" stuck on a place that sells exotic lumber. Let me pursue that idea a little .....
I've found a place for sale. I don't know the details, we've arranged to meet December 28'th. Or would it be better to not buy an existing business and start fresh? Note, if I buy the business, part of the deal would be to show me the ropes for a few months.
Does anyone know where to find suppliers?
Where to turners usually buy their wood? (I'm not a turner.)
Do a lot of you use mail-order or internet ordering?
Is exotic woods next on Home Depot's expansion plans?
What's the mark-up on exotic lumber? How much just never gets sold because it's "not pretty enough?"
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On 11 Dec 2006 10:02:05 -0800, Never Enough Money wrote:

Nothing wrong with buying a running business, especially if its been run well and is paying the owner a decent take-home amount. You gain significant advantages doing so, including an existing customer base, and established supplier relationships (and maybe even existing credit with them). And that the current owner will provide some education is a plus.
You do need to be certain that the business has been run reasonably well. You don't want to find that suppliers refuse to sell to you because of shoddy past business practices, for example.
You don't mention if you'd be assuming any existing debt. Check into that, too. You have to be comfortable with -all- of the things associated with the business.
Is real estate (warehouse and offices) part of the deal, too? If it is, you'll need to become familiar with the local regulations that govern this type of business.
Are you thinking of running this until you retire? Have you thought about a succession plan?

Nor am I. Maybe ask at rec.crafts.woodturning?

I do, from time to time. There are no really good suppliers of exotics local to me, so for some species that's my only choice (either that, or drive 2 hours or more each way).

These are all great questions, and the current owner should be able to answer all of them, perhaps with the exception of the one regarding possible future competition. I'd expect him to know at least a little about his current competition. You should not just consider Big Box stores as potential competitors, BTW.
--
Art Greenberg
artg at eclipse dot net
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The business of business is business - not woodworking.
If you want to explore a potential business opportunity purchase, find and accountant business opportunity agent and maybe a good book on buying an existing business.
Don't ask craftsmen on the wreck!
You need to determine what your motivation(s) is/are. Then if the opportunity will supply what you desire emotionally, and economically in exchange for the commitment(s) demanded.
Sometimes, its simpler to work for another to earn money for your expertise in wood working.
But, if you're a businessman(person) the thrill of the markup may prove more satisfying than the sound of the saw and the aroma of freshly cut Oak or Hickory.
Purchasing an existing operation offers an existing customer base and "good will" that can save you the long (sometimes five years or so) startup agonies.
The difference between the Fair Market Value of the stock, supplies and hardware offered and the purchase price demanded equates to the charge for this intangible aspect of a business venture.
Yu want to figure in a salary for the "owner" commensurate with the time demanded of him/her as part of the operational cost PAY YOURSELF FIRST.
The remaining net is divided by the purchase price to determine the Return on Invested Capital.
If you can do better buying a CD, adjust your offer downward accordingly to reach the return (on a risky venture as all business' are) you demand.

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resrfglc wrote:

A starting point for the price is 5x EBITDA less Outstanding Debt plus Cash, which will be -0- at acquisition, because there is little need to buy cash. EBIDTA should be adjusted to reflect a proper salary for yourself. That's an implied irr of 20%, which depending on your growth assumptions may provide an adequate risk adjusted return. If you don't understand what I just said, hire someone who does.
As for a written agreement with the owner to "train you." That's a good idea. A better idea however is three payouts to the owner in 1, 2 and 3 years down the road based on profits/ebitda/cash flow. Having his payout based on your performance is a much better motivation than an agreement to "train" you.
Having said all that, I think you're making a mistake, but hope I'm wrong.
A.M. Wood
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disclaimer: I've never run a business myself (other than being a self-employed IT consultant for years and years). I've been doing a lot of research into this subject with the anticipation of buying some kind of franchise or business or something.
Never Enough Money wrote:

You need to look at all of the books for the company. They should be in pristine condition. It should be obvious how well the business is being run. It should also be obvious what the cash flow is. If you're taking out a loan to buy the business, that should obviously be figured into the cash flow. You should be asking yourself when you get your money back.

The previous owner should be a great resource for this. Once you have his supplier list, call the suppliers and ask them to recommending other suppliers who have things they don't have. In short, build a network of relationships with your suppliers.

Me neither. Can't help there.

I would if I were buying veneers. I'm not there yet though.

I *really* doubt it. They make money on high volume.

I bought a maple board from kettle-moraine up by mulwaukee. It had previously been marked as quilted (or something) maple, but had that scribbled out and was tossed in with the regular maple boards. Now that I've planed it, some of it is quilted maple. I suspect it didn't move as a figured wood, so they sold it as a regular board. So I'm sure it happens. It's probably hard to predict how much. Keep a tuned block plane and a squirt bottle of water or alcohol or something to expose the grain for perspective buyers.
No matter what the business is, whether you buy one or start your own, you need to do what is called "due diligence". This basically means you need to investigate everything. And I mean everything. If a building is included, does the EPA have a problem with the property? Are there city rules that you'll be running up against? Unpaid taxes or liens? Did the property used to be a gas station? Does the business have tax problems? Is the main drag out in front about to go through a year long construction project that will limit (or totally destroy) customer traffic to the site? What is the current owner hiding from you? Is a major competitor about to open across the street? Find out why he's selling and make sure the story adds up. There are books out there that list questions like these you should ask and public records you should investigate.
If you get it going and you're here in the chicago area, let me know. I'd like to find a source for reasonably priced specialty plywoods, like baltic birch, MDO, or that phenolic coated stuff.
brian
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Never Enough Money wrote:

thriving HVAC business. He sold it for a couple million, then started another in another name and just plowed the old business under. See a lawyer (as much as I hate to say that) before the meeting, if possible. It's better to be hard headed in business. If you trust the ethics of someone else, he may not have any.
--
Gerald Ross
Cochran, GA
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My two cents worth. By the way I grew up in a family that ran a small business and do not estimate the amount of time it can consume. On the other hand, if it is something you enjoy, it is very fulfilling.

Base on some of your questions, I think buying an existing business with a WRITTEN agreement that the owner will train you might be a good idea,

Answer above.

Anwer above. However, a lot of turners cut their own wood and dry it.

I have never ordered wood from the internet and do not plan to do so. Most I have seen on internet sites is priced above local. This does not include the true exotics. The only source in our area (Wichita, KS) is a small business and I am not sure they still handle true exotics.

I wouldn't worry about that. HD and Lowes are absolutely the highest priced places in our area to buy hardwood.

Another reason you might consider buying the existing business. The owner will provide this info.
RonB
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<snip>

Turners frequently harvest their own wood, whenever possible. Large pieces are easier to turn wet, and hard to dry prior to cutting. And green wood grows on trees, pretty much everywhere.
Some exotics are purchased. That gets you into the higher-dollar, questionable sourcing issues of imported materials. Some folks may be entirely ethical. Hard to really say whats happened everywhere along the line.
Good luck with your quest. I wish you well.
Patriarch, not quite a beginning turner, an experienced telco guy of your generation...
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Never Enough Money wrote:
<snipped>

Central America. The owner of the hardwood supply where I purchase my exotic hardwoods now spends about half his time in Brazil.
--
Jack Novak
Buffalo, NY - USA
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Hmmm. Bet he writes those trips off... I smell another "advantage" to owning.....

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Of course it is a write off however keep in mind that a business trip always costs more than the write off gains.
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Hmmm. Sounds like someone wants instant money and some on the side. Motivation should drive one to success NOT money . That will come after success. More success more money. Nothing comes easy

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Never Enough Money wrote:

Remember, you still have to pay for it to write it off. <G>
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Never Enough Money wrote:

Good memory!
I'd imagine... along with at least part of the cost of his private airplane, pilot licensing fees and the house he bought in Florida to be based about half way between Buffalo and Brazil.
--
Jack Novak
Buffalo, NY - USA
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One thing that others have not mentioned here, and that is trying to establish exactly what kind of market this store has established, and how it was cultivated.
If you are going to sell exotics, then I certainly have nothing of value to add to all the advice and opinions here. And of course, if you are selling to the general public, they won't pay enough of your bills on a regular and routine basis to stay in business long. Contractors, professional woodworkers, cabinets shops that buy from you once/twice a week with a few hundred dollars an order will keep you in good shape monetarily; a guy that ties a few boards a month to the ski rails on top of his Yukon won't do much for your bottom line. In fact, our biggest local hardwood dealer here hates hobby/DIY guys, and doesn't like orders under $100.
But if you are going to sell the stuff that contractors and cabinet makers use on a daily basis - maple, birch, poplar, oak(s), walnut, etc., I have a word or three on that. You need to look closely at the nature of the relationship between the supplier and his clients, and determine if you can continue those relationship.
A lumberyard down the road from my house (less than two miles!) and I have been doing business for about 10 years together. I knew everyone in the joint. They bought me lunch about once a year, and I took out

normal, but they gave me great service and made sure my materials were ready for me when my guys (or me) got there to pick them up so we didn't have any skylarking around in the yard. Everything was peachy, and me and the other contractors that were there were really happy. I purchased about 5 - 10K a month there, so I was bigger than most of their accts. (it IS a small yard) and smaller than others. So the last manager went to greener pastures. The owner decided that it was time for him to "pick up the flag" and get back in the middle of things. He hired a man to help him co-manage the store that had little experience in hardware (which isn't that big of a deal). I believe all things can be learned, certainly the basics of hardware supply isn't as hard as many jobs.
But dealing with contractors is different. He was a quality control specialist in the computer chip manufacturing business, and specialized in "clean manufacturing environment controls". He bought a pair of Red Wing boots and some stone washed jeans, and quit wearing a tie to work. So topped with a plaid shirt and adding a little rough language here and there, he thought he was right in the mix.
Nope.
He is unable to carry on a conversation over a plate of barbeque which is where we usually resolve our problems. We all know what it is like to be in business for years, and all of us have wrestled the same monsters of employees, all manner of taxes, litigation, market trends, hard times, good times, etc. We all know that everyone's time is important, not just ours.
So we all speak the same language and even though the age differences in my group of compadres is about 25 years from top to bottom, we all get along with each other because we DO speak the same language. The new manager does not. As a successful clean environment manager, he was apparently successful so he believes himself to be a good manager. Maybe in his old life, he was. But now he is struggling, and wants to run the yard like he thinks it should be run, which is not the way it was run to make it successful.
Here's an example: He told me that although he didn't have his own company, he had plenty of responsibilities so I shouldn't take him for granted or expect him to come to the phone when I called. He was after all, the manager. So if I wanted to know the status of a delivery of shingles that was two hours late I should call him as he didn't have the time for every little detail of the day (a macro manager?) and he would come to the phone when he could. $2700 worth of shingles being delivered to $70 an hour of waiting labor was more than a small detail to me, but clearly not to him.) I spoke to him about this incident once my shingle were found and delivered, but he clearly didn't see why there was a problem. He felt like all contractors built a large amount of "fudge" into their bids, so eating a couple of hours of time shouldn't be that big of a deal.
The problem is that when you meet this guy he is as nice as can be, and really sharp. But he is wrong headed, and thinks the rest of the world thinks like him and should see the brilliance of his management training. And after reading all of his marketing books, he has decided that the thing they need to do at the yard is to "develop a new clientele". Yeah, right. It's working well for them, to be sure. When I drive by during the day, the yard is usually empty (but really clean!). I personally bought only $126 of material from them last month, and nothing at all the month before, same for the month before that. Bet they are missing that steady 5K a month now.
But the new manager has been unable to resolve any of his issues with any of us contractors because he >knows< he is right about things. Consequently, we have all gone somewhere else to buy materials. They have had a 60 - 65% loss in total contractor sales, and the store may not survive. 30 years to build it into a profitable center, and just 10 months to tear it down.
The moral is this: be careful of what you are getting into, and know your market well. Just because you do a good job organizing and have good merchandise doesn't mean anyone will like you or do business with you. It is more complicated than that. You should not take for granted that simply buying the business will be good for it, not even with your laundry list of improvements. You need to learn your clientele and see if you are a good fit. I am now driving further and paying more to get what I want, and so are the rest of my fellow contractors. And unless one of the contractors goes back to the store for a while and has some successful transactions and can give us "the all clear" sign, none of us will be back.
Robert
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On 11 Dec 2006 19:13:14 -0800, snipped-for-privacy@aol.com wrote:

Lot of good points there, and directly above is one of the best.
Good intentions don't make for improvements- I've been through a couple of changes in management as an employee over the years, and it seems like every time a new guy steps in, they feel they have to make their mark by "improving" things- sometimes that works, but far more often than not, the laundry list of improvements ends up alienating not only the employees, but the customers and suppliers as well.

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Never Enough Money wrote:

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Ever hear about a "woodie"?
wrote:

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On 11 Dec 2006 10:02:05 -0800, "Never Enough Money"

Not to fill a retail shop.

I usually don't- but if you're going to cater to turners and offer exotic blanks, I might buy them from you... Especially if they're larger blanks. Biggest problem with ordering them is that most are too small for anything I want to make.

For wood, no.

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Mon, Dec 11, 2006, 10:02am (EST-3) snipped-for-privacy@yahoo.com (NeverEnoughMoney) is still wanting to go broke: I appreciate all the advice and insight I got on the original posting called "Is it worth a career change?" But let's suppose I'm either dumb or stubborn or both and wanted to open up a business despite your admonishments not to. <snip>
No prob. That's up to you. But if I wasw you I wouldn't quit my day job.
I won't guarantee this is 100% accurate, but I would think it's pretty damn close. I read once that 90% of all new businesses fail in the first year of business; then about 90% of the surviving businesses fail within the first five years of business. Those that are still in business after five years supposedly have a quite good chance of staying in business.
You've found a place for sale. Judging from what you posted this time, I'd say you've still got a LOT of homework to do before you start putting out money. A lot of successful businesses were started part-time, out of someone's home or garage. You don't know zip about what you want to do, but you still want to spend a lot of money doing it. Souinds kinda trollish, wouldn't you say? But, if you're serious, and still want to spend money, you might want to buy part of an already established business, and I don't mean oe that's just opened, one that's been in business for a few years. OR, start a part-time business out of your garage - that way if you go botom up because of lack of adequate homework you won't be out a load of money, and you can always use the leftover stock yourself.
Me, I decided long ago not to use any wood not native, or grown in, North Carolina. With the exception of plywood, and no-one knows where plywood grows, and free wood - which includes pallet wood. So, the only "exotic" woods I'll be using would either be something out of a pallet, or something someone gives me. That's just a choice I made some years back. If someone wants to send me some free "furrin" wood, I'd be more than happy to use it. As is, I do have a small stash of some nice Spanish cedar I got from a pallet, quite awhile back, just not made up my mind yet what I want to make with it. Hell, you want to sell wood, get yourself one of those portable bandsaw mills, and arrange to pickup trees that've been taken down to make all those damn subdivisions going up. Free wood, sell cheap, you can damn sure betcha if I had room that's what I'd be doing.
You're a big boy now, you'd should be figuring all this stuff out on your own, instead of looking for someone to tell you what to do and how to do it. Now, that'll be $100 consulting fee, and a bargain at half the price. You can use PayPal, or send a postal money order, just e-mail me for details on transferring funds. Send the money before you start your business, I want to be sure you'll have the funds.
JOAT I am, therefore I think.
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