How to buy a business with no tangible assets?

Business appears to have excellent cash flow and profits, but no real estate, and minimal value in tangible assets. Maybe 10-20% of the purchase price. 
 

It's not a small purchase.  It's also not a business I have run directly, though I have worked with many subs in the business. It would be a retirement business that appears like it would generate 2-3X my current annual income, but it would cost most of my retirement savings to buy.

What would you expect to see transfer to secure ownership?  There wouldn't be any property deeds, etc. What defines "ownership" other than a business license and me saying "This is mine"?

What defines the value of and when I decide to sell?

What kinds of questions would you want to ask before making a purchase like this?  How do you protect a company from its competitors?

Everything looks good on paper, but I'm not sure what pitfalls there may be, and I'm not even sure what questions to ask  

What should I be concerned about?

First question, what prevents you from starting a competing, similar business, and being just as successful? Anything on that list of reasons is something you want to secure ownership of.

Some background...

Im nearing retirement, and looking for a retirement business. I have no pension. I have some retirement savings which would be sufficient to live on if market growth was expected to be at 10-12%, but many financial pros are looking at the next decade or more and predicting 5-6%. That wouldn't be enough. 
 

I don't need to kick back and have a passive income only. I've still got a lot of good years in me. But I don't want to swing a hammer for a living. 
 

I would like to be able to live on my retirement business for 5-10 years then sell it without losing my shirt.
 

Having sorta been through this a bit, there are two types of business sales - a stock sale and an asset sale. Business pros, feel free to correct this :)

The latter means you buy all the assets of the business but effectively start a new business. All contracts will have to be resigned, you'll get a new EIN, etc. You can pretend to be the old business but legally you're not.

A stock sale means you're becoming the new owner of an existing business. You get the EIN, you get the contracts. You also want the customer list, branding and any IP, because it sounds like that's what's valuable here. Basically, you're buying control. You might also end up with liabilities.

matthewmcl said:

First question, what prevents you from starting a competing, similar business, and being just as successful? Anything on that list of reasons is something you want to secure ownership of.

I like that question. 
 

I could build it from scratch, but it would take me at least 5 years. It is an established business in a solid market with a good reputation, a good balance sheet, and a solid web presence. Established vendor accounts and repeat business clients. Knowledgeable and skilled staff. 
 

If I built it myself, I'd have to reinvent the wheel, and live on no income for 5 years. 

In reply to Keith Tanner :

You're right. I'm buying control, but no sure how to protect that control. 

...also not sure how to research liabilities. 

It's a metro area of 2 million people, with a growth rate that has averaged more than 2.5% per year for over 40 years. 

In reply to SV reX :

You're buying the license, which is basically the ability to do business including credit and existing contracts and the brand. Those existing contracts are both internal (staff) and external (suppliers, ongoing jobs, etc). After that, it's not really any different than protecting a business you built yourself.

Liabilities means things like loans or outstanding POs, not so much legal liabilities from what I understand.

In reply to Keith Tanner :

Gotcha. 
 

Sounds like an asset sale probably has fewer exposures on the liability side. 

I'm not really trying to be mysterious- don't mind sharing more details. 
 

Most of you know I am a licensed contractor in GA.   I have over 40 years experience in high end residential and remodeling work, and a dozen years in large commercial site management. 
 

I am building a house outside of Panama City. Intend to retire there (at least partially). I'm not licensed in FL. 
 

Business is a small kitchen and bath remodeling company based there. Heavy on the design and cabinetry side. 5 employees. $800K- 1 million in annual sales. 10 year history. 30% cash flow. 
 

I have no interest in a full blown ground-up construction company, but a small K&B company doesn't sound terrible. 

Perhaps you need to consider a non-compete for the party from whom you are buying the business?

In reply to wae :

Good thought. 

There are business brokers who do this exact thing for a living. They don't work for free, but their business is buying and selling businesses. There are also attorneys who specialize in buy/sell transactions like this. I would want a pro representing me.

In reply to dyintorace :

Definitely 

wae said:

Perhaps you need to consider a non-compete for the party from whom you are buying the business?

That's going to be a bare minimum. Seems to me the value of this business is largely the business reputation, which comes from the current owner(s). I think you'd want all the senior people in the company to be fully on board and working hard to promote you and the new business. One way to do this is to pay 35% up front and then the rest after a year, or something similar.

Yes, a very good business broker and a good attorney are going to be money very well spent, especially considering the stakes are nearly all your retirement money and your future.

Good luck! In my experience with you on this forum, SV Rex, you are definitely one of the 'good guys' and it will be great to see you successful and happy.

In reply to BoulderG :

Thank you very much!

Im doing ok on the "success" and "happiness" scales, but it sure has been a big season of change, and considering retirement is pretty scary. 

You say it's a retirement gig until you retire in 5-10 years and sell?  Five years long enough to get some decent growth for the next owner to get really excited to buy it?  

Executive neighbor of my dads retired kinda young and decided he would buy a newly built Pepe's Restaurant franchise spot in West Chicago, Illinois.

It  looked really promising until he worked 6 long days and the wife worked the other 6 long days.  They never shared a day off - quickly they realized it was a bad idea and it was years before they got out of the business.  

Can't you get your own cabinet business rolling and profitable?  Is it easier to work at Home Depot for 5 years?

Tell the owner you want to work for them as a GM.  Let them retire, you run the place, make some coin with no liability, stop swinging hammers.  Win-win.

In reply to Datsun310Guy :

I could easily keep doing what I am doing for 5 years, and make 3X what I would at HD. Not much point in that. 
 

The question about growth until resale is a good one. 

In reply to 93gsxturbo :

I'm not actually swinging hammers now. My job is management for large commercial jobs. 
 

I said no swinging hammers because I know I could do well with any number of small businesses that would be based on me swinging a hammer, but that's not a good fit anymore. 

In reply to SV reX :

Like buying your first house - make sure you're thinking about a sale someday.  The next guys gotta see dollar signs if he's buying it. 

I would ask , 

why is he selling ,  will he work for you a few months to show you the ropes ?

what is Internet profile , Facebook , instagram , Yelp etc

who are the employees , and will they work for you , or steal away the customers or bad mouth you ,

same for the subs

Not knowing Florida , is there any problems  having a non-local  bidding for  work ?
I have read of  problems with contractors coming into Florida after a storm and low bidding and then not doing the work , 

In reply to californiamilleghia :

Good questions. 
 

I'm pretty sure I would have to get a FL contractors license (which I can do).  
 

I will be a local contractor, and I shouldn't have to compete against non-locals (because K&B work is much different than storm response work)

Sounds like this is all employees and reputation. 

I'd want to know about the employees. How old are they? How young are they? Young guys might become your competitors. Old guys might retire tomorrow.

How old are the current owners? If it's generating income, why are they selling? Are they worried about something in the future impacting income? 

How does the changing home insurance market of Florida impact the building industry? Are a lot of these remodeling jobs paid from insurance?

No assets? So they currently rent a shop? 

I know it's crafty these days to sell the business but keep the assets. Even with a locked in leasing rate, if your old business goes under, you can find someone else to occupy the space.