Close-up look at a collection agency business for sale including a price rationale and pros and cons of the purchase.
THE BUSINESS Do visions of skip tracers, deadbeats, and repo men excite you? Then consider this 25-year-old collection agency, which rakes in $1.8 million and achieves 25% profit margins annually by pursuing late-paying stiffs for health-care companies in its south-central state. The owner wants to concentrate on other ventures, but his staff of 30, including key managers, should stay on.
PRICE $2 million
OUTLOOK With outstanding consumer debt at $1.15 trillion in July 1996--up 10.5% from the year before--the United States' 6,300 collection agencies should thrive. Thanks to this agency's skill at breaking thumbs--only kidding--we mean, thanks to its $300,000 investment in sophisticated computer and telephone equipment, and to its low-cost workforce, it could profitably expand from its relatively small regional base. A recent push to win a major new client slightly depressed last year's results but should boost revenues this year by 25%.
PRICE RATIONALE Since collection agencies are only as good as their ability to collect clients' bills and thus earn fees, they sell according to a multiple of cash flow, usually between 3.5 and 6. This seller wants close to top dollar because of the company's long-standing ties with regional clients and its lucrative new contracts. An industry trend toward consolidation might push up the price. But considering this company's average "recovery" (or collection) rate of 11%, compared with the industry norm of 22%, you might try for a more typical multiple of 4. So start haggling at $1.64 million, a price based on average recast yearly earnings of $410,000 over the past three years.
PROS A recession-proof business. After all, as long as there are bills, there will be bill collectors.
CONS Don't you hate it when those people call you on the telephone? Imagine being on the other end, 365 days a year.
*Before depreciation, interest, taxes, and owner compensation
Inc. has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to Thomas Edens, Marion Financial Corp., 713-988-8000.