BUYING A SMALL BUSINESS

You Can Find Gold in This Garbage

An overview of a California recycling company offered for sale, including the price, expected profit margins, and the outlook on growth in the recycling industry.
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FieldNotes: Business for Sale

Imagine a gold mine buried under a garbage heap. Then take a look at this California recycler, which processes 10,000 tons of scrap metal, glass, cardboard, and other waste materials annually. Garbage in, garbage out?

Hardly. Thanks to state recycling subsidies on some of its biggest product lines, this company's profit margins look anything but down and dirty. Case in point: after paying 32¢ a pound for used plastic beverage bottles brought to its 33,000-square-foot facility, the company receives a state subsidy of 45¢ for each pound collected; then it sells scrap plastic for 26¢ a pound. The facility owes its fast growth to a reputation for fair prices, good customer service, and strong ties with the Bay Area's homeless population and low-income families (small-time collectors that most recyclers don't want to bother with). Despite his company's growth prospects, the owner of four and a half years is selling because his Australian-born wife is homesick; he'll stay on, though, to train a buyer.

OUTLOOK: As states become more aggressive about promoting recycling efforts, the industry's commercial prospects have expanded faster than, well, a pile of garbage. Meanwhile, this facility seems on track to double its revenues once again before the year 2000, thanks to more than $350,000 worth of investments in equipment and a real estate expansion that gives this facility a valuable street-corner location. You'll want to boost local advertising and continue philanthropic efforts that keep the company's profile high in its low-income neighborhood.

PRICE RATIONALE: All in all, this deal's not too shabby. Garbage businesses usually sell for somewhere between 1.5 and 2.5 times annual gross sales. To be conservative, base your calculations on an average of revenues from the past three years ($3,133,147). That suggests a price range of $4.7 million to $7.8 million.

PROS: A fairy-tale business (just think of yourself as an entrepreneurial prince or princess dressed in frog's clothing). And besides the pot of gold, you'll get satisfaction from helping disadvantaged families and cleaning up the environment.

CONS: If you're the type of person who'll do anything to avoid taking out the garbage, this probably isn't the company for you.

THE BUSINESS: Northern California recycler

PRICE: $6 million (financing terms and real estate leasing available)

FINANCIAL SUMMARY: 1994 1995 1996
Gross revenues $2,139,763 $2,768,043 $4,491,634
Recast earnings* $88,573 $363,174 $622,871

*Before depreciation, interest, taxes, and owner's 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 Jim Welsh of Global InterMark Corp. at 800-578-3396.

Last updated: Dec 1, 1997




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