Experience with evaluating a business without tangible assets?

September 29, 2024

by a searcher in Chicago, IL, USA

I've come across an interesting opportunity within residential and commercial services that has a lot of attractive attributes. The business is family owned and has been operating for decades without any tangible assets (no RE, no fleet, no inventory, etc). The business is using the subcontractor model. I can get my head around the operational piece but what I'm struggling to sort out is the valuation for this type of business and how bankable the deal is? Any thoughts on how banks would review this type of business when considering SBA financing? Other valuation considerations or questions you'd be looking at when evaluating a deal like this?

Apologies for the vagueness on the deal as I try to ask this question while respecting the NDA. Thanks in advance!

Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

I sold a business with similar characteristics. No assets, just liabilities. One of the most successful ones. It is taught as a Case Study in some B-schools. My guess is your opportunity is using cash accounting, not a repeat customer model but a group of subcontractors.
Happy to talk

Reply by a professional
from Miami University of Ohio in Highland Park, IL 60035, USA

There are different factors that you need to take into account when evaluating a business with no assets. Agreement with customers (recurring vs opportunity-based sales), margin, distribution of subcontracted labor (how many companies provide the services for the business).

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