The $180,000 Sitting In The Parking Lot

The most expensive line item in this deal wasn't on the P&L. It was parked outside.

I showed up at a field service business at 6:45 in the morning on a Tuesday with a buyer I was advising. Not for a meeting. Just to watch. The seller had agreed to let us shadow the day, and I wanted to see it open, not after everyone had their coffee and their best behavior.

By 9:00 a.m. I knew more about that business than three weeks of financials had told me.

What the Numbers Said

On paper it was a good deal. About $350,000 in SDE. Clean books. Steady revenue for four years. The seller wanted 2.75x, which put the price around $962,500. With a standard 80/10/10 at 10.5%, the SBA payment came to $10,390 a month and total debt service was $129,492 a year. Stressed coverage after a 20% drop was 2.16x. It passed every one of my criteria.

If we'd stopped at the spreadsheet, my buyer would have made an offer that afternoon.

What the Day Said

The first thing I noticed was the trucks. Five service vans in the lot, and three of them were old enough to have high-school-aged kids. Rust at the wheel wells. One wouldn't start without a jump. The lead tech told me, without my asking, that two of them had been "living on borrowed time" for a year.

Then I watched the phone. Between 7:00 and 9:00 it rang 23 times. The owner answered 19 of them himself, from his cell, while standing in the parking lot. The office manager handled the other four. The listing described the owner as semi-absentee.

Then I sat in the back office and asked the office manager how the schedule worked. She showed me a whiteboard. Not software. A whiteboard, and a notebook in her desk drawer with every customer's gate code in it.

None of that was fraud. The seller hadn't lied about a single number. But every one of those things was going to cost the next owner money, and none of it showed up on the P&L.

Doing the Math on What You Saw

Let's start with the trucks, because that's where the real money was. Three vans needing replacement in the next two years, at roughly $60,000 each for a properly outfitted service van, is $180,000. That's capital the business needs to spend just to keep doing what it already does. The seller had been avoiding it for a reason: every dollar not spent on trucks showed up as earnings.

Spread over two years, that's about $90,000 a year. Take it out of the $350,000, and for those two years the business really throws off around $260,000. Run that through the same loan and your coverage drops from 2.70x to 2.01x, and your stressed coverage falls from 2.16x to 1.61x. The deal goes from passing to failing on the first criterion I care about.

Deferred maintenance isn't a savings. It's a bill the seller is handing to you.

To get back to 2.0x stressed coverage on $260,000 of real earnings, the price would have to come down to about $773,000. The honest version of that conversation with the seller is simpler: the trucks cost $180,000, and somebody has to pay for them. Either the price reflects it, or the seller replaces them before closing.

The phone told me the second thing. If the owner is answering most of the calls himself, the business doesn't run without him, and the "semi-absentee" claim is really a transition plan you'll have to build. That means a longer, paid transition period in the deal and probably a dispatcher you'll hire in month one.

The whiteboard told me the third. Every customer relationship and every gate code lived in one person's head and one notebook. If that office manager walked out after closing, the business would be guessing for a month.

How to Spend Your Day

After 35 years of walking businesses, I can tell you a day on site is the cheapest diligence you'll ever do. It costs you a vacation day. It can save you six figures.

Ask to shadow a normal day, not a scheduled tour. Show up before opening and stay until close. Watch who answers the phone, who the employees go to with questions, and what the owner does with his hands all day. Walk the equipment and ask the people who use it how old it is and what breaks. Ask the office manager to show you how a job goes from phone call to invoice. Then compare every one of those things to what the listing said.

Afterward, put what you learned back into the numbers. Add a line for equipment you'll have to replace and rerun the deal. That's the first thing I do when I get back to my desk. I plug the adjusted earnings into DealScore Pro and see whether the deal still holds. Sometimes it does, and you make the offer with a lot more confidence. Sometimes it doesn't, and you just saved yourself from the most expensive mistake of your life.

Brokers don't love this request. Ask anyway. A seller with nothing to hide usually says yes, and a seller who refuses a single day on site is telling you something you need to hear.

That deal? The seller credited $150,000 at closing toward the vans and agreed to a 90-day paid transition. My buyer closed and is doing well. The difference between that outcome and a bad one was one Tuesday morning in a parking lot.

What This Means For You

If you're under LOI or close to it, ask the seller for one full working day on site, opening to close, before you finalize your offer. Count what you see, put a dollar figure on every piece of deferred equipment, and rerun the deal with those numbers before you sign.

Want to see how I stress-test every deal against cost shocks, revenue dips, and hidden liabilities before I'd put a dollar at risk? I walk through the entire Bulletproof method in a free 28-minute masterclass.

Forward this email. Tell them to grab Mike's free book - Real Estate Is for Suckers: Buy a Business Instead. Same framework Mike uses to stress-test every deal.