Buying another company???

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As some may know I own a mobile welding and fabrication business in a coastal area of southeastern NC, been steadily increasing my business over the last 2 years. Some weeks are very good others are dead but i have benefited by having almost Zero overhead, everything is paid for so just consumables and insurance is out of pocket. Havent been satisfied with that so I am constantly cold calling and talking to everyone I can think of that may possibly need some welding work done when I came across a fellow welder that wants to sell out.So while nothing has happened yet other than me expressing an interest, I may have an opportunity to buy a welding company in a nearby town. This company does general welding work out of a shop and also manufactures trailers. The largest they currently build is a 14k equipment trailer, so nothing to complicated as I did work in a shop building and fixing trailers for a few years. The purchase price would include all tools and equipment, all parts and materials in stock, 5 trailers ready to be sold and apparently 30 existing orders for trailers to be built. Really the whole thing sounds a little too good to be true, I looked up the company on google and they have a pretty bad reputation. So I guess what Im curious about is what red flags should I look for? I want to see the shop and equipment obviously, and I want proof of any existing orders they may have, I also want to see proof that the rent for the shop is what they say it is. They claim it is under $1k a month if it is I want to ensure that price transfers to me lol. So just curious what those of you who are much smarter and wiser than I think i should look for? What are some things I need to verify before even talking to the bank? any advise is welcomed
Reply:Do they have any debt and or judgements against them.Mike
Reply:Unsure at this stage, will find out before I go much further though! Thanks!
Reply:I would say the first red flag is that "pretty bad reputation".

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Reply:And you will need to see a copy of his financials. Did he take deposits on orders for those supposed "thirty trailers"?Will you be on the hook for supplying the finished product by a certain date?Sent from my iPhone using Tapatalk:
Reply:yeah Im concerned about the deposit thing already lol, as far as the reputation thing.....no situation is perfect, my reputation is growing and i would hate to see it take a hit. But the price is right, or right enough to make me think long and hard lol
Reply:You would need a serious look at his financial statements,  contracts,  any other due outs or liabilities. Property, vehicle,  and equipment leases or rentals.How many employees and are they full or part time? Have you talked to them? Are they staying on and if so, at what rate?  Any former employees you can talk to? Talked to any recipients of the trailers or other work?Talked to his metal suppliers about how timely he was with payments? Talked to his welding suppliers or other supply companies?How about visiting competitors and ask them for an opinion on the company you are buying.  Did you take pictures of the shop, equipment,  tools, vehicles,  etc for a complete inventory?Investigate the bad reputation. Is it online reviews, or just word of mouth?Edit:Do you have an accountant, lawyer, etc lined up for the purchase? Sent from my SM-G996U using TapatalkMillermatic 252 MIGMiller Dynasty 200DX TIGMiller Spectrum 625 PlasmaAltas 12x36 Metal LatheBridgeport Milling Machinewww.psacustomcreations.com
Reply:My first question would be ....  do you want it bad enough to spend $10,000 right at the outset in lawyer and accountant fees?While you can do a lot on your own, you really need to bring in some professionals to dig deep into the situation to see what the legal and financial truth is.  You're good at welding, but you need to remember that you're not a lawyer or accountant.  Just as you wouldn't want Larry Law or Nancy Numbers telling you how to lay a bead, you shouldn't be trying to cipher out contracts, billing history, employee situations, etc. The guy has a bad reputation, yet has orders for 30 trailers?  He's got 5 trailers on the lot ready to be sold?  Why'd he make 5 trailers just to have them sitting around when he has orders for 30 trailers.... and those 5 aren't the right specs for those orders?  Why haven't those 5 already sold to other people?And now he wants to sell?Smells fishy to me.  Seems like he's wanting to get out before everything crumbles around his ears.
Reply:Yes I have an accountant, I know a lawyer so I may get a bit of a break there. And I agree, it does seem like he is trying to get out before it crumbles, as far as the 30 on order, Im not sure they are all trailers, he just told me he has 30 work orders in line at the moment. Sorry for the confusion on that,  As it stands I told him I would think about things over the weekend then probably come to his shop to have a first look around next week. Its not as if I NEED to buy this business but, for the price he stated I would be silly not to at least do some due diligence. Regarding the bad reputation, at this point to my knowledge it is all online, and the reviews are rough lol. Seems, he had trouble delivering on time and had a habit of keeping deposits for extended periods. (Why take a deposit if you arent gonna start on something for 10 months?) Also his reputation cant be great because his shop is less than 30 miles from me, in an area where I do work 2-3 times a month and I have never heard of him or his company. I also made a note about the employee situation. It was presented to me as a one man show, but I didnt ask outright so....we shall see I guess