Smash My Trash Franchise: Is It Worth $2.9 Million?

In this episode of Acquisitions Anonymous, Heather Endresen and Mills Snell take a close look at a Smash My Trash franchise that's up for sale for $2.9 million. They explore whether it's a good buy or not.

The listing

We found this one on BizBuySell. Here's the link.

What is Smash My Trash?

Smash My Trash is a franchise that helps businesses save money by compacting their trash. They mainly work with hotels, convention centers, and other big commercial places.

The Numbers

The franchise is being sold for $2.9 million. Here are the key financial details:

• Seller's Discretionary Earnings (SDE): $600,000
• Estimated EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): $450,000 (after taking out a reasonable salary and maintenance costs)
• Maintenance Costs: Estimated at $75,000 per year

Key Concerns

1. Proprietary Technology:
   • Heather and Mills are doubtful about the claims of "innovative disruptive technology." They think it's more marketing hype than real technological advantage.
2. Workload and Operations:
   • The current owners only work part-time, which is good. But Heather wants to know how many people would be needed to replace the owners and what their salaries would look like.
3. Why Isn't Another Franchisee Buying It?
   • A big red flag is why another franchisee hasn't bought this business. Usually, existing franchisees are first in line to expand. The fact that this one is on the open market suggests nearby franchisees might have already passed on it.
4. Pricing and Valuation:
   • Heather and Mills think the $2.9 million asking price is too high. They discuss a more realistic price based on the business's numbers:
     • Adjusted EBITDA: $375,000 after maintenance costs
     • SBA Loan Capacity: Typically, SBA loans can be up to four times the adjusted EBITDA, suggesting a max of $1.5 million in debt.
     • Total Enterprise Value: They estimate a reasonable price should be around $2 million, much lower than the asking price.
5. Asset Efficiency:
   • They talk about how many sellers overvalue their business based on their investment in equipment. If the business doesn’t generate enough cash flow, the valuation must reflect that.
6. Lender Considerations:
   • Lenders won’t value the trucks and equipment highly, seeing the loan mainly as a cash flow loan. The potential resale value of used trucks is low, making lending risky.

Who Should Buy This?

Heather and Mills suggest the ideal buyers:

1. Great B2B Salesperson:
   • Someone with a strong background in B2B sales, especially with connections in the hotel or convention center industries, could use their skills to grow the business.
2. Adjacent Business Owners:
   • Owners of related businesses, like home construction or remodeling, might find this franchise useful. They could use the service internally and boost their operations.

The Verdict

Heather and Mills conclude that while the Smash My Trash franchise has potential, the $2.9 million asking price is too high. They both lean towards a thumbs-down for this deal at that price. However, they note that at a lower price, with the right buyer, this business could be a good investment.

Heather sums it up, saying that although the business has grown impressively from zero to $1.7 million in revenue and $600,000 in SDE in four years, selling it at this point is tough. The franchise needs a price cut or a buyer who can add more value and expertise.

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