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Ridgeview Precision Machining

Light manufacturing · Industrial corridor, Upper Midwest US

ISO-certified CNC machining shop producing precision components for agricultural and industrial equipment. Revenue has been steady at around $4M for three years and margins are strong for the industry.

The shop’s largest customer, a regional equipment manufacturer, has bought from Ridgeview for 15 years. Orders are placed purchase order by purchase order; there is no supply agreement. The owner handles that relationship personally.

  • One OEM customer is 48% of revenue, with no written supply agreement
  • Next-largest customer is 9% of revenue
  • 28 employees; an experienced shop foreman runs production
  • Owner personally manages the top three customer relationships
  • Machines average 9 years old; a $250K five-axis machine was added two years ago
The numbers, as presented
From the broker’s package. Nothing here has been verified.
Asking price
$2,400,000
Revenue
$4,100,000
SDE (stated)
$720,000
Multiple
3.33x SDE
YearRevenueSDE (seller-reported)
Two years ago$3,950,000$690,000
Last year$4,050,000$705,000
Most recent year$4,100,000$720,000

Add-backs in the seller’s SDE

  • Owner salary and payroll taxes$140,000
  • Depreciation$95,000

Assumptions for this exercise

SBA 7(a) loan at 10.5% over 10 years, with 10% of total project cost (price plus working capital and closing costs) as your equity injection. Working capital $200,000, closing costs $70,000. A market salary to run the business is $110,000 a year, and ongoing equipment spending is $60,000 a year.

Your evaluation
Answer all five, then see how an experienced buyer called it.
1. Would you pursue this deal?
2. What price range would you offer?

If you’d pass at the asking price, give the range you’d consider if the seller re-priced. “1.1M” or “950k” work too.

3. What are the top risks? (pick up to 3)
4. What would you ask the broker first? (pick up to 3)
5. Estimate the DSCR

At the asking price, on the seller’s stated SDE, using the assumptions above: cash flow after the market salary and equipment spending, divided by a year of loan payments. The SBA floor is 1.25x.

x

Every sample deal is fictional: the businesses, names, places and numbers are invented for practice, and any resemblance to a real business is coincidental. The simulator is educational, not advice. It isn’t legal, tax, financial, investment or lending advice, and real deals deserve review by a qualified attorney, accountant and lender.

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