Star Smog (5 files combined)

Purchase Price

$4,250,000

SDE (Profit)

$933,596

SDE Multiple

4.55x

DSCR

1.47

Cash Flow After Debt / yr

$300,497

Total Cash to Close

$425,000

Star Smog Depot operates smog/emissions testing and certificate sales locations, generating revenue from testing fees and certificate transfers.

2023: $895,573 SDE on $1,592,524 revenue. 2024: $880,121 SDE on $1,732,772 revenue. 2025: $1,025,093 SDE on $2,065,557 revenue. Revenue and profit both trending up nicely, with a dip in 2024 margin before rebounding strong in 2025; TTM through July 2026 shows $1,005,307 (annualizing near prior year levels).

- No owner salary/compensation line appears in any P&L, so true owner labor cost (and replacement cost if owner leaves) is unclear — confirm how owner is paid. - Certificates Purchased is a large recurring cost (~$210k-$255k/yr) tied directly to volume — margin is sensitive to certificate pricing changes from the state/vendor. - Rent jumped from $174,000 (2024) to $192,000 (2025) — confirm lease terms, escalations, and remaining term length. - Heavy reliance on Advertising spend (~$87k-$109k/yr, 5-6% of revenue) to drive customer volume — confirm channel mix and how performance holds if cut. - No add-back schedule or balance sheet provided — need to verify there are no hidden personal expenses or owner perks run through wages/other lines.

Not disclosed in documents — no mention of owner hours or a manager in place; confirm directly with broker/seller.

With no purchase price disclosed, a fair multiple for a smog testing business (2.5x-3.5x SDE) on the $933,595 average SDE would suggest a value range of roughly $2.3M-$3.3M — confirm asking price against this range.

1. Where does the owner's pay show up? The P&Ls show no line for owner salary or draws, which is unusual — in most small businesses, the owner pays themselves and that shows up as an expense. If the owner currently works in the business unpaid or pulls money out informally, that's real labor the buyer will need to replace. For example, if a replacement manager costs $70,000 a year and that's not currently subtracted anywhere, actual cash flow to a new owner would be about $70,000 lower than the reported Net Operating Income. The question to ask: "Can you show me exactly how the owner is compensated today, and is that reflected anywhere in these P&Ls?" 2. What's driving the jump in certificate costs? "Certificates Purchased" is the cost of buying the official smog certificates that get resold to customers — it's one of the biggest expenses every year, growing from about $210,000 in 2023 to $255,000 in 2025. If the price the state or vendor charges per certificate goes up, or the mix of tests changes, this cost could rise even if sales stay flat, shrinking profit directly. The question to ask: "Has the cost per certificate changed over time, and is there any risk of future price increases from the state or vendor?" 3. Why did rent increase, and what's the lease situation? Rent went from $174,000 in 2024 to $192,000 in 2025 — an increase of $18,000 a year. This is the cost of leasing the shop locations. If there's no long-term lease locked in, or if rent keeps rising, that directly eats into the cash flow a buyer receives every year. The question to ask: "Can I see the current lease agreements, including remaining term and any scheduled rent increases?" 4. How much is spent on advertising, and will it keep working? Advertising costs are large — around $109,000 in both 2025 and the trailing twelve months, about 5% of revenue. This is money spent to bring in customers, not a one-time cost. If a new owner needs to keep spending at this level (or more) to maintain sales, that's an ongoing cost already baked into the numbers, but it's worth confirming it can't be cut without hurting revenue. The question to ask: "What specifically is the advertising spend buying — which channels — and has reducing it ever been tested?" 5. Is there a manager, or does everything depend on the current owner? None of the documents mention a manager or the owner's weekly hours. If the owner is deeply involved in daily operations (hiring, vendor relationships, pricing) and there's no number two person, the business could see a disruption in cash flow right after the sale while a new owner gets up to speed. The question to ask: "How many hours a week do you work in the business, and is there a manager who could run daily operations without you?" 6. Are there any add-backs or one-time costs being excluded from these P&Ls? These financial statements show Net Operating Income straight from operating costs with no adjustments (add-backs) for things like one-time legal fees, owner perks, or personal expenses run through the business. If there are expenses like this not yet disclosed, the real cash flow available to a buyer could be higher than, or different from, what's shown here. The question to ask: "Are there any one-time, personal, or discretionary expenses included in these P&Ls that would not continue under new ownership?" How these answers affect the financial model Start with the reported Net Operating Income (around $933,000 average over the last three years) and adjust it to reflect what a new owner will actually pay. Add back any owner pay inside the current numbers, but then subtract a realistic manager or owner-replacement salary. Add in the real rent cost under the current or renewed lease, not a guess. Make sure certificate costs and advertising are modeled at current, not historical, price levels. Subtract any loan or seller financing payments the buyer will take on. DSCR, or debt service coverage ratio, simply means how much cash flow you have for every dollar of loan payment — for example, $300,000 of cash flow divided by $200,000 of yearly debt payments equals 1.50x, meaning there's $1.50 available for every $1 owed. A simple way to explain this to your partners "This smog testing business has grown profit from about $895,000 to over $1,000,000 over the last three years, which is a great trend. But we don't yet know how the owner is paid, whether rent or certificate costs will rise, and whether there's a manager in place — those answers will tell us the real cash flow we can count on and whether the loan payments will comfortably fit."

- General Manager to replace owner's day-to-day involvement — est. $65,000-$80,000/year - Possible additional front-desk/service tech if owner performed technical work — est. $40,000-$50,000/year

1. Ask the broker for the purchase price/asking terms — none disclosed in documents yet. 2. Confirm with the seller how owner compensation and hours are structured, and whether a manager exists. 3. Request copies of current leases to verify rent terms and future escalations. 4. Verify certificate purchase cost trends and contract terms with the state/certificate vendor. 5. Request a proper add-back schedule and tax returns to confirm no personal expenses are embedded in costs. 6. Structure an initial offer around 2.5x-3x average SDE (~$933,000 average), i.e. roughly $2.3M-$2.8M, contingent on verified owner replacement cost and lease terms.

Why It Fits This Buyer

A standout opportunity — three straight years of rising profit (up to $1M+) in a recession-resistant, government-mandated testing niche with built-in repeat demand.