Business valuation

[Silvertip]

Hi,
We have owned & operated our shop for four years. We have made vast improvement in both sales and equipment upgrades. We went from renting a 1200 ft. Space to purchasing our own building in a great location with 3000 Sq ft. Great space!
My husband and I pretty much do everything. Me in office and lite production him doing the wraps and all the sign making duties.
We are considering selling due to his health. He has had 3 back surgeries and needs at least one more.
My question is how do I start the valuation process? The books are clean and show profit. Not huge but someone else would not claim the same write offs.
We are incorporated taking small salaries and owner draws.
This isn't how we planned it so trying to look at it from a buyer perspective is daunting.
Any thoughts are appreciated and yes we are talking to the accountant.
Also, any advise on advertising? We don't want to ruin our business locally.
Thanks for advise in advance!

 

[Gino]

Other than selling your shop, the equipment and supplies, it's gonna be hard to sell a business with only 4 years of history. Very few people will buy a business simply for the customer list. Why should they ?? Those cusotermers are gonna go somewhere.

Good luck in getting out, but more so, good luck with his surgery.......


Now, on another note, could you still run the business from your point and hire someone to take you husband's place ?? Even if part-time.

 

[decalman]

Sorry about the bad back. That can Happen to anyone.
Best wishes.

 

[BobM]

The first thing you should do is to search for Ted Burbank, business broker. He has many publications on business valuation and how and why to deal with a "business broker", not a realtor who happens to market businesses. Business brokers offer only businesses. It is a very specialized type of sale.
Spend the time before you do anything. It will be at least educational, at best it will increase the possibility of successful sale for you and the buyer.

 

[TimToad]

I'm sorry for your predicament.

Where there's a will, there's always a way. How much of a disability is it and does he ever intend to return to this business?

Those seem like the big questions to me.

In our business, I'm the one with the vast experience and while my wife does plenty along with our employee, if something happened to me, it would be really hard to continue without that expertise and presence to assure the customers that things are being handled professionally. We've talked about it and have agreed that she'd be considering any and all options to keep it going until either I returned or it was obvious that selling was the right choice. A business is nearly always worth more when actively being worked versus dumping it prematurely, from a position of desperation or without a strong and established track record. Even then, its a gamble on if you'd derive more from a sale than keeping it going however you had to do it.

I personally don't think four years was long enough to go buy a building doubling your biggest fixed cost, but you know better than us about the workload and its stability.

A chronic back injury or condition is a big deal, but could he be made comfortable enough to still do all the layout work, phone and email consultations, etc.?

Especially because most business owners overvalue their investment and most potential buyers come at it from the opposite to get in as cheaply as they can.

How stable is the revenue for the business and how much of the 3,000 square feet are you actively using on a daily basis?

Is there enough local demand for a shop that size that you could at least cover its costs by renting it out to some other type of business and downsize again but keep things going?

If the workload is there and you have a chance to add another year or two worth of solid looking books by hiring someone to work in your husband's stead or in concert with him, that might get you over the hump to making the company that much more attractive. Folks really look at only your last three years of books when considering a company's track record and potential.

It would seem to me that most of your equipment is still new enough to be an asset. How much competition is there nearby?

 

[Zakk]

Advice on valuation and selling the business

Hi there,

Let me start by echoing everyone else's sentiment regarding your husband's health situation. Sorry to hear about that.

Valuation of a business is tricky and there is no actual formula for it because it largely depends on finding a bullish buyer. The book of business has no intrinsic value if you don't stay on to maintain them as clients since, as . What you have is the equipment (assuming you own it outright) and supplies as well as the asset or liability attached to the property you bought. I do not know your specific situation, but most people would likely be upside-down in that situation.

From my view point, I would look at 1.5 times net annual revenue as the value to a buyer, but really figure out if you and/or your husband could stay on for at least 6-12 months to help transition the business and introduce your customers to the new owner. Without that, they are purely looking at a capital acquisition and 4 year old equipment could only be worth 20-30% of the original value.

If there is no way to sell and stay on in order to add significant value, then you might consider liquidating the assets wholesale including the building. It is not necessarily what you want to hear, but it is often the harsh reality.

I wish you all the best.

 

[inkfrog]

First of all I wish both yourself and your husband all the best with his health issues, and wish him a good recovery.

My opinion is, no one is able to give you an accurate figure as to what your business is worth because there are so many factors involved in determining its value. I presume its profitable due to the fact you have invested in your business premises.

Dont let the economic gloom and doom merchants tell you it probably doesnt have much value. Any business which generates cash and a decent return on capital has value. Your machinery will have a book value, but its real worth is in how much revenue that machinery can generate and how much cash it brings to your bottom line. Your customer base will also have a bearing on the value of your business

I would talk to my accountant first, they will have an accurate picture of your business's worth but if you can continue to trade successfully without your husbands pre injury level of input I think thats a good option. If you sell you will only have a lump of money which will give you next to nothing in investment income.

 

[Billct2]

Have you considered hiring a "partner"? You could set it up so after a set period of time they would buy out the majority.

 

[SightLine]

In what I've seen over the past dozen or so years I have been at it (and we have grown quite a bit, now in 22,000sf) is that in this business, the value is almost always the current used (and its always less than what you think) value of the equipment and software. No more. The business was built based on YOU, the customers are loyal to YOU, its YOUR skills and knowledge that make the business. Without YOU, there is no business.

I don't want to be harsh but its the reality for most. For it to be worth much more will take a lot of effort such contractual long term transitional training and handover, or some combination of very very well established and well known, holding viable (and traansferrable) contracts, local competitor that wants you gone, etc. Best wishes for working through this regardless. Exit strategies are almost never very simple or easy.

 

[Silvertip]

Thank you!

Thank you all for the best wishes and the thoughts! Really do appreciate it.

I have a unique situation here and while I do know that people come because of us I do know that 4 years ago they came because of our name (the business, Silvertips name because we purchased it 4 years ago and kept the name) so I do believe that the right people can come in and learn to do what we have just as we learned to do it. Finding that right entity may be tricky I know that.

We have built a good reputation around quality work and we would want that to pass to the new owner.

We do plan to offer our services for a min. of 90 days to help with the transition as well as consultation support as needed for another 90 days or whatever it takes after that.

I have thought about whether or not to stay and try to run it without him but if I am here he will come because that is just who he is and there is way too much work now for 1 person. And hiring around here has just not provided us with great choices.

Like I said him being disabled was not in our forecast but life has a way of doing that to ya!

One reason If I sell ,I will sell it all, is we live quite a distance from our shop (35 miles on way) out in the country so moving it home is not a good option. Moving it into a rental and selling the building would be just dumb. I got a great deal on this building and our monthly payments are only about $300 per month more than what we used to pay in rent.
I don't expect to get EVERYTHING out that we have put in and worst case scenario I keep it going another 2 years on a spend down of the loans to get them paid on the business end. Sell the building and just cash out that way. Not what I would consider ideal but husbands health will determine the outcome.
At any rate you all have given some good thoughts and info and I appreciate that!
Ok back to work and possibly another thread!

 

[Silvertip]

Questions answered

Sorry, I forgot to answer the questions of stability.
The business has been in town since 1995. We are the 4th owners and have been pretty successful. We purchased it with an extensive customer base and I have built that up in the last few years.
The income is really pretty stable. There are occasionally slow months but we are in N. Mn so that is expected here.
I know there is substantial growth available to the right person. We upped our income by 1/2 pretty much each year so the growth trend is there. We have kept it doable for us because bigger is sometimes just more headaches and growing too fast we felt would have possibly lessened our quality.

 

[Bogie1of8]

Sorry to hear about the problems. This is a great topic for all of us as regardless of health all of our businesses will be sold or liquidated at some point in time. Most of us don't spend enough time planning for our exit strategy.
This link will take you to a series of videos that I think really explain all the ins and outs of the valuation process and the sale of a company.

http://www.grifco.com

For you larger companies doing over a million a year I like Generational Equity.

http://www.genequityco.com/

I have also had Brokers Opinion of Value done by Murphy Business and Financial Corporation. Cost was $750. They have a location in MN in Eden Prarie

http://www.murphybusiness.com/minnesota.aspx

Keep us posted on how it goes

 

[Pat Whatley]

Take this for what it's worth, ignore it if you will, none of this is personal just my observation:

You don't own a business, you own a job. Your husband's talent is what you are selling....if he's out of the picture there is no product left to sell. There's no production system in place that you can just plug anyone into, there are no employees who are doing the actual work that a new owner can rely on, there's nothing but a building and some used equipment. Client lists? Practically worthless. Art files? Nada.

 

[Davidford7]

Here is the basic rule of thumb for any business or product valuation. Fair market value is what someone is willing to pay for it. Having built and sold several businesses the trick is finding the right person that is willing to pay the right price. When you need to sell quickly most often the value is decreased because of the urgency.

One business I sold was a sign/decal shop at a weekend flea market. We had a cutter ($3,000.00), a lot of vinyl ($3,000.00), tables ($100.00), a counter ($200.00), lots of graphics, and employees. No customer list, just good revenue stream. We leased the building at the flea market and had been there for about 2 years. It sold for almost $250,000.

I sold a alarm/security company that was 2 years old to a national company. Price was based on the value of the contracts we had in place. They paid 36 time the total value of the monthly income from the agreements. That company was sold through a broker and was not a solicited offer. Meaning they approached me. I wasn't in the position of needing to sell but they wanted what I had, so they paid top dollar.

So there is no magic formula. Here's some unsolicited advise. Find someone that is tired of corporate America, has money saved up, and is go getter. You can train them in the business and offer to consult for some period and let go live the dream. You were this buyer yesteryear. Remember why you bought the business in the first place. Fast Signs does this everyday.

 

[reQ]

One business I sold was a sign/decal shop at a weekend flea market. We had a cutter ($3,000.00), a lot of vinyl ($3,000.00), tables ($100.00), a counter ($200.00), lots of graphics, and employees. No customer list, just good revenue stream. We leased the building at the flea market and had been there for about 2 years. It sold for almost $250,000.

If this is true, someone got hosed big times. But good for you i guess lol

 

[Jean Shimp]

Do you have a local Small Business Association office near you? They have been very helpful to me on several occasions. The help is free and it's good to get other people's perspective on your situation. I am sorry to hear about your predicament as I also work with my husband and know how difficult it must be with him out of commission. Have you applied for Disability benefits? It can be a long road, but keep up looking for help - it's our there.

 

[Andy D]

I'm going to disagree with most here, your business does have value, not due to your customer base but
due to the fact you can confirm that a shop in your location, producing what you produce, with the equipment you own, can make x amount of profit and has grown xxx% over the last four years .
That's what Banks and investors / buyers look for.

I went through the process of buying a shop years ago, but ended taking a pass on it. From what I remembered
the person that set the value did it by taking the averaged net profit for the last three year and a percentage of that ( could have been 80% or 150%, I don't remember)
was the base, plus the depreciated value of your equipment and stock.

If you're unable to find a someone offering a reasonable price that will buy your shop outright,
a young go getter, that wasn't able to get a business loan, would probably jump at the chance to buy your business if you financed most of it and let them
make payment from profits, of course you run the chance of them running it into the ground...
They should be able to put down enough $ to cover the value of your equipment and have all monthly costs switched to their names.

One word of advise though, I know in your case it's true, but any time someone list a business for sell due to their or their spouse's health, my
bullsh*t detector goes off.

 

[Silvertip]

Take this for what it's worth, ignore it if you will, none of this is personal just my observation:

You don't own a business, you own a job. Your husband's talent is what you are selling....if he's out of the picture there is no product left to sell. There's no production system in place that you can just plug anyone into, there are no employees who are doing the actual work that a new owner can rely on, there's nothing but a building and some used equipment. Client lists? Practically worthless. Art files? Nada.

Wow. Take this for what it is worth....
We purchased this as a working business coming up on 5 years ago. If that was the case we would have been out of business before we started. Seriously, I only own my job? You weighed in, that is what a forum is for but honestly this is the most bs answer I have seen here in a while. No need to weigh in on my posts any further with "help" like that I can do much better without.

 

[inkfrog]

If this is true, someone got hosed big times. But good for you i guess lol

How did they get hosed? They paid what the business was worth to them, I presume based on the revenue it generated. What return do you think you will get for that money in a deposit account? The base rate here in the UK is .5% , do the math. A million dollars would give you a return of $50,000 less tax

 

[reQ]

How did they get hosed? They paid what the business was worth to them, I presume based on the revenue it generated. What return do you think you will get for that money in a deposit account? The base rate here in the UK is .5% , do the math. A million dollars would give you a return of $50,000 less tax

Rented spot @ flea market + 3k plotter is not worth 250k. But it might be my opinion. Business does not have its own building... operates with 1 cutter @ rented flea market spot....? And its valued at 250k? It can do million dollars in sales but its not worth it in my eyes. Any one can rent right beside you, pay 3k or less for a cutter and do same work without spending 250k.