Texas_Signmaker
Very Active Signmaker
If you have people willing to be scandalous with the books, what makes you think they are being truthful to you?
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Purchasing a business.
- Thread starter Stacy1203
- Start date
Yup! That’s exactly the mentality!! It’s so sad to see businesses crumble because of it. You’re so right though it’s a very risky thing when dealing with a business that’s not 100% pretty on the outside gutted on the inside. Let’s all keep my pal in our prayers and heck me too as I also play with fire sometimes hahaha
Always seeing the good in people... a very ridiculous trait to have sometimes... the owners have the accountant on payroll so they’ve been directing every concernto him. Where I’m at a loss is why the books arent polished and ready for turn over upon request instead of having to get them together but again everyone including the account is older and probably just tired. You’re right though I don’t know if they’re being truthful and will have to be very careful in making this choice. Once we get the numbers and audit their sales for this ytd it’ll be more concrete vs us just wondering.
Texas_Signmaker
Very Active Signmaker
Wait, I've spaced... What was your initial question or reason for posting?
Lol hahaha right! We’ve certainly been on a trip! It was fun though.
WildWestDesigns
Active Member
It has it's positives, might borderline on the foolish (depending on how much one lets it blind them), but it does have it's positives (or at least I think so).
If they have an accountant on staff, it should have been ready to go. Maybe they should have started the auditing the books process earlier to accommodate the accountant, or maybe have had an outside source look over and get the books in shape (which on one hand, might have been better for a buyer's perspective to have a set of outside eyes looking at it, versus someone that is apart of the business).
What would make a sale attractive to me is if they anticipated (within reason, what would they want to know if they were buying the business should have been considered at the very least) questions that would come up from a buyer and have answers ready. Them not having answers ready to go and taking time to find things out makes me wonder.
They should know their numbers at the very least. Every business owner should know their numbers. That should be ingrained into them. The buyer needs to know their numbers on how long it's going to take to see positive ROI and make sure to evaluate in between to see the progress and if they are on track and if not what can be done to improve it's heading or if evaluating dropping that service in question if it isn't panning out.
equippaint
Active Member
Accountant on the payroll? Id be more careful. Most that I have dealt with will walk on the edge but will never cross it so chances are its all pretty close on paper. Not gonna be any surprise treasure chests. As far as books not being ready, we just did our 2017 AJEs. Haven't started 2018 yet, it's not out of the norm.
Forgetting all the unicorn rainbows and solid financial advice being tossed back and forth, and going to the actual question you asked in the beginning, "What would you pay for this," here's what I think. This business is being run by a couple who are doing it like the ones I first went to work for and learned how to make signs from. As sole proprietors, they have blended personal and business finances as one, since it all goes on their personal 1040. They probably have shielded themselves from taxes (nice way of saying cheated on taxes) by writing off their personal expenses as business expenditures, but have also siphoned off enough over the years to have a nest egg of some sort. From what I can tell, this was a common way to do things among that generation, as many other businesses around here seem to have been done the same way.
The capital they have put into the business recently has been to pay off debt so that the business looks better for selling. Or it may be like my own situation a year or so ago when we received an inheritance and I paid off what was left of my startup debt and the debt remaining from my attempt at a quantum leap in business involving the hiring of a millennial who ended up costing me money rather than making me money, but I digress.
At any rate, to get down to brass tacks, your accountant has valuated the business at $100,000, but the owners were asking $425,000, of which you don't think the business is worth half. So really you are coming down to a question of whether the business is worth $100,000, $200,000, or something in between.
If there is good, usable equipment and inventory worth $70,000, that is your starting point. Their client list is worth something, along with their work files for their clients. If they net $40,000 per year, then I'd say it's worth $20,000. Anything you pay over that is essentially "blue sky". It has no hard value. You will have to valuate that based on what it's worth to you, i.e. what do I think I will be able to make from this business more than expanding my existing business without purchasing this one. That can depend a lot on the location of and appearance of the business, what type of work they take and how they get it, whether it's something you can streamline to increase profitability and so on.
Which brings up another point, is there real estate that comes with this business? If you purchase a business that has operated out of a brick and mortar location but immediately close that business, then you essentially kill all its blue sky. Even long term loyal customers seldom follow in that scenario.
Personally, I think your accountant's figure is pretty close to right, though you might be able to justify up to $150,000, at least from what meager information has been presented.
The capital they have put into the business recently has been to pay off debt so that the business looks better for selling. Or it may be like my own situation a year or so ago when we received an inheritance and I paid off what was left of my startup debt and the debt remaining from my attempt at a quantum leap in business involving the hiring of a millennial who ended up costing me money rather than making me money, but I digress.
At any rate, to get down to brass tacks, your accountant has valuated the business at $100,000, but the owners were asking $425,000, of which you don't think the business is worth half. So really you are coming down to a question of whether the business is worth $100,000, $200,000, or something in between.
If there is good, usable equipment and inventory worth $70,000, that is your starting point. Their client list is worth something, along with their work files for their clients. If they net $40,000 per year, then I'd say it's worth $20,000. Anything you pay over that is essentially "blue sky". It has no hard value. You will have to valuate that based on what it's worth to you, i.e. what do I think I will be able to make from this business more than expanding my existing business without purchasing this one. That can depend a lot on the location of and appearance of the business, what type of work they take and how they get it, whether it's something you can streamline to increase profitability and so on.
Which brings up another point, is there real estate that comes with this business? If you purchase a business that has operated out of a brick and mortar location but immediately close that business, then you essentially kill all its blue sky. Even long term loyal customers seldom follow in that scenario.
Personally, I think your accountant's figure is pretty close to right, though you might be able to justify up to $150,000, at least from what meager information has been presented.
Hmmm makes a lot of sense I think I gave the benefit of the doubt based on their age and just overall zest for the business anymore. They’ve expressed to me just how tired they and one of them is developing health complications. I share your sentiment in wondering about certain things based on financials not being in order. I get a good vibe from them and first connected with them when we were looking for shop space for our business (they offered to sell then) but we wanted to start fresh have some trial and error and have an understanding of some sort for the industry. Now they’re even more ready than ever to take a break and I just wanted to see how I can help make the transition easier. As you said though combing through the books will be key!
OMG!!! I want to hug you!!! Yes yes yes this is exactly what the heck I’ve been thinking!!!!! And sorry about the millennial some of try to not be entitled pricks hahah! The real estate is rented and the rent is a little higher than average but I will say it’s in PRIME location; a location I would love! Watch out unclebun! I’m stalking you to pick your brain from now on! Hahaha thank you!
Ahhh see that I didn’t know! I know there is time frame on filing but thought everyone did them same year. That makes sense. Yea the accountant is a long time family friend that gets allegedly paid monthly to keep books organized. So your point is very valid hmmm
I find these thread to be relatively entertaining for the simple fact that most of the people posting are living in LaLa Land.
I'll tell my quick story. I've tried to buy 3 people who were in a "retirement/going out of business" situation. The first didn't get far at all. They contacted me. I asked for financials. They said they were too small of a business to have basic financial reports that QB would spit out in 30 seconds. They had been in business for approximately 20-25 years. The second had already told the world they were closing. They had sold their building and had basically 0 inventory. They had numbers which more or less added up but wanted me to pay the price of a thriving business that would operate out of their location. Deal went no where. Guy sold the building for a lot of money but the business just folded and disappeared. The third was another that had told their customers they were closing. Sold the building (which they also lived in). It was full of merchandise but it was a mess and mostly crap. They had no financials to show and no organization. They were insulted when I didn't offer a lot of money. They also closed without selling anything as far as I know.
The reason I tell these stories is simple. First, there are a lot of different small businesses out there. Some run clean books other run dirty books and most fall in between. Some of it is out of pure ignorance and some of it is tax avoidance. Second, a lot of these deals are hard to hash out because selling a depreciating business that is barely holding on isn't valuable. The assets have some value and that's about it. Third, there is a lack of understanding of customer behavior. Once a business closes and you're left to deal with someone new, especially in a different location, there is an incentive to go back (they have your files and theoretically have records of what you want) but there is also an incentive to move on and try someone different. Customer capture/retention is very tricky to measure as a result.
The last point to make is based on your business model. From my experience/knowledge in order to grow the way you expect it takes one of three things to happen.
1. Combination of Time/Hard work/Luck. Simply put, you put in the hours, do a good job, and customers notice. Eventually a big dog comes in or one of your customers becomes a big dog and you grow with them.
2. Connections. You'd be surprised how many people get a big contract because they just happened to know the right person.
3. Innovation. If you can come up with a product/process/idea that draws customers to you, you can grow from nothing to something in a relatively short amount of time. The problem with this more than the other two is generally speaking, you need some reasonable capital to get started. Where a sign company could maybe start with $50-80k, often in this circumstance you need $2-300k and that might even be light.
I'll tell my quick story. I've tried to buy 3 people who were in a "retirement/going out of business" situation. The first didn't get far at all. They contacted me. I asked for financials. They said they were too small of a business to have basic financial reports that QB would spit out in 30 seconds. They had been in business for approximately 20-25 years. The second had already told the world they were closing. They had sold their building and had basically 0 inventory. They had numbers which more or less added up but wanted me to pay the price of a thriving business that would operate out of their location. Deal went no where. Guy sold the building for a lot of money but the business just folded and disappeared. The third was another that had told their customers they were closing. Sold the building (which they also lived in). It was full of merchandise but it was a mess and mostly crap. They had no financials to show and no organization. They were insulted when I didn't offer a lot of money. They also closed without selling anything as far as I know.
The reason I tell these stories is simple. First, there are a lot of different small businesses out there. Some run clean books other run dirty books and most fall in between. Some of it is out of pure ignorance and some of it is tax avoidance. Second, a lot of these deals are hard to hash out because selling a depreciating business that is barely holding on isn't valuable. The assets have some value and that's about it. Third, there is a lack of understanding of customer behavior. Once a business closes and you're left to deal with someone new, especially in a different location, there is an incentive to go back (they have your files and theoretically have records of what you want) but there is also an incentive to move on and try someone different. Customer capture/retention is very tricky to measure as a result.
The last point to make is based on your business model. From my experience/knowledge in order to grow the way you expect it takes one of three things to happen.
1. Combination of Time/Hard work/Luck. Simply put, you put in the hours, do a good job, and customers notice. Eventually a big dog comes in or one of your customers becomes a big dog and you grow with them.
2. Connections. You'd be surprised how many people get a big contract because they just happened to know the right person.
3. Innovation. If you can come up with a product/process/idea that draws customers to you, you can grow from nothing to something in a relatively short amount of time. The problem with this more than the other two is generally speaking, you need some reasonable capital to get started. Where a sign company could maybe start with $50-80k, often in this circumstance you need $2-300k and that might even be light.
Oh wow! That last one a real shocker! They could’ve walked away with something. Yes the one thing that I’ve been building is my networking skills my gosh it’s true people buy from people they like! Which I mean makes total sense. I really try to build a personal rapport with every customer on a call my cell phone lets chit chat basis but I’m quickly learning this will not work as we grow lol I love them though! Excellent points for growing in this industry we’ve put in some looooong hours but the finish product is always so exhilarating. Thanks for the pointers pal! Tell me.. did you ever end up purchasing a business?
I guess you were so busy patting yourself on the back about getting your compadre out of jail that you forget to read the memo about flaming other members and not personalizing things. You can't critique others for something that you continue to do yourself.
Hey Tim! As you can see, this thread has taken a positive turn! Knock it off! No more being mean! How was your festival?
Lol your so crazy! Have a few more beers and enjoy your evening.
Texas_Signmaker
Very Active Signmaker
I like you, your more then welcome to stay.
Hahaha thanks Pal! Here to join the party!
Johnny Best
Active Member
Hey Toad you must have drank some jealousy at the beer and wine festival today.
Hey Pal! It’s not a sign business I’m the one with the sign business. I have a very unorthodox way of life I set insane goals and then hit them. The higher the better.
Totally appreciate your feedback though!