Selling your business

Have them make the first offer...I mean, they are the ones approaching you.

 

Lots of factors could affect the "value" of your business. 29 years in business would give me the impression that there is some good will worth something there. The equipment, as you've admitted is not worth anything. So really it boils down to your customer list and how efficiently a new owner could take over and start servicing these customers himself. Are there clear systems/SOP's in place for all the everyday things you do without thinking? Would you be willing to stay on for a year and train the new owner? Do you have employees and/or liabilities? Your sales/profit margin and p/l reports will also paint a picture of what to ask/expect but at the end of the day it will all depend on what someone values your company at. I just went through the process of purchasing the company from my father after working with him for the last 14 years and it was an interesting process. Obviously it was a little different in our scenario as we were both familiar with the business, but still took some time to get everything nailed down and signed over.

I wish you the best of the luck with the sale if you decide to go through with it. I would advise you to take your time and do your due diligence even if the potential buyer seems like he's a hurry. These things take time, and they should. You're signing over your baby so make sure you get what you need out of it.
At the very least, this will give you an opportunity to come up with some kind of valuation and start your succession planning/exit strategy.

 

Not sure how it works in the US but here in Europe we usually buy worthless (looking) businesses for financial benefits. A business with 29 years constant positive profit may be eligible for a greater loan or non-refundable financial benefits from the government. So there may be many aspects you may not be aware of.

 

I agree with Kerning, let them make the offer. If you are really thinking it's time to move on, don't get greedy, small independent sign businesses with no assets are not as easy sell.

 

Typically....

The most valuable way to sell your business is to sell it as a whole, fully functioning, business where someone steps in and just keeps things moving along.

The next most valuable way to sell your business is if a local competitor wants to buy it while the business is in good standing. They might grab a piece of equipment or two, but ultimately they feel they can turn your customers into their customers. The value of your business will be less because they simply won't have as high of a conversion ratio as if they just continued to operate under the same name at the same location.

The worst way to sell your business is to break it apart and sell it for pieces. Especially if you decide to close before you've actually marketed the business. I've had a few "competitors" announce they were retiring/closing and then wanted real money for their business. Don't do this if you can help it.

As for the value, each one of these options has variables. A talented designer running a shop solo with maybe a helper is a lot less valuable than a regular old sign shop with 4-5 employees. Even if the margins are lower and the profits are around the same. If you have a bad filing system, crap paper work, and no customer list, your business is less valuable. If you have bad equipment and and no assets, your business is less valuable. If your business is in a downward trend, it's less valuable.

No one can give you an exact formula. At some point someone has to throw out a number to get started. I'd be hesitant to throw out the first number. It weakens your position. Ultimately at the end of the day, you just have to find a number you can live with and move on. If you can't live with the number, don't make the deal. But understand, you may not even find a buyer in the future.

 

Yes, let them make the offer. To be brutally honest sign shops aren't worth much. Oh, but I have a client list. Clients are not loyal and will absolutely jump ship as soon as ownership changes. Why? Because change scares people. No way around it.

 

Right, it's better that let them make the offer.

 

There was a large sign company here in our area, top of their game 30 or more employees, lots of trucks and tons of equipment. A larger company from BHAM wanted to buy them out after economy crashed and they paid for only their phone number and email, that is it. I thought that was very clever. Anyone that did call or email would go straight to other company

Client list is worthless and equipment is usually old and outdated

 

If the client list is so worthless and clients are so disloyal, why do folks work so hard building one and retaining clients once you've earned them?

I've worked in enough shops of many sizes to know that the vast majority of revenue for nearly everyone is generated by repeat business with return customers.

Equipment can age and degrade, personnel in some areas is expendable, but the P&L statements don't lie unless someone is a tax cheat. Neither does good will, organizational proficiency and name recognition. Our craft is no different than any other applied trade.

We have a client who is the plumber we always use who doesn't drive a fully wrapped new truck, have uniforms, shiny new tools, but he is super reliable, very fair, has long standing good will and runs a lean, efficient business. While not needing him often, every encounter is identically positive, and that is valuable to many consumers.

Customers still appreciate and reward proficiency, reliability, value and quality.

To the OP, with eyes wide open and emotionalism stripped away, determine what the components of your business are worth in real world dollars and cents. Given your size, It's likely not enough to live a retirement of luxury, but could be the stepping stone to what you do next.

Good luck and Happy Thanksgiving.

 

I don't understand this. You have a business. What does business come from? Your clients. It's not equipment, though that would go with it. Anybody can buy equipment. You can obtain employees that have skills and may go with the business but they were built because of the clients. Essentially a business is your clients and your skills that the clients want. The clients that a business currently has is what is bought when a business is sold (Patents too if you have those).

 

I think the confusion on a client list being worthless is that after the business is sold, more often then not, there is nothing to keep the clients coming to the new owners.

For a variety of reasons clients may or may not stick with the new owners. What was done under previous ownership doesn't necessarily translate under the new ownership.

Even if the clients are under contract for goods/services, contracts can be broken, depending on if there are remedies (costs) for breaking a contract is something else. The contract may or may not transfer to the new owner as well (especially if that isn't addressed explicitly in the contract, maybe a grey area if the name is still used under the new ownership etc).

Also have to keep in mind that with small business, customers are usually more 1 on 1 with the owners and sometimes it may seem that there is loyalty to the business, but it may be loyalty more for the owner of it then the actual business itself. Remove the owner in question, there isn't the loyalty anymore. Not always the case, but I would suspect that it happens as well.

 

We are talking about a business going under new ownership. Clients could leave they are under no contract to stick with new owners. People dont like change. The new owners may also not have the same skills or capacity the older one did, makes folks leave.

 

So what you are saying is a business is worth nothing? If that was the case, businesses would never sell, which is not true. Establishing relationships under a certain name is very valuable. It's clientele.
It's the same reason that you cannot just go start a business and expect to be busy as your competitor in the first month. This is why businesses come and go so quickly. They never had a long term plan to get and retain customers. When you buy a business you buy the relationships of clients. You hope to continue the same service or even improve it to show your existing clients that you are just as excited to have them as the previous owner.
The example listed above where the business was bought out just to redirect the phone and email makes me angry. I know it happens and it turns me off from doing business with them. For example, I had a fax number for about 13 years. It had gone through transitions such as from Frontier to onlinefaxes.com. The service worked great suddenly onlinefaxes.com was bought up by a mega corp called J2 Global. They own almost all fax services available. onlinefaxes.com had "ownership" of my number but as soon as it was sold J2, or, Myfax.com split the assets up and I lost my number that I have had for years. I want nothing to do with them. They could have taken over and kept onlinefaxes.com the way its was but they just wanted the assets.

 

Your business is worth the building, the equipment, and the inventory. That's it. A business owner has ZERO control over clients and employees.

[Edit: If someone wants to pay you for client lists, by all means, take their money though.]

 

Businesses sell all the time, how they are setup will determine what's valuable, what's not. How things are transferred (if it does transfer) etc.

Name of the business can be a very important asset and why some businesses continue to use it. If the name of the previous business transfers to the new one, that could help with client retention, depending on how the new owners run everything and the reputation of that previous name.

Some businesses that buy others, keep the name, some hyphenate old-new for a time to help the transition, some take it in to the fold right away. It does depend on who is buying just as much as who is selling.

If clients are under contract, with steep penalties for breaking a contract (if the contract "survives" the change of ownership) that would help as well. If there is no contract, the clients may or may not stick with the new company. In one way, the client list may have some value as a means to get their "foot in the door", but it isn't a sure thing beyond that. How much value that it does have with that little of influence, that I don't know. To some, that may have some value, to others none.

 

The exception to that is when the incoming owner is actually better skilled and more business savvy than the outgoing one.

IF customers were as flighty and prone to switch it vendors as is being suggested, then the 60-75% of our business revenue provided by pre-existing customers wouldn't kerp coming back and we wouldn't have grown revenues 10% every year since 2014.

Good economy aside, our craft and it's increasingly savvy clients can see the differences when dealing with a higher level craftsperson and solid business model.

 

If that's true, then would they actually need the client list in the first place?

In that case, the reputation of the name of the businesses being sold may be more of a detriment then a positive.

But unfortunately, there is no guarantee of either scenario. People have to see how things play out.

 

There are many reasons to buy a company and those.... why NOT to buy a company.

Most businesses want to buy a company to gulp up the competition and perhaps take on better personnel and perhaps equipment. The other reason is, because they don't have the know-how to grow a business on their own whether capability or ability. They might have the talent as a mechanic, but not the business smarts.

Another business is not gonna buy your business, just for the sake of having it. If they're smart, they've already done their homework and made 1 + 1 = 3. There's gonna be losses and transition, so seeing your books, your equipment and having your customer lists all have an affect on the outcome.

Just remember, no one will ever overpay for anything, when doing business. They'll walk away, first.