Business Valuation

How much is it worth?

  • <$25,000

    Votes: 3 23.1%

  • $25,000-$75,000

    Votes: 6 46.2%

  • $75,000-$125,000

    Votes: 4 30.8%

  • $125,000-$175,000

    Votes: 0 0.0%

  • >$175,000

    Votes: 0 0.0%
  • Total voters
    13
joshuabcrutcher

joshuabcrutcher

Member
Suppose the following criteria:

A company has been in business for 5 years. They have a good reputation and shown steady growth at about 20% per year. Of their $100,000 of NET income, they receive 50% from residential and 50% from commercial contracts. Assuming no liabilities upon purchase and you had the cash available, how much would you pay for the business?

Net Income - $100,000
Assets (Rig and truck) - $15,000
No liabilities
Client list + equipment + introductions

Feel free to chime in on additional thoughts and experiences...
 
Good point... There is never a guarantee and there are always additional factors in the equation. We must assume a no-compete clause is in place with the seller which would have to be required. And since we are getting an introduction, in all likelihood you should be able to retain the customers with good work.

With $100,000 of NET income coming in, it would be hard for a person to sacrifice that for less than $75,000 - much less $25,000.

I appreciate the input and understand it will be worth more to one person than another.
 
In other industries, much of the valuation info is readily available. You can find industry multiples, present values of future cash flow, draw comparisons with like-size companies, etc.

I'd be interested in knowing how you come up with your values....
 
I would look hardest at the commercial contracts and find out how much revenue remains and whether it is transferrable to buyer. If they have a good name in the market the residential might be worth half what is produced last 12 months as it is non-recurring revenue. How many years have they made $100K in profits? Look closely at last 3 years and the trends it shows. Then add the assets if they are really worth 15K to purchase today. Add is all up: Remaining comm revs + $25K for residentail + $15K for assets + the X factor (what the company name could potentially add in the future). $90K on the low side up to perhaps $250K on the high side. If this company shows historically strong revenues and profits with positive trends and has solid brand name in market area...>$175K.
 
Hightide,

I'd like to sell my business to you!:)

Joshua,

You might consider posting this on PTstate, we've had this discussion many times over there, and you'd get some unique input. I love threads like this.

From what you've stated, I'd probably consider paying 30-40K for the biz (including assets). Maybe a hair more, as 15K worth of assets seems low for a biz doing 100K in net rev. Next, is the net rev the owner salary plus after-tax profits? I just want to make sure our definition of net profit is the same.

My analysis---the residential 50K is worth next to nothing. The 50K in commercial is only worth what is guaranteed, and then maybe a tad more for goodwill.

FWIW, I'd attach zero value to the "introductions." Only attach value, i.e. money, to what you are sure you'll receive (assets, contracts, and maybe some name recognition/goodwill).

Also keep in mind, my valuation is what I'd PAY....meaning, this is what I'd pay in order for it to be a good deal FOR ME. I could see someone paying more and coming out okay.

But IMO, Hightide's prices are quite high.

Lastly---and this is a biggie---does he have someone in place to run the biz? Do written/documented SYSTEMS come with it?? If no to both of these, don't pay much more than asset value. If YES, then the value goes up. If you would have to buy and be the owner/op, I stick with my 30-40K price.
 
JFife said:
Hightide,

I'd like to sell my business to you!:)

Joshua,

You might consider posting this on PTstate, we've had this discussion many times over there, and you'd get some unique input. I love threads like this.

From what you've stated, I'd probably consider paying 30-40K for the biz (including assets). Maybe a hair more, as 15K worth of assets seems low for a biz doing 100K in net rev. Next, is the net rev the owner salary plus after-tax profits? I just want to make sure our definition of net profit is the same.

My analysis---the residential 50K is worth next to nothing. The 50K in commercial is only worth what is guaranteed, and then maybe a tad more for goodwill.

FWIW, I'd attach zero value to the "introductions." Only attach value, i.e. money, to what you are sure you'll receive (assets, contracts, and maybe some name recognition/goodwill).

Also keep in mind, my valuation is what I'd PAY....meaning, this is what I'd pay in order for it to be a good deal FOR ME. I could see someone paying more and coming out okay.

But IMO, Hightide's prices are quite high.

Lastly---and this is a biggie---does he have someone in place to run the biz? Do written/documented SYSTEMS come with it?? If no to both of these, don't pay much more than asset value. If YES, then the value goes up. If you would have to buy and be the owner/op, I stick with my 30-40K price.
Click to expand...

I would have to agree. I've sold two businesses. What is expected and what happens in real life are two different things.
 
Thanks guys.... Tony I caught your other post in "Buyouts" and appreciate your input. I'll have to check out PTState's post on the topic. Jon, you care to vote so I can track responses... Tony, you have any guestimates on a value?

Easier to draw conclusions with more data...

Thanks guys
 
Most people in my market think my prices are too high too. I tried to get $249 for a couple of house washes yesterday and got the "Oh my, thats too expensive" from each of them!
 
joshuabcrutcher said:
Thanks guys.... Tony I caught your other post in "Buyouts" and appreciate your input. I'll have to check out PTState's post on the topic. Jon, you care to vote so I can track responses... Tony, you have any guestimates on a value?

Easier to draw conclusions with more data...

Thanks guys
Click to expand...


This is a tough time to sell a business. Credit is hard to come by and the days of HELOC's for financing business purchases are over. Even in 2006 when money was easy to come by one of our businesses was on the market for over a year through multiple brokers at 40% of net and only generated one "lowball" contact.

We had proof of 8 years of steady growth, but no one was even interested enough to look at it. How can you sell on growth and income if no one is even interested enough to ask to see it?

Someone mentioned that it would be hard for someone to let go of $100k net for less than "x" amount, but I would say that there are many people out there, myself included (in my previous business), who would do just about anything to get out of a 6 figure business if they were certain that their customers would be taken care of.

Sometimes people sell in order to free their time up for a better opportunity.

Are you buying or selling?
 
I have looked at buying some related companies that have some synergies. I am in a partnership that has a detailing company and pressure washing company. I have looked at some window cleaning and roof cleaning companies in the Louisville area.

I am just really looking to get a better grasp on the what some guys have done historically. It is easier to find data on $30M companies vs. $100K.
 
Josh, you are about to see how things unfold in real time.

My wife grossed 6k/mo her first year in business in 1999/2000.

Later she was up to almost 9k when we had our daughter and Shelly put on the brakes and said "no more new business".

The economy has taken it's toll on her business. She lost a lot of income since last November, but it appears that all the customers who were going to go out of business are closed now and everything has stabilized at the whopping gross of $2600/ month.

She has 6 car dealerships she services exclusively. The work takes about 2-3 hrs per day.

The only physical assets this company comes with is the printer that makes her envelopes and maybe $100.00 worth of misc. office supplies needed for the work.

The value is in the system she uses and the long term trusting relationship she has with the 6 dealerships and the DMV where she is trusted and treated well.

Right now her gross is $32,000/yr. (Shelly doesn't do the work, Jill does) If Shelly was doing the work by herself her net would be $1,700 per month ($20,400) not including the cost of fuel.

It's hard to see a $100k net business dwindle to where it is today. It's our fault for not nurturing it but Shelly didn't want to take on any new dealerships and flat turned them down for that past 5 years when they called. No big deal, this is all in God's plan to have us 100% devoted to Sonitx.

I know how much we are going to try to sell this business for and I know about how much to expect for it.

Does anyone care to guess what our asking price is going to be?
 
JFife said:
For Sonitx or DMV biz?

I'd actually see some value in the DMV biz, assuming you could get a verbal from the dealers that they'd stay on with a new owner and see how it worked.
Click to expand...


Hahaha! The DMV biz.

What would you ask for it?
 
Thanks guys, and no offense Vince. I'm going to ask $10k. I predict that the only way I will get the full amount is through partial financing.

$10k is pretty sad for a business that used to bring in almost that much in a month. But, I can't complain. That business has paid a car payment, groceries and a lot of utility bills over the years.

And it allowed Shelly the time to spend with Fayth that she needed. Fayth worked with us till she was three, then we put her in pre-school for three hours per day. This wasn't because WE needed time away from her, but because we were unable to keep up with her educational needs and she was bored to death with us.

She learned how to count pushing elevator buttons delivering dry cleaning.

This has been a good and rewarding business for Shelly. We won't miss the customers because most of them have already become Sonitx customers.
 
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