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Evaluating a small business worth?


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I may have an opportunity to sell my business.  Equipment, building, land, brand.  Everything.

I have a number in mind, but it's just a shot from the hip.  My ego might be driving it up for no reason.  My inner retard might've made it to low.

 

Anybody gone through it?  There's an overload of information and formulas out there.  It's hard to know what it's right or wrong.

 

Also, really fucking conflicted about it.  I've spent 17 years building that machine and I don't want to bail prematurely.  If I sell today, I can't retire either.  At least not here, and I don't think the wife would move to South America.

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Yeah.  Lots of different ways to do it.  Basically comes down to 3.  

a multiple of average annual revenue from .5-1.5 depending on market, depth of order book, debt/assets, etc..  Good will is really hard to factor

a multiple of average annual PBIT adjusted as above.  Hard top do for a small business without a very deep dive into the books.  Profit is taxed pretty heavily in the US and many states so a lot of privately held firms "adjust" expenses to limit profit.  A good buyer looks beyond the basic numbers and into the details during due diligence.  You can always tell when someone decided to sell as they put lipstick on the revenue and profit for a year before going to market.   Not a bad thing but a behavior to  be aware of as a buyer.

value of assets (buy and strip)  

 

Do you use a commercial bank?  They should be able to help you find someone to assist in determining the value.  

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I agree with Huggy. You might want to talk to a professional, even your accountant about what prices are common for your the of business.  Usually there are rules of thumb about prices as far as multiples of cash flow, sales or other things which go into evaluating a company's value.  Also, think about how much you are taking out of the business as far as salary, perks and other things (car, insurance, etc.). Can you replace that?

Maybe you can get a contract from the buyer to stay on for a few more years and show them the ropes.

Basically, it would be good to consult a couple of professionals that you trust (important caveat) before agreeing to sell.  

Also, remember you get what you pay for with the advisors from SA.

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5 minutes ago, Rum Runner said:

Also, remember you get what you pay for with the advisors from SA.

I've found SA, (internet in general), works really well, not for the answer, but for contributing to the thought process that eventually leads to the answer.

Always some flake of gold in the pool of shit.

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the market axiom for sole proprietorships is “owners brain does not require logic”

P/E ratios are not particularly useful at this business size.  Most seller brokers or M&A specialists would advise you to pick your happy number, and then figure out a way to justify the valuation. Replacement value, enterprise value, some multiple of ebidta for range, and the all-important discount rate adjustments. For acquirers in the same field, more adjustments may be available in your favor (for licenses, permits, etc). 
the final big adjuster is for value of non-compete agreement, IP, and goodwill.

I’ll see if I can post some more later after I look through some of the material from the M&A Advisor certification I did early in the year. 
 

one piece of advice to really take heed of is this:

You will get ass raped if you don’t have an experienced lawyer you can trust. Acquisitions are minefields for the uninitiated. 
 

fwiw I do the documents for 8-10 acquisitions a year in the 5-50M range. 

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11 minutes ago, Innocent Bystander said:

Value of assets (buy and strip)  

 

Do you use a commercial bank?  They should be able to help you find someone to assist in determining the value.  

 Value of what's there is pretty much what got me to the number in my head.  The building would cost at least $500k to replace, but is worth maybe $400k if sold on the open market.  Maybe.  The equipment is insured for $700k or $800k.  If it went to auction tomorrow, I'd be lucky to get $300k, and probably closer to $200k for the equipment.  The brand isn't worth much, a few solid accounts, but nothing you can't create on your own.  It'll keep itself afloat while the new owner molds it into whatever he wants.

The guy owns another cabinet shop, and is looking at tackling another market by opening a showroom and possibly another shop in a different city.  He's a solid hour and a half from that city, I'm half an hour away from it.  So the value for him is it's turn key for a satellite shop.  Turn on the lights, shove material in one end, cabinets come out the other.  And it's relatively close to the market he wants to tackle, and his own.  So that actually has a ton of value to him specifically.  But it's a risk on his part.

 

My goal has been to be able to pay myself $300k a year by the time I'm 45, with the intent of socking away 100 of that per year and living off the remaining 40.  Then selling off the whole mess at 55 so I can proceed drinking myself to death under a palm tree.  I just can't get there.  I'm keeping up with the building payments, but way behind the schedule I set for myself on paying the building off.  Which was about 5 years.  Once that was free and clear, I was going to borrow another $500k and put up another building to rent out and have some passive income that way.

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9 minutes ago, Hatin' life said:

 Value of what's there is pretty much what got me to the number in my head.  The building would cost at least $500k to replace, but is worth maybe $400k if sold on the open market.  Maybe.  The equipment is insured for $700k or $800k.  If it went to auction tomorrow, I'd be lucky to get $300k, and probably closer to $200k for the equipment.  The brand isn't worth much, a few solid accounts, but nothing you can't create on your own.  It'll keep itself afloat while the new owner molds it into whatever he wants.

The guy owns another cabinet shop, and is looking at tackling another market by opening a showroom and possibly another shop in a different city.  He's a solid hour and a half from that city, I'm half an hour away from it.  So the value for him is it's turn key for a satellite shop.  Turn on the lights, shove material in one end, cabinets come out the other.  And it's relatively close to the market he wants to tackle, and his own.  So that actually has a ton of value to him specifically.  But it's a risk on his part.

 

My goal has been to be able to pay myself $300k a year by the time I'm 45, with the intent of socking away 100 of that per year and living off the remaining 40.  Then selling off the whole mess at 55 so I can proceed drinking myself to death under a palm tree.  I just can't get there.  I'm keeping up with the building payments, but way behind the schedule I set for myself on paying the building off.  Which was about 5 years.  Once that was free and clear, I was going to borrow another $500k and put up another building to rent out and have some passive income that way.

How many employees?

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I am the last guy who could or should give advice on this subject, but can add an anecdotal story which may be of interest to you. Had a good friend who had a very successful large lawn maintenance and landscaping business waaay before every dog with a trailer and a mower got into the field (pun sorta intended)...he sold the business for close to $1Mil about 20 years back...stayed on as manager for the next 20 pulling a good salary for that time...the business just sold again to a bigger out of state deal and he got a nice little "see ya later" package in that transaction. May be worth thinking about that sort of deal if you can swing it.

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As grabbler posted, often the solution that gets you to your desired price includes a combination of purch. price, post-close consulting or employment, IP transfer, non-competition, and goodwill.  
 

earnout clauses are very common, I just did a fairly complicated one for a company that serviced banks, seller gets 50% of all gross profit above a certain amount for 2 years, and 50% of all revs from sales of any new products he creates in that time.  Helps motivate him to make an effective transition and work hard for the two years after sale. 

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28 minutes ago, MR.CLEAN said:

the market axiom for sole proprietorships is “owners brain does not require logic”

P/E ratios are not particularly useful at this business size.  Most seller brokers or M&A specialists would advise you to pick your happy number, and then figure out a way to justify the valuation. Replacement value, enterprise value, some multiple of ebidta for range, and the all-important discount rate adjustments. For acquirers in the same field, more adjustments may be available in your favor (for licenses, permits, etc). 
the final big adjuster is for value of non-compete agreement, IP, and goodwill.

I’ll see if I can post some more later after I look through some of the material from the M&A Advisor certification I did early in the year. 
 

one piece of advice to really take heed of is this:

You will get ass raped if you don’t have an experienced lawyer you can trust. Acquisitions are minefields for the uninitiated. 
 

fwiw I do the documents for 8-10 acquisitions a year in the 5-50M range. 

Clean has some good advice here.  If you go beyond thinking about it, find a lawyer with specific small business M&A experience.  I did M&A and integration for a large aerospace firm.  We bought everything from $2B down to  $10-20M depending on market and how bad we wanted what they had.  Even with a major team of accountants, lawyers and business folks, it can go south.  Somebody who can clearly help you understand the risks and rewards can keep you from very expensive mistakes.  

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A while back I was looking with a friend to buy a metal business we had worked who owned everything (building and machines) with the land and building becoming crazy valuable 

 the land and building had become to valuable for a new ownership to make it work in metal fab 

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I was just CFO on the sell/shareholder side of a 10M mature business sale to a London private equity firm. This firm was under strict protocols and had to use a large accounting firm to audit historical financials and we underwent a full body scan. My advice to the sellers was ignored when I pointed out the legal rep they had did not have the M&A horsepower to handle their side of what ended up being a pretty complex formula for valuation at the precise time of the sale. There are also two waves post sale adjusting (hold back in escrow released or not) as well as an earn out for the first year of operations for the CEO who stayed with the company. Short story is you need a legal resource with pretty sophisticated finance and accounting skills as well as a tax person depending. As an operating finance guy with lots of day to day ops stuff there was no way I had the bandwidth to model out the scenarios, wrangle tax accountants, etc. The Net Working Capital adjustment is a bitch for either side to understand if it takes money out of their pockets. Hardest part of our deal for the sellers in my deal. Also, the taxes really killed the sellers in our case as they were cash based accounting and had three years of profit that they finally had to pay the taxes on for 2019 and that was all their responsibility. They were also responsible for all their legal fees which ended up being a surprise. This deal was at 10x EBITDA (Earnings Before Interest Taxes Depreciation Amortization).

Keep us posted and ask lots of advice.

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1 minute ago, floating dutchman said:

Not my field of expertise, in fact I don't know shit.

But that statement is raising alarm bells.

Are you sure?

It's the trades.  Not much loyalty.

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15 years ago I looked into buying the boatyard I use. Small business - low 7 figures annual revenue at the time.

We checked out the books and it was a go.

We hired an analyst who said it was a go.

I talked with my rich uncle who built & owned a 9 figure manufacturing business - he also had his chief finance guy go over it and it was a go.

Then my wife & I discovered a deal killer in the property lease specs.

Pro's are necessary but will only get you so far.

 

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3 hours ago, Chris in Santa Cruz, CA said:

I was just CFO on the sell/shareholder side of a 10M mature business sale to a London private equity firm. This firm was under strict protocols and had to use a large accounting firm to audit historical financials and we underwent a full body scan. My advice to the sellers was ignored when I pointed out the legal rep they had did not have the M&A horsepower to handle their side of what ended up being a pretty complex formula for valuation at the precise time of the sale. There are also two waves post sale adjusting (hold back in escrow released or not) as well as an earn out for the first year of operations for the CEO who stayed with the company. Short story is you need a legal resource with pretty sophisticated finance and accounting skills as well as a tax person depending. As an operating finance guy with lots of day to day ops stuff there was no way I had the bandwidth to model out the scenarios, wrangle tax accountants, etc. The Net Working Capital adjustment is a bitch for either side to understand if it takes money out of their pockets. Hardest part of our deal for the sellers in my deal. Also, the taxes really killed the sellers in our case as they were cash based accounting and had three years of profit that they finally had to pay the taxes on for 2019 and that was all their responsibility. They were also responsible for all their legal fees which ended up being a surprise. This deal was at 10x EBITDA (Earnings Before Interest Taxes Depreciation Amortization).

Keep us posted and ask lots of advice.

Great post. Never forget the tax pros even if they make your eyes glaze over! We recommend doeren mayhew when possible. 
10x ebitda is quite high for that size company, which is what let them sneak all the subtractions in. PEG docs have all the tricks in them, if your lawyers don’t know what to look for, it can mean you take in 20-30% less than you thought the contract said. 

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10 minutes ago, SloopJonB said:

15 years ago I looked into buying the boatyard I use. Small business - low 7 figures annual revenue at the time.

We checked out the books and it was a go.

We hired an analyst who said it was a go.

I talked with my rich uncle who built & owned a 9 figure manufacturing business - he also had his chief finance guy go over it and it was a go.

Then my wife & I discovered a deal killer in the property lease specs.

Pro's are necessary but will only get you so far.

 

That’s called “malpractice” from the analyst you hired if you’d have gone through with it. Did you pay full price for him/her?

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IIRC he only cost a few hundred. We just let it go after talking to the landlord because he was such a Trumpian mini-me.

No way were we going to get involved in any sort of business dealings with him Won't even rent dock space from him.

You hadda be there.

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33 minutes ago, MR.CLEAN said:

Great post. Never forget the tax pros even if they make your eyes glaze over! We recommend doeren mayhew when possible. 
10x ebitda is quite high for that size company, which is what let them sneak all the subtractions in. PEG docs have all the tricks in them, if your lawyers don’t know what to look for, it can mean you take in 20-30% less than you thought the contract said. 

I can tell you that Private Equity never over pays for assets. Cheap bastards.

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51 minutes ago, SloopJonB said:

IIRC he only cost a few hundred. We just let it go after talking to the landlord because he was such a Trumpian mini-me.

No way were we going to get involved in any sort of business dealings with him Won't even rent dock space from him.

You hadda be there.

Is the boat yard still in business?

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1 hour ago, Chris in Santa Cruz, CA said:

I can tell you that Private Equity never over pays for assets. Cheap bastards.

Depends. I usually rep buy side and we try to counsel driving a hard but honest bargain.  That said, it seems private auctions generate the highest dollars, with time premiums for businesses that have all their formation and governance in order.  In other words the longer a buyer has to spend on due diligence the less the seller is gonna get. 

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7 hours ago, Hatin' life said:

The brand isn't worth much, a few solid accounts, but nothing you can't create on your own.  It'll keep itself afloat while the new owner molds it into whatever he wants.

 

Back to this comment - if you don't think there is a profit stream to sell then the buyer won't either.  It will be priced based on the assets and isn't really a business sale.

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2 minutes ago, Tax Man said:

Back to this comment - if you don't think there is a profit stream to sell then the buyer won't either.  It will be priced based on the assets and isn't really a business sale.

It makes money.  It's just not anything tied to the name that has any value in my opinion.  It's not Coke, or Marlboro, it's a piss ant cabinet shop.  You could pound one up next door, swap some colors on the logo and a few letters in the name and easily out smart me and put me out of business.  That's what I mean by the brand really doesn't have any value.

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1 hour ago, MR.CLEAN said:

Depends. I usually rep buy side and we try to counsel driving a hard but honest bargain.  That said, it seems private auctions generate the highest dollars, with time premiums for businesses that have all their formation and governance in order.  In other words the longer a buyer has to spend on due diligence the less the seller is gonna get. 

Saw it happening like a slow motion train wreck. Buyers also had a bunch of formula elements which the sellers just could not process without additional help and the buyers saw they were under represented. There is a fine line between "hard bargain" and taking advantage of hayseeds for example. In the end the desire to move away from a hostile slug of a shareholder warranted a discount deal for the remaining owner who was able to invest in the new vehicle and can help grow the company for a nice exit in 3-5 years.

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Just now, bmiller said:

Would you over pay for anything?

I do all the time until you figure in the time needed to look around more or go back and forth. Often I just want to get what I need and get on with it. I value my time highly and overpay to shop local closer to home and I also like to help the community businesses. I am lucky not to have to worry that much about it.

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9 hours ago, Hatin' life said:

Also, really fucking conflicted about it.  I've spent 17 years building that machine and I don't want to bail prematurely.  If I sell today, I can't retire either.  At least not here, and I don't think the wife would move to South America.

if you are not retiring yet and staying in the same type of business, keep this business - the time you have spent getting the setup you like is valuable to you.

my $0.02 (Aussi peso's) unless you are changing the type of work you do or wanting to change your "boatless" status - keep what you got. Still worth getting a pro valuer in and also ask the what you would have to do to increase the sale value of the business over the next x years.

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2 hours ago, nacradriver said:

Is the boat yard still in business?

Yes - his son inherited it. It's been there since at least the 50's - several owners and several landlords but the current landlord is a real piece of work. Total slumlord. He owned a motel up country that was a real crack house from all accounts. When the municipality finally closed it down the police chief said crime in the town dropped 80%. :D

It's the only yard I've used since the early 80's.

5 minutes from home is just gravy.

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My wife and I looked at buying a small business at the start of the year that competed with one of ours.  The owner wanted $150K which at first glance based upon their turn over and on going contracts didn't seem un-reasonable.  However, before we even brought in an expert to review the numbers we'd decided that the best be for both parties would be if they paid us $30K to take the business off their hands.  We didn't tell them that just walked away.

6 months later.  Mid Covid shutdown we get a phone call from our web designer who does theirs as well saying "You should give them a call they're looking to get out fast".  No thanks.

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7 hours ago, Chris in Santa Cruz, CA said:

I was just CFO on the sell/shareholder side of a 10M mature business sale to a London private equity firm. This firm was under strict protocols and had to use a large accounting firm to audit historical financials and we underwent a full body scan. My advice to the sellers was ignored when I pointed out the legal rep they had did not have the M&A horsepower to handle their side of what ended up being a pretty complex formula for valuation at the precise time of the sale. There are also two waves post sale adjusting (hold back in escrow released or not) as well as an earn out for the first year of operations for the CEO who stayed with the company. Short story is you need a legal resource with pretty sophisticated finance and accounting skills as well as a tax person depending. As an operating finance guy with lots of day to day ops stuff there was no way I had the bandwidth to model out the scenarios, wrangle tax accountants, etc. The Net Working Capital adjustment is a bitch for either side to understand if it takes money out of their pockets. Hardest part of our deal for the sellers in my deal. Also, the taxes really killed the sellers in our case as they were cash based accounting and had three years of profit that they finally had to pay the taxes on for 2019 and that was all their responsibility. They were also responsible for all their legal fees which ended up being a surprise. This deal was at 10x EBITDA (Earnings Before Interest Taxes Depreciation Amortization).

Keep us posted and ask lots of advice.

This.

I've done a number of big transactions - those are easier in a way since both sides are lawyered and accountanted-up and a number acquisitions of small businesses from founders who stayed on. We even structured one as a put/call driven by business performance since it was such a small business and hard to value.  Escrow, hold back, earn-out and the networking capital calc can be difficult for the smaller sellers to handle.  Often they have some delicate arrangements to unwind because of things they did to start the business - like taking a loan from a relative that they didn't account for properly. But - you can help them reduce some tax if you structure some of the held back compensation as a part of the purchase price and not as a part of compensation.  

Pick the price you want. Then find a method to justify it. Just keep in mind you can only sell once. Do you think you can increase the value on your own? 

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33 minutes ago, SloopJonB said:

Yes - his son inherited it. It's been there since at least the 50's - several owners and several landlords but the current landlord is a real piece of work. Total slumlord. He owned a motel up country that was a real crack house from all accounts. When the municipality finally closed it down the police chief said crime in the town dropped 80%. :D

It's the only yard I've used since the early 80's.

5 minutes from home is just gravy.

Is it close to the Jericho Sailing Center?

 

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1 hour ago, nacradriver said:

Is it close to the Jericho Sailing Center?

No - the closest yard to Jericho is Granville Island in False Creek. Jericho is only small boats  - off the beach - yard services not req'd.

The yard I was referring to is in West van.

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5 hours ago, Hatin' life said:

It makes money.  It's just not anything tied to the name that has any value in my opinion.  It's not Coke, or Marlboro, it's a piss ant cabinet shop.  You could pound one up next door, swap some colors on the logo and a few letters in the name and easily out smart me and put me out of business.  That's what I mean by the brand really doesn't have any value.

 Since you are not ready to retire.  Sell the business and equipment, keep  the property with a long term lease, build a smaller shop in the back and start a non competing specialty  business, woodworking, gun shop, boat building, etc, with no employees.  Or put a strip joint back there if you have enough room for parking

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21 minutes ago, VWAP said:

 Since you are not ready to retire.  Sell the business and equipment, keep  the property with a long term lease, build a smaller shop in the back and start a non competing specialty  business, woodworking, gun shop, boat building, etc, with no employees.  Or put a strip joint back there if you have enough room for parking

The non competing business idea crossed my mind.  I wouldn't call it a side gig, I run it through the business, but I've been making 1 piece mdf doors on the cnc for another shop.  That's easy money.  A couple grand a month using stuff that's taking up floor space anyways.  And if the router is backed up, I just do it after hours.  I'm charging $10 per square foot.  At 85% yield, one sheet produces $272 in parts, that cost me $40 in material, and about half an hour of machine time.  That's good money, even burning up a $120k router, and almost 40hp worth of electricity

Best part is I can do other things while the robot does it's thing.  Might have time to sit on sniffers row.

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12 hours ago, nacradriver said:

Has there been thought on merging the two business into a partnership? 

No.  He's ten times the size of my shop, maybe more.  I couldn't buy in.

 

Might be an opportunity to say hey, instead of hanging your ass out, how about we talk about me building those jobs?  Could be a win/win temporarily.  Could also be my buddy holding a flashlight while I dig a hole in the woods too.

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12 hours ago, VWAP said:

Keep the property and sell the business, equipment  with a long term lease then add the other building 

 

Another way to look at it is what would you be happy with in terms of a monthly cash flow and back into a deal structure that gives you that while retaining ownership of the real estate. If you get the monthly number you want even if you don't charge newco a market rate on the real estate then that might work for you in keeping employees working etc. its your choice and you can structure it so in three years you can revisit the real estate component. Think about what is important for you and try to make that happen.

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5 hours ago, Hatin' life said:

It makes money.  It's just not anything tied to the name that has any value in my opinion.  It's not Coke, or Marlboro, it's a piss ant cabinet shop.  You could pound one up next door, swap some colors on the logo and a few letters in the name and easily out smart me and put me out of business.  That's what I mean by the brand really doesn't have any value.

This statement really makes me think of a motivated buy out by a hand picked GM over time. Do you not have a leutenant or a key hire you could place and then phase out your day to day involvement? Be a deal closer and high level mentor and let someone else pull the wagon on a daily basis? You might be surprised who could come along once you put the world out. Somewhere out there is a shit hot cabinet maker with no shop and a boatload of enthusiasm and energy.

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16 hours ago, Hatin' life said:

I may have an opportunity to sell my business.  Equipment, building, land, brand.  Everything.

I have a number in mind, but it's just a shot from the hip.  My ego might be driving it up for no reason.  My inner retard might've made it to low.

 

Anybody gone through it?  There's an overload of information and formulas out there.  It's hard to know what it's right or wrong.

 

Also, really fucking conflicted about it.  I've spent 17 years building that machine and I don't want to bail prematurely.  If I sell today, I can't retire either.  At least not here, and I don't think the wife would move to South America.

This is the only rational way to price a business if you aren't interested in selling it ...

Come up with a number in your head that is so ridiculously high that you are sure nobody would buy it at that price. And that's what it's worth when you don't want to sell it.

Businesses that are owned by competent owners are usually worth considerably more than the "four years of revenue plus assets" that the experts decide they are worth. Given the photos that you've posted of your shop, it's likely that it will be considerably larger and considerably more valuable in six more years. And merging your business with some jackknife who builds low-quality crap is a sure way to build a new partnership with too much booze to soften the blow of seeing your legacy get sucked into a grinder.

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Some pretty cheap places to live in in South America. If you want hot all year we really liked Ecuador near the beach (on the equator). If you want a more temperate feel and don't want to sail there are some very nice small cities up in the mountains. Loved Buenos Aires, although not as cheap. Has a faded glory feel about the place but very civilized.

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2 hours ago, warbird said:

Reverse acquisition, buy him out:D

Lol, you're over estimating the amount of capital on hand, and the amount of leverage I have available.

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One tiny bit of info I can offer, hatin;

 

a good friend has a high end cabinet shop down south. Does mostly resort/hotel/restaurant work now. 10 years ago, he was more general. Then he got married and wifey liked to grow the brand. Her work paved the way for him to pull down some really big contracts, and even attract a solid 6-figure investor for a minority stake that allowed him to move shop. She made sure he got in the news, brought influencers in to grand openings, made merch, etc. Now his brand is valuable and he is making more than he ever thought he would, and he gets several offers a year for the company. 
 

the world has an appetite for good craftspeople right now. Don’t sell yourself short. 
 

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2 hours ago, warbird said:

Reverse acquisition, buy him out:D

 

15 minutes ago, Hatin' life said:

Lol, you're over estimating the amount of capital on hand, and the amount of leverage I have available.

Issue stock, retain 20% in fees, acquire him for 70% of the remaining:D  503 C? You don't need an IPO to issue stock!

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19 minutes ago, MR.CLEAN said:

One tiny bit of info I can offer, hatin;

 

a good friend has a high end cabinet shop down south. Does mostly resort/hotel/restaurant work now. 10 years ago, he was more general. Then he got married and wifey liked to grow the brand. Her work paved the way for him to pull down some really big contracts, and even attract a solid 6-figure investor for a minority stake that allowed him to move shop. She made sure he got in the news, brought influencers in to grand openings, made merch, etc. Now his brand is valuable and he is making more than he ever thought he would, and he gets several offers a year for the company. 
 

the world has an appetite for good craftspeople right now. Don’t sell yourself short. 
 

 

Excellent point clean!!  There is so much crap merchandise and shoddy work out there, and plenty wealthy folks who will pay for high quality stuff.......

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43 minutes ago, MR.CLEAN said:

One tiny bit of info I can offer, hatin;

 

a good friend has a high end cabinet shop down south. Does mostly resort/hotel/restaurant work now. 10 years ago, he was more general. Then he got married and wifey liked to grow the brand. Her work paved the way for him to pull down some really big contracts, and even attract a solid 6-figure investor for a minority stake that allowed him to move shop. She made sure he got in the news, brought influencers in to grand openings, made merch, etc. Now his brand is valuable and he is making more than he ever thought he would, and he gets several offers a year for the company. 
 

the world has an appetite for good craftspeople right now. Don’t sell yourself short. 
 

that last line is the truth, be it auto repair, general contracting, handy man etc.

provide a good quality product, on time and stand behind your work you will always have customers and will be able to charge good prices

hardest thing about making that happen is employee's and the team needed to grow a business

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1 hour ago, MR.CLEAN said:

One tiny bit of info I can offer, hatin;

 

a good friend has a high end cabinet shop down south. Does mostly resort/hotel/restaurant work now. 10 years ago, he was more general. Then he got married and wifey liked to grow the brand. Her work paved the way for him to pull down some really big contracts, and even attract a solid 6-figure investor for a minority stake that allowed him to move shop. She made sure he got in the news, brought influencers in to grand openings, made merch, etc. Now his brand is valuable and he is making more than he ever thought he would, and he gets several offers a year for the company. 
 

the world has an appetite for good craftspeople right now. Don’t sell yourself short. 
 

Commercial is so much more profitable than residential.  It's just not the kind of work that I'm interested in doing.

This is the stuff that makes my dick hard, and a job we're just wrapping up.

 

30872.thumb.jpeg.f3d13b9fdc14d2d42c7da31169b4e92c.jpeg30589.thumb.jpeg.712426ffe20372af5ba7e88f8d6e93b0.jpeg20201221_075414.thumb.jpg.48a157ecaab76a3813687eac1b4abed4.jpg

 

This dude is dumping probably $150k into a basement bar.  Cabinet bill is almost half that without finishing.  The details on this job are nuts.  They're hiding everywhere in it.  I didn't keep track of it specifically, but I bet I had 200 hours of cad time in this

 

I'm not good at selling stuff.  I'm really good at building it though.  I'm good at taking all of the wasted steps out of a process, something that sailing taught me.  I'm good at setting up a shop I've found.  I've joked about hiring a CEO so I can go back into the trenches on my bench where I belong.

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38 minutes ago, Chris in Santa Cruz, CA said:

on time

That's the key - be there when you say you will, start when you say you will and call if you will be delayed.

There are lots of skilled people out there who provide quality work, but very few who meet any sort of schedule.

Most tradespeople are like cable guys - "We'll probably be there some time between 8 and 5 next week".

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11 minutes ago, Hatin' life said:

I'm not good at selling stuff.  I'm really good at building it though.  I'm good at taking all of the wasted steps out of a process, something that sailing taught me.  I'm good at setting up a shop I've found.  I've joked about hiring a CEO so I can go back into the trenches on my bench where I belong.

If you sold out, would this guy hire you to do what you like doing?  

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12 minutes ago, Hatin' life said:

I'm not good at selling stuff.  I'm really good at building it though.  I'm good at taking all of the wasted steps out of a process, something that sailing taught me.  I'm good at setting up a shop I've found.  I've joked about hiring a CEO so I can go back into the trenches on my bench where I belong.

You need a wife/partner for that.

They can also double at making your dick hard.

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1 minute ago, SloopJonB said:

Most tradespeople are like cable guys - "We'll probably be there some time between 8 and 5 next week".

Over the years I have built my "rolodex" with some great contractors that do what they say they are going to do when the say they are going to do it. 

 

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4 hours ago, billy backstay said:
5 hours ago, MR.CLEAN said:

the world has an appetite for good craftspeople right now. Don’t sell yourself short. 
 

 

Excellent point clean!!  There is so much crap merchandise and shoddy work out there, and plenty wealthy folks who will pay for high quality stuff.......

True in every field IMHO

The bottom half of goods & services sell on price, the way to profit is to have the cheapest by a nickel when it's worth several dollars less than the nearest competitor. The 50% to 95% sell on being advertised as high prestige, but are really at the 50% value level.

The top 5% sell on quality and the sellers' willingness to make good (this is often a PITA so make sure it's worth while). If you can become well-known as absolute top-tier, you can double or triple your price and actually gain sales as people will brag about buying from you.

Hatin', if you can't retire yet why do you want to sell?

- DSK

 

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The real estate piece is the easiest to value.  Appraisals are easy to get, relatively inexpensive, and generally accurate.  I like holding the real estate in a separate entity (typically an LLC) to make it easier to separate from the business sale.  I'm amazed at how many small biz folks haven't separated those, and don't have a separate rent stream.  It can make it hard to value the business when the owner is paying either an artificially low or high rent.  I like to see a steady rent flow at some approximation of fair rental value, even if the money is going from one (business owner's) pocket to the (building owner's) other pocket.  

Business appraisals are the exact opposite:  hard to get (or at least fewer qualified people around to do them), expensive, and they usually give you a range of values that you probably had already sussed out on your own if you have half a brain.   One of the best pieces of advice for valuing a business came from an accountant client of mine.  He said take your best shot at value, assume a standard 20-25% down payment, and calculate a monthly payment on a couple standard amortization periods at then-effective business loan rates.  Can the income stream support the loan payment while paying the new owner a reasonable amount for their work, plus cover rent & expenses?  If so, you're in the ballpark.  If not, your value is off.  

Debt secured by business can be an issue, because you generally have to get enough cash out to pay off the loan, and that can kill some deals.

Buyer doesn't want to bite off on a big scary building purchase until she sees if the biz purchase goes well?  Hold onto the building and lease it to the buyer at a fixed + COLA rent for 5/10 years with a ROFO or ROFR term.  You're going to offer it to them first anyway if you need/want to sell, and a fully leased and occupied commercial building with a good rent paying tenant is easier to sell anyway. 

Partnerships/buy-ins are an absolute last resort, especially for a guy who has gone it alone, in his own way, and been relatively successful at it.   Way too fraught with problems.  Just say no.

FWIW, with your skill set it seems like you could sell the bread and butter standard cabinet work business to the high volume guy and carve out a space in the non-compete for independent CAD work at home and/or foofy commercial builds.  if there's room and buyer is amenable, shared shop space agreements are pretty simple to work out and also get out of if it doesn't work for some reason.  And the shop deal could be anything from a straight sale to you keeping and leasing part or all to buyer. 

 

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8 hours ago, warbird said:

Reverse acquisition, buy him out:D

 

2 hours ago, chester said:

Bold...I like it!

You get the infra structure to manage production/sales you get a piece of a bigger pie and you get to continue doing and be compensated for what you like best. Win Win.

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3 hours ago, chester said:
8 hours ago, warbird said:

Reverse acquisition, buy him out:D

Bold...I like it!

Buy it with an IPO of junk bonds.

Made lots of paper billionaires in the 80's.

 

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49 minutes ago, Steam Flyer said:

 If you can become well-known as absolute top-tier, you can double or triple your price and actually gain sales as people will brag about buying from you

Case in point: Nautor Swan.

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50 minutes ago, Kitchen Remodel said:

The real estate piece is the easiest to value.  Appraisals are easy to get, relatively inexpensive, and generally accurate.  I like holding the real estate in a separate entity (typically an LLC) to make it easier to separate from the business sale.  I'm amazed at how many small biz folks haven't separated those, and don't have a separate rent stream.  It can make it hard to value the business when the owner is paying either an artificially low or high rent.  I like to see a steady rent flow at some approximation of fair rental value, even if the money is going from one (business owner's) pocket to the (building owner's) other pocket.  

Business appraisals are the exact opposite:  hard to get (or at least fewer qualified people around to do them), expensive, and they usually give you a range of values that you probably had already sussed out on your own if you have half a brain.   One of the best pieces of advice for valuing a business came from an accountant client of mine.  He said take your best shot at value, assume a standard 20-25% down payment, and calculate a monthly payment on a couple standard amortization periods at then-effective business loan rates.  Can the income stream support the loan payment while paying the new owner a reasonable amount for their work, plus cover rent & expenses?  If so, you're in the ballpark.  If not, your value is off.  

Debt secured by business can be an issue, because you generally have to get enough cash out to pay off the loan, and that can kill some deals.

Buyer doesn't want to bite off on a big scary building purchase until she sees if the biz purchase goes well?  Hold onto the building and lease it to the buyer at a fixed + COLA rent for 5/10 years with a ROFO or ROFR term.  You're going to offer it to them first anyway if you need/want to sell, and a fully leased and occupied commercial building with a good rent paying tenant is easier to sell anyway. 

Partnerships/buy-ins are an absolute last resort, especially for a guy who has gone it alone, in his own way, and been relatively successful at it.   Way too fraught with problems.  Just say no.

FWIW, with your skill set it seems like you could sell the bread and butter standard cabinet work business to the high volume guy and carve out a space in the non-compete for independent CAD work at home and/or foofy commercial builds.  if there's room and buyer is amenable, shared shop space agreements are pretty simple to work out and also get out of if it doesn't work for some reason.  And the shop deal could be anything from a straight sale to you keeping and leasing part or all to buyer. 

 

lots of good stuff here

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1 hour ago, Kitchen Remodel said:

  I like holding the real estate in a separate entity (typically an LLC) to make it easier to separate from the business sale. 

I personally own the building and lease it back to the business.  I planned on setting up another corporation that handled the rental property when it became plural, or when being rented to more than myself.

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4 hours ago, Steam Flyer said:

Hatin', if you can't retire yet why do you want to sell?

Tired.  It's just become a lot of squeeze and no juice.  I'll grind myself into the dirt, and have, if it's worth it.  The last couple of years have just been a struggle.  My best customer in both quantity and quality dried up to fuck all.  I went from a few hundred thousand with them, to less than $50k this year.  They just haven't been selling.  They're struggling, I know that.  That started mid last year, and I wrestled to fill the hole back in with new clients.  I got lucky on that.  A referral got me in with a new contractor that has potential to go well.  Buying a job got my foot in the door with another, but they have zero loyalty.

The slow payment bullshit in the trades puts me in a fucking rage too.  Have a couple hundred grand in the bank?  The check will beat you back to the office.  Owed $100k and wondering how you are going to make payroll in two weeks?  Better fucking figure it out cupcake, cause your ass ain't getting paid for another six.

When the product is rolling through the shop like shit through a goose, and I'm exhausted, but the coffer is full, I fucking love my job.  I get to do little kid shit all day long and play with expensive toys.  But it's been a slog for longer than I care, and my attitude reflects that.

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2 minutes ago, Hatin' life said:

Tired.  It's just become a lot of squeeze and no juice.  I'll grind myself into the dirt, and have, if it's worth it.  The last couple of years have just been a struggle.  My best customer in both quantity and quality dried up to fuck all.  I went from a few hundred thousand with them, to less than $50k this year.  They just haven't been selling.  They're struggling, I know that.  That started mid last year, and I wrestled to fill the hole back in with new clients.  I got lucky on that.  A referral got me in with a new contractor that has potential to go well.  Buying a job got my foot in the door with another, but they have zero loyalty.

The slow payment bullshit in the trades puts me in a fucking rage too.  Have a couple hundred grand in the bank?  The check will beat you back to the office.  Owed $100k and wondering how you are going to make payroll in two weeks?  Better fucking figure it out cupcake, cause your ass ain't getting paid for another six.

When the product is rolling through the shop like shit through a goose, and I'm exhausted, but the coffer is full, I fucking love my job.  I get to do little kid shit all day long and play with expensive toys.  But it's been a slog for longer than I care, and my attitude reflects that.

Capitalize on your talents.  You need front office help.  Buy your biggest competitor and use their front office:D.

You know we are with you, right?

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4 minutes ago, Hatin' life said:

Tired.  It's just become a lot of squeeze and no juice.  I'll grind myself into the dirt, and have, if it's worth it.  The last couple of years have just been a struggle.  My best customer in both quantity and quality dried up to fuck all.  I went from a few hundred thousand with them, to less than $50k this year.  They just haven't been selling.  They're struggling, I know that.  That started mid last year, and I wrestled to fill the hole back in with new clients.  I got lucky on that.  A referral got me in with a new contractor that has potential to go well.  Buying a job got my foot in the door with another, but they have zero loyalty.

The slow payment bullshit in the trades puts me in a fucking rage too.  Have a couple hundred grand in the bank?  The check will beat you back to the office.  Owed $100k and wondering how you are going to make payroll in two weeks?  Better fucking figure it out cupcake, cause your ass ain't getting paid for another six.

When the product is rolling through the shop like shit through a goose, and I'm exhausted, but the coffer is full, I fucking love my job.  I get to do little kid shit all day long and play with expensive toys.  But it's been a slog for longer than I care, and my attitude reflects that.

Did you get Ppp money? I am guessing not. Now it sounds like you need immediate tactical assistance. Cash flow is no joke and I strongly recommend that you fucking hammer your debtors and make it very clear to them that they are about to keep money from making it to your employees. Crawl right the fuck up their ass and threaten mechanics liens against them or the entity at the top of the pyramid. And note to all, NEVER fucking base your getting paid as a sub on the payments received by who hired you. Ever. In fact, as soon as a the prime mentions that you get paid when they get paid you immediately tell them you need 50% down, 25% when you reach 50% completion and the balance 48 hours after final sign off or you aren't interested. 

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15 minutes ago, warbird said:

Capitalize on your talents.  You need front office help.  Buy your biggest competitor and use their front office:D.

You know we are with you, right?

You need front office help. You need a Karen with skills to beat those debtors into submission!

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4 minutes ago, Chris in Santa Cruz, CA said:

You need front office help. You need a Karen with skills to beat those debtors into submission!

...and scheduling,  banker and accountant meetings, suppliers, insurance, payroll, regulators (village, county, state) etc.

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8 hours ago, Chris in Santa Cruz, CA said:

Did you get Ppp money? I am guessing not. Now it sounds like you need immediate tactical assistance. Cash flow is no joke and I strongly recommend that you fucking hammer your debtors and make it very clear to them that they are about to keep money from making it to your employees. Crawl right the fuck up their ass and threaten mechanics liens against them or the entity at the top of the pyramid. And note to all, NEVER fucking base your getting paid as a sub on the payments received by who hired you. Ever. In fact, as soon as a the prime mentions that you get paid when they get paid you immediately tell them you need 50% down, 25% when you reach 50% completion and the balance 48 hours after final sign off or you aren't interested. 

You are correct, no cash flow= problems.

We did get some PPP money.  Fun twist, for  few months one guy was out with a broken arm.  I hadn't cut myself a check in a while either.  So my payroll numbers that they based it off of were way down.  It helped, but a drop in the bucket.

I'm starting to get real cunty with the customers on money.  My best customer, (who isn't doing much right now), I send them an invoice, they don't bother with down payments.  They just pay it.  Electronically, direct deposit.  Sometimes before we even start job.  In five years of working for them, I have not once had to call for money.  Never mind had to threaten somebody with having to suck their wife's blood off my cock before I bury them alive.

That's my biggest gripe.  Why the fuck am I having to call you to get paid?

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9 hours ago, warbird said:

Capitalize on your talents.  You need front office help.  Buy your biggest competitor and use their front office:D.

You know we are with you, right?

 

There's a Car repair place nearby that doesn't rape people like the Stealership's do, so he is in high demand.  He used to be a one man op, one had to wait weeks to get in.  Now he has a guy handling the phone, he can do twice the work and you can get him in one week.  Just put a new fuel pump in our truck and it's a 2 hour plus job as you drop the tank, of lift the bed to get at the pump inside the tank.  Just paid him $600 to do this, but would have been much more elsewhere...

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22 minutes ago, Hatin' life said:

You are correct, no cash flow= problems.

We did get some PPP money.  Fun twist, for  few months one guy was out with a broken arm.  I hadn't cut myself a check in a while either.  So my payroll numbers that they based it off of were way down.  It helped, but a drop in the bucket.

I'm starting to get real cunty with the customers on money.  My best customer, (who isn't doing much right now), I send them an invoice, they don't bother with down payments.  They just pay it.  Electronically, direct deposit.  Sometimes before we even start job.  In five years of working for them, I have not once had to call for money.  Never mind had to threaten somebody with having to suck their wife's blood off my cock before I bury them alive.

That's my biggest gripe.  Why the fuck am I having to call you to get paid?

I have never had to deal with the business side, thank god; but working for a small company I heard a lot about it. Same thing 20 years ago; big companies proceed with contract matter on the basis of "we have more & better lawyers than you." The saving grace was, as the guys who kept the lights on (or the machines humming) we were in enough demand that we could afford to never go back to a slow-pay or no-pay client. In a couple of cases I had the pleasure of calling a plant's insurer when they declined to pay us, because the safety devices that I personally kept certified were overdue as of 9am that morning. Lights out!

It's a goddam shame and I wish I had a good answer for you, man

- DSK

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Maybe this has been covered early in the thread, I don't recall.  When I was a licensed Real Estate Appraiser decades ago, I did have access to some common formulas to estimate a businesses value, but those brain cells were all replaced by new ones, long ago....:(  In the Recession in the 80's, I was doing drive-by appraisals, for banks with weak home mortgages, getting squirrelly.  400 bucks for 2 hours tops, that was easy money back then.

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3 hours ago, Hatin' life said:

You are correct, no cash flow= problems.

We did get some PPP money.  Fun twist, for  few months one guy was out with a broken arm.  I hadn't cut myself a check in a while either.  So my payroll numbers that they based it off of were way down.  It helped, but a drop in the bucket.

I'm starting to get real cunty with the customers on money.  My best customer, (who isn't doing much right now), I send them an invoice, they don't bother with down payments.  They just pay it.  Electronically, direct deposit.  Sometimes before we even start job.  In five years of working for them, I have not once had to call for money.  Never mind had to threaten somebody with having to suck their wife's blood off my cock before I bury them alive.

That's my biggest gripe.  Why the fuck am I having to call you to get paid?

This is way off topic of business valuation, but there seems to be a special school for purchasing and payables staff.  It used to be that the supplier dictated payment terms.  Now we routinely get letters from our customers saying "in order to meet global financial practices" and "standardize" cash flow, our payment terms are xxxx days. 

For years/decades, the standard was 30 days.  Now receivables average about 58 days.  We have a couple customers that went to 120 days, 75 and 90 are common.  Many of our customers are huge multi-nationals (think P&G, Kimberly Clark, ArcelorMittal).  It is pretty much take it or leave it.  If we don't agree, our competitors will.

We joke about how many years it will be until WE pay THEM to take our product.....

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