# How to put a value on your business?



## Nayman's Drain (Dec 17, 2010)

So sciatica has reared its ugly head & I'm thinking of selling the business for health reasons.
How would you guys put a value on your business in order to keep it going with a buyer?


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## ToUtahNow (Jul 19, 2008)

Sadly I would figure out what you feel it is worth and divide it by 4.

To figure out the value you take the realistic value of all assets (trucks, real estate and stock) then add "good will" to it. Good will is generally based on a percentage of your annual gross.

Mark


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## plbgbiz (Aug 27, 2010)

My first thought is for you not to sell. There may be another way around your dilemma. Maybe you can find another plumber that is willing to take your calls for an on going percentage. Maybe there is a journeyman you could hire to run your calls. It may not leave much for you on the bottom line but it is better than giving away your business which is what usually happens in the process of "selling out". The seller seldom (if ever) wins.

If selling the business is the course you choose, the real value will be in the phone number. Your equipment will only be worth pennies on the dollar and can already be had in pawnshops and on Craigslist. As a one-man-shop in business for 5 years or so, the active repeat customer list and potential new calls will be limited at best for the buyer. Many of the loyal customers to your business are loyal to YOU, not the business. This is a great asset while you are working but a equally huge liability when trying to sell the company.

In the process of the sale, the buyer might also require a non-compete clause to the contract. This further limits you in the event you recover or have an opportunity to reopen with one or more employees. So in the end, I am skeptical that you can sell the "business" (phone number) and retire, even temporarily. If you need the buyer and the buyer doesn't need you, you may be better off to sit on your assets and use them to your advantage in the future rather than taking less than enough to really help.


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## smudge (Jan 19, 2010)

you can try to put a value such as 5.00 or 10.00 per customer for the amount of customers who called you last year. I'm looking to buy a business in my area but do not know how to value it. Ask ten people how to value a business you will get ten different answers.


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## OldSchool (Jan 30, 2010)

It all depends how big your buisness is..... 

What is your market share? 

What ongoing or yearly contracts you have?

One man Band Shops have no value... other than equipment you have..


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## SewerRatz (Apr 25, 2009)

OldSchool said:


> It all depends how big your buisness is.....
> 
> What is your market share?
> 
> ...


I know a few one man shops that got big bucks from the consolidators. They do not care about your equipment, what they want is the phone numbers, the company name, and customer base.


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## AssTyme (May 15, 2010)

OldSchool said:


> It all depends how big your buisness is.....
> 
> What is your market share?
> 
> ...





I bought out a one man shop and didn't get/want any of his equipment, I bought EVERYTHING new. I just wanted the customer base.

I'm doing quite well :yes:


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## AssTyme (May 15, 2010)

SewerRatz said:


> I know a few one man shops that got big bucks from the consolidators. They do not care about your equipment, what they want is the phone numbers, the company name, and customer base.



I had Mr. Rooter call me the other day :blink: They want to start up in my area :no:


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## OldSchool (Jan 30, 2010)

SewerRatz said:


> I know a few one man shops that got big bucks from the consolidators. They do not care about your equipment, what they want is the phone numbers, the company name, and customer base.


What could a company name be worth for a one man shop... How many customers do you think they could have.....

Add it up and it is not worth much..... Neither is their phone number as I am sure a one man shop could not have a huge advertising budget.. or else all he would be working for is his yellow page ads...

In any event ... you should ask to see what they did really get on paper... I am sure it shows a different story than what you have been hearing from the seller.


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## SlickRick (Sep 3, 2009)

I have bought out 2, single truck outfits, 1 was 50 yrs old, the other 30. I bought the assets for a fair market price, and the phone no's came with them.


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## OldSchool (Jan 30, 2010)

slickrick said:


> I have bought out 2, single truck outfits, 1 was 50 yrs old, the other 30. I bought the assets for a fair market price, and the phone no's came with them.


and for how much $$$$$$ :whistling2:


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## SlickRick (Sep 3, 2009)

OldSchool said:


> and for how much $$$$$$ :whistling2:


The first one was back in the early 80's. 2 yr. old truck, trencher, misc. tools $20k.

Three yrs ago on the latest one with , 2 yr old KUV, trencher, 1 yr. old camera/locator, 2 yr. old BC 322 mini excavator w/ 60 hrs. shop full of tools, $20k worth of saleable inventory, generators, lasers, etc. $75k.


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## SewerRatz (Apr 25, 2009)

We where a one man shop years ago, and back in the day we where paying 25K a month for advertising. It kept my father out working from early in the dawn till late at night.


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## AssTyme (May 15, 2010)

OldSchool said:


> How many customers do you think they could have.....




Enough for another man to start a one man shop and make a pretty good living in a tough economy.


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## smudge (Jan 19, 2010)

so you mean to tell me a one man shop that does 300,000 to 350,000 in business a year has no value? It certainly does. But what is that value? What do you spend now to get one customer? If you buy a business you will more than likely get one shot at each of his customers, If you are any good you should retain a certain percent of them. what is that worth?


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## SlickRick (Sep 3, 2009)

smudge said:


> so you mean to tell me a one man shop that does 300,000 to 350,000 in business a year has no value? It certainly does. But what is that value? What do you spend now to get one customer? If you buy a business you will more than likely get one shot at each of his customers, If you are any good you should retain a certain percent of them. what is that worth?


 
I gross $350k. My advertising budget is $200 a month. give me 1 yrs gross, and I will hook you up.


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## plumbpro (Mar 10, 2010)

slickrick said:


> I have bought out 2, single truck outfits, 1 was 50 yrs old, the other 30. I bought the assets for a fair market price, and the phone no's came with them.


Sound's like a good deal to me


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## Nayman's Drain (Dec 17, 2010)

SewerRatz said:


> We where a one man shop years ago, and back in the day we where paying 25K a month for advertising. It kept my father out working from early in the dawn till late at night.



2500 or 25,000? I always thought ***k, meant 3 zeros 

Interesting thoughts so far.
While I am realistic enough to know that I'll never get what I think it's worth, I am hoping that the good name, phone number,
contracts, and stock will at least bring 1/2 of what my 1st feeling was.

I will still take any and all opinions, and thank the people that have added theirs so far.
May your Holiday season be a great one.


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## plumbpro (Mar 10, 2010)

Nayman's Drain said:


> 2500 or 25,000? I always thought ***k, meant 3 zeros
> 
> Interesting thoughts so far.
> While I am realistic enough to know that I'll never get what I think it's worth, I am hoping that the good name, phone number,
> ...


I like Biz's idea, that's the route I'd go in that situation. That way you are not in the manual labor so much and you still have options. One man shops, IMO, will only bring about what the value of tools, equipment, and inventory are worth on the open market. The customer base may not use the new guy, the new owner could expect to lose half of the customers. This is especially true in a rural area. 
The only customers worth anything would be any you may have a contract with, because they are bound.


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## SlickRick (Sep 3, 2009)

I know that my business is built around me personally here. If someone bought it, I would have to be available for a yr. or so or the business would die. It takes yrs and yrs. to get established in my community. Marketing means very little here. It's all about who you are, who you know and who you are related to. It would take an outsider 10 yrs. for people to get to know them.


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## smudge (Jan 19, 2010)

why would you lose half of the customers? If they have a plumbing problem don't they need to call someone? If the old owner sent a letter to each customer endorsing the new owner that could help get you at least in the door. Why would the customers roll the dice and call someone from the phone book or internet? I think there will be some customers lost but half seems like a high number.


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## SewerRatz (Apr 25, 2009)

Nayman's Drain said:


> 2500 or 25,000? I always thought ***k, meant 3 zeros
> 
> Interesting thoughts so far.
> While I am realistic enough to know that I'll never get what I think it's worth, I am hoping that the good name, phone number,
> ...


The books out here where 5k a month for a half page vertical ad. Its more now, but we do not bother with the YP anymore other than free listings.


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## Richard Hilliard (Apr 10, 2010)

*How to put value on your business*

I am with plbgbiz partner up with someone that you know is trustworthy. Come into the office 1`-3 days a week to check on things let them manage the company for you and perhaps in time this person can buy you out for the amount that it is worth. When we sell a business we hardly ever get quite get the real worth of the business. Especially in today’s market to me a fair value for your company would be the average return per year. If you have grossed 350 grand a year and can prove that, it is worth 350 grand. The worth is the average income, that is the good will that Mark has written about.


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## SlickRick (Sep 3, 2009)

Business for sale.. $350k and I will help you for 12 mo.


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## plbgbiz (Aug 27, 2010)

OldSchool said:


> ...One man Band Shops have no value... other than equipment you have..





smudge; said:


> so you mean to tell me a one man shop that does 300,000 to 350,000 in business a year has no value? It certainly does. But what is that value? What do you spend now to get one customer? If you buy a business you will more than likely get one shot at each of his customers, If you are any good you should retain a certain percent of them. what is that worth?


Smudge,
As a buyer, much of what you mention as valuable is in the "good will" catagory. Let's pretend you are selling to me after 10 years of running your own shop. Here is a partial due diligence list...

1. Look at the financial reports and tax returns. I am looking to see how profitable you've been. You and your accountant have spent the last ten years trying to tell Uncle Sam how much you didn't make.

2. Look at the client list. I want to see the work history for each client that added up to $300K per year. How many clients? How many clients are repeat customers vs. new? If you are quitting, how do I know how many of these people are glad you're out of business?

3. Remove the highs and lows. From the client list, I will remove 10 to 20 of the highest dollar and the lowest dollar volume customers. This get's rid of the ones hopelessly loyal to you personally and maybe a few that were just shot in the dark happinings. Then remove any customers that are contractors. Trust me, they won't hire me.

4. How are you known? Do you have ads? Do you use a seperate phone number from your own cell phone or house? If I buy your phone number, are your old faithfuls still going to do an end-around to get to you?

5. Now that a SMALL measure of the smoke has cleared, what guarantee are you giving me the buyer that the people left on the list are even going to remember your number much less call it again?

This is only a few brief reasons why OS would say that a OMB shop is not valuable. More times than not, (and yes there are exceptions) the "good will" value is subjective at best and can not be proven. That is why it is based on good will. Of course there is SOME value but it is never what the seller believes it to be.


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## plbgbiz (Aug 27, 2010)

So to Nayman,

Again I think if there is a way for you to make it through the tough spot you are in without selling the actual business, then you may be better off down the road. Equipment can be bought again, but if you take yourself out of the game completly you may be sorry later.

I hope you're pain goes away soon. Sciatic nerve stuff can be brutal.


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## Redwood (Sep 8, 2008)

The value of you business is quite simple...

It's what you can get someone to pay you for it.


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## ToUtahNow (Jul 19, 2008)

I have purchased several businesses for pennies on the dollar when no one else would even look at them. I even had one where the wife offered me all sorts of tools I didn't even offer to buy. This home was a 5,000+ sq ft home on a hill in an upscale neighborhood with a guard shack. I knew there was no wat the normal plumber would live in this neighborhood.

When I got to the guard shack I thought for sure someone was pulling my leg. However, when I got to the house the garage was full of stuff. As it turned out the husband had done the plumbing on the homes in the neighborhood in trade for a down payment on his house. The trade ended up putting him in the poor house and he had already moved out of State looking for other work.

I found a K-50 which looked new but a dog had chewed the cord off plus I found a KJ-3000 in like new shape but with a blown hose on the jetter itself. We agreed on $1,600 and my helper and I loaded it into my 14' super structure. As I am getting ready to leave she offers me the balance of the tools for free. I loaded my truck so full my doors would not open when we got back to the shop. She called later asking me to come back for more as she had to be out the next day but I never made it back.

As sad as it is that is when I realized I probably could have made a pretty good living buying the failures of others. That was too depressing so I never did it but it helped keep things into perspective.

Mark


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## Protech (Sep 22, 2008)

Take the last few years net profit a multiply by 3.


There are other factors of course such as equipment and customer base long ter established branding etc etc.

The above method gives one a good starting # though.


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## Phat Cat (Apr 1, 2009)

Before going into business, we almost bought an existing one. When we went to the bank for a loan, we met with the V.P. of the bank. He said that no one would be willing to lend on 'good will' and that without contracts, existing customers are worth very little. The risk is too great to lend on that basis. This was not a one man shop - it was an established business (14 years), 4 trucks, and the owner was willing to stay on for one year and sign a non-compete for 7 years. etc. 

The value from a financial standpoint was the value of the equipment, less depreciation. Good will, next to nothing. Excellent credit and a huge down payment (50%) would not change his mind.

His advice, "take the money you are willing to invest in that business and start your own." That is exactly what we did!

For anyone thinking of buying a business, you are buying customers and LIABILITIES!


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## SlickRick (Sep 3, 2009)

I have a good business. Would I have payed more than I did, for the one I added? Not 1 cent. It has made me money at the price I paid, but there were no guarantees.


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