[amayausers.com] Re: Selling business
- From: Tom D'Auria <lastczar@xxxxxxxxx>
- To: amayausers@xxxxxxxxxxxxx
- Date: Tue, 16 Sep 2008 08:16:16 -0700 (PDT)
Darlene - there is no hard and fast rule for valuing a business. I have a lot
of experience in valuing businesses, having worked on Wall Street for the past
22 years. I have also bought and sold a few small businesses in the past and
can tell you that you need to look at it from a number of angles.
First - your question about highest total sales multiplied by some number is
one that I hear a lot but that doesn't take into account two main factors - did
you make a profit on those sales, and how hard did you the owner have to work
to make that profit. A business doing $500,000 in sales but only earnings
$10,000 isn't going to be worth as much as a business doing $100,000 in sales
and earning $30,000.
What I have done for business I have bought or sold is averaged the last two
years of profits for the business, adjusted if there is a distinct trend to
earnings (going up or down quickly), and multiplied that by between 2-4 times.
Then you have to adjust again if it is an owner operated business or one that
can be run without the owner being there. Logic being that if a business makes
$25,000 with the owner there, but the owner chooses not to work there, you have
to factor in a salary for someone else which reduces your profits.
After you get all that figured out, then you add the current value of all
equipment, inventory, etc. to come up with a total price.
I just bought a tanning salon 6 weeks ago. I took the last three years of
earnings which were relatively steady and averaged them. I then multiplied
that by 3 times to come up with a valuation for the business. I then added the
current value of all the tanning equipment, lotions, etc that the owner was
leaving for me. I then subtracted the cost of a new employee because the owner
had worked there 40 hours a week and I didn't plan on that. It seemed
confusing but when I laid it all out on paper and showed the seller, we had a
deal in less than an hour.
I'd be happy to walk you through this with some real numbers if you want.
Good luck
Tom Dauria
Mr. Sew & Sew
--- On Tue, 9/16/08, Darlene Weber <image_maker31@xxxxxxxxx> wrote:
From: Darlene Weber <image_maker31@xxxxxxxxx>
Subject: [amayausers.com] Selling business
To: "Amaya" <amayausers@xxxxxxxxxxxxx>
Date: Tuesday, September 16, 2008, 7:56 AM
I have been approached to possibly sell my embroidery business. Can anyone giv
eme some info as to how to come up with a price?? this would include
equipment, supplies, inventory and accounts. Would include everything except
the building as they would like to move it to another city. I was told by
someone that a good easy way to figure a price of a business was to take your
highest total year sales from the past 2-3 years and that would be about what
the business is worth. I have no idea if this would be reasonable or not. Any
suggestions would be greatly appreciated.
Thanks!
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