selling a service business (small business, wholesale, debt, sales)

[Eddie Sanches]

Can anyone help me with pricing a small service business for sell?? I have an aerial photo business and I am trying to figure out if there is a multiplyer for the net or gross profits that I should use. Does the down economy effect the price even though sales have been consistant for 2 years?

[Topaz]

You can get free advice from SCORE about how to do this.

[desertsun41]

Selling good will has little value in a good economy. It has almost no value now in this economic depression. A buyer will look at it like "ok your customers like you but what if they dont like me"? Too much risk today and no financing.

I sold a service business in Sept that was mostly good will. I felt that my choice was sell for much less and me take a small % of his future profits or sell for more and be done and wash my hands in it. It was much easier to sell for less and much less risk for the buyer so I sold it for much less money and he sends me a small % of the jobs that were from my past customers. Any new customers are all his.

I sold the shop equipt to him in a separate transaction so he basicly had a turn key business with built in customers to get him started. I got to get the hell out of a city I hated so dearly.

By the way. Ariel photogaphy fasinates me. When I used to fish semi pro tournament BASS circuits, when I was to fish a strange lake I would hire a pilot and sometimes an Ariel Photographer (sometimes I did it myself) and we took hundreds of pictures of the lake from 1000 feet up. From up there you can see every bit of structure. All the submerged river beds, stump fields, humps ridges and so on. All the fish holding spots for those who are not fishermen. Ahhh they were the good ol days.......

Good luck though.......

[Eddie Sanches]

Thanks for the reply. Fishermen was never a market I looked for. Perhaps if the business doesn't sell I'll look for that market.

Originally Posted by desertsun41

Selling good will has little value in a good economy. It has almost no value now in this economic depression. A buyer will look at it like "ok your customers like you but what if they dont like me"? Too much risk today and no financing.

I sold a service business in Sept that was mostly good will. I felt that my choice was sell for much less and me take a small % of his future profits or sell for more and be done and wash my hands in it. It was much easier to sell for less and much less risk for the buyer so I sold it for much less money and he sends me a small % of the jobs that were from my past customers. Any new customers are all his.

I sold the shop equipt to him in a separate transaction so he basicly had a turn key business with built in customers to get him started. I got to get the hell out of a city I hated so dearly.

By the way. Ariel photogaphy fasinates me. When I used to fish semi pro tournament BASS circuits, when I was to fish a strange lake I would hire a pilot and sometimes an Ariel Photographer (sometimes I did it myself) and we took hundreds of pictures of the lake from 1000 feet up. From up there you can see every bit of structure. All the submerged river beds, stump fields, humps ridges and so on. All the fish holding spots for those who are not fishermen. Ahhh they were the good ol days.......

Good luck though.......

[Jonotastic]

Double the net operating income + assets/inventory

Ex:

$150,000 net income
$25,000 assets/inventory
-------------------------
$325,000 Asking Price

[sunsprit]

Let's get real here; there's no "doubling" of your net operating income value that anybody can justify for a one-man service business. The only way that you have anything remotely like this number to sell is if somebody can buy your business and replicate your success. Keep in mind that they have to bear the cost of debt service or ROI, work the business, and make a living from the business, too.

What, exactly, do you have to sell?

Do you have materials, products, inventory, equipment, intellectual property that have a real value in today's marketplace?

Those items only are worth, at most, a depreciated wholesale cost to the new business owner if they can readily replaced (and are needed) by the new owner.

Do you have an aircraft that is camera mount equipped? Specialty camera equipment?

These items are worth only FMW, at most, to your buyer, as they can readily obtain these elsewhere. They are not "value added" items which are essential to your business. I can find camera mount equipped aircraft all day long in Trade a Plane going for begging prices these days.

Do you have any long-term service/product contracts that the new owner can take over and receive cash flow from into the future?

Do you have an office, storefront, or business location or contact access that will transfer to the new owner? Do you have advertising contracts linked to your business that will remain in place?

Does the new owner need to be a pilot? this severely limits your target buyer marketplace. Yes, we all would like to get paid to fly, but it isn't reality.

You cannot get much for "blue sky" in a one-man business operation that depends primarily upon your personal sales skills, relationship selling, and provider links that revolve around you personally. When you leave, you're taking the heart of the business with you.

To sum it up, one-man service businesses are the trickiest thing to value for a new owner. Unless you've got an absolute exclusive product and marketing which is in high demand to an existing client list, you really don't have much to sell except the depreciated assets of hard goods and real property.

Good luck with your sale.

[Jonotastic]

Where did the OP say it's a one man business?

[sunsprit]

Originally Posted by Jonotastic

Where did the OP say it's a one man business?

He didn't, but it's a likely assumption if you are familiar with the aerial photography business, just like banner towing, ag spray, and similar small aviation operations. Most of these are 1 person businesses that hire help on a seasonal/on demand hourly basis, or use family members to assist the operations.

If he had a major aviation photography business to sell, with an office location, in-house office and field staff (that would remain after his departure), cameras, advertising, hardware/software (perhaps mapping stuff), a sizable volume of steady/repeat customers, and an aircraft with a camera port and specialty cameras ...

He's still only got the depreciated assets of the business, a small amount of "blue sky", an operating business left after his departure, and a slightly better chance to sell in the current marketplace than the "one man" operation.

In either case, "doubling" of net cash flow is a highly unrealistic price point for this type of service business.

From a new operation's perspective, if this fellow closes up shop, leaves the marketplace in his area ... what is he selling that the new operator can't go out and buy himself and set up without the "blue sky" cost? Aircraft? all over the place. Cameras? all over the place? Computer/software? all over the place. Paper & office supplies, frames, labels, plaques? all over the place ...

The only way this business could possibly justify a market premium to a new owner is if the seller has a contracted service revenue stream and business operation which the new owner can count on getting cash flow from. This is a typical problem for small businesses when they "cash out" from all their years of developing and marketing to achieve a decent ROI and cash flow ... it's not generally sustainable by the new owner unless they can replicate the relationship selling effort and support that the seller has put together.

I'd also point out that a lot of the aviation photography business has now been supplemented or replaced by GIS satellite based service. You can google earth and print it out yourself for many purposes. That's really hit the "novelty" aerial photo business pretty hard. Realtors don't need a lot of aerial photos to sell properties these days, either. Businesses don't need an aerial photo of their facility so much either, anymore. Folks don't need an aerial picture of their ranch or farm, either. And then you've still got the competition from folks like me that are happy to fly our neighbors around just for the fun of it so they can sightsee our region and help buy my gas and lunch for a day's outing, or check out our hunting area, or check on all our cows, and they can snap all the photos they want from their own cameras.

This type of business doesn't compare to a "practice" (like a medical practice, pharmacy, etc.), with an office, staffing, dedicated equipment and supplies, and an established client list. It's a whole different paradigm to sell. Even then, you see a lot of practicioners close up shop and simply sell their client list and records to another practice because they cannot get a multiple of their net earnings for their business in blue sky. And it won't compare to a retailer with an storefront, merchandise, support operations and infrastructure, and "goodwill" that remain in it's marketplace. I think the worst possible analogy would be a "service" business in the IT type sector, with intellectual property to sell and some products that they own .... as small businesses, they are highly dependent upon the technical abilities of the owner/key players, and the sales staff and the market needs for their work; I knew a number of fellows in the "uptime" hardware business that made a handsome living for years back in the days of VAX units by the thousands in gov't facilities or banks or brokerage houses ... and the business collapsed almost overnight when the next generation of computers with factory warranty service on-call made their business obsolete (I'm told we have more computing power in a laptop today than those old rack mounted computers requiring environmentally control rooms ... and much higher reliability for a fraction of the cost). Even at that, there's how many small IT firms that are doing well financially these days where the owner/IT talent could sell out and the business would survive?

[studiobtm]

What Sunsprit said.