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Old 01-10-2008, 05:02 PM
 
Location: IL
9 posts, read 49,525 times
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I own an embroidery business. It is a sole proprietorship. I have recently been approached to sell and they want a dollar figure. How do I go about putting a price on it?
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Old 01-10-2008, 05:13 PM
 
Location: Papillion
2,589 posts, read 10,026,078 times
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Get ahold of an Accountant who has experience in business valuation. A key part of the equation will be:
1) do you have any clients under contract or is it all relationship based and who walks in the door.
2) what assets go with it (embroidery machines, etc) and what their depreciated value is and are they current technology or out-dated
3) regular proven revenue (month-over-month) for a few years
4) net cash flow (your potential profit).

Don't do this yourself, get expert opinion - probably the Accountant with business valuation expertise. You can get a second opinion from a business broker (legitimate one) that knows how to price deals... but I wouldn't use just a business broker for valuation, I would only use them for the second opinion and sanity check.
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Old 01-11-2008, 10:38 AM
 
673 posts, read 2,602,708 times
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Dave's advice is right on. If you can't find an accountant with business valuation experience, at least get an accountant to provide basic financial figures. You can probably find a book that uses these figures to calculate business value. Business brokers are good for finding buyers and handling complicated sales. It doesn't sound like you need to justify a broker's commission.

There are also intangibles to consider. Ex. Do you have a great lease than they can assume? Can your business run without the owner being present? Do you have a good sales-lead channel for acquring new clients?

PS Your client list is valued under the term "goodwill".
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Old 01-11-2008, 04:03 PM
 
Location: IL
9 posts, read 49,525 times
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Thanks so much for your suggestions. It certainly gives me an excellent place to start.
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Old 01-11-2008, 05:01 PM
 
Location: Colorado, Denver Metro Area
1,048 posts, read 4,160,161 times
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Really depends but as a REALLY GENERAL rule of thumb:

Price = (Monthly profit * 12) + (Fair Market Value of Assets)

If this is a real stable business, then monthly profit times 16 or 24 will be better. As I said, this is REALLY general and there is much more to it.
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Old 01-11-2008, 05:28 PM
 
Location: Papillion
2,589 posts, read 10,026,078 times
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Quote:
Originally Posted by ColoWeb View Post
Really depends but as a REALLY GENERAL rule of thumb:

Price = (Monthly profit * 12) + (Fair Market Value of Assets)

If this is a real stable business, then monthly profit times 16 or 24 will be better. As I said, this is REALLY general and there is much more to it.
That multipler of 12 in the example is the KEY to the valuation that is the hardest to define. That's where the accountant with business valuation expertise comes in. If you are in a commodity business with not client contracts and they have no long term committment with you then that 12 could become a 5. If you have long-term loyal customers (but no formal contracts) it starts to get closer to 12. If you have actual contracts with clients that extend for a few years, you could see that multiplier extend to 24...

My pure assumption is you don't have contracts and the loyalty of the client is with you and not your company. So the "goodwill" (mentioned earlier) that the ower is getting is less. In that case, the multiplier could be in the 6 range.
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Old 01-12-2008, 06:34 AM
 
955 posts, read 2,057,765 times
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A buyer will be looking at it essentially in terms of a rate of return over a reasonable period of time. If a buyer wants to get a 12 percent return, then the buyer would look at the net present value of your busineses profit stream over a reasonable time horizon and that number becomes another method to evaluate the worth of the business.

Put another way, if an investor could reasonably expect to get 15% on another investment of similar risk, then the investor would go there.

Use at least three independent types of analysis (ratio, book value, net present value, etc.) to arrive at a good starting point.

As everyone else has said, now is the time to involve a professional.
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Old 05-18-2011, 08:05 AM
 
1 posts, read 8,121 times
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Default Also Embroidery Business

Andrea

I came across your post from 2008 about selling your business. I am a sole proprietorship commercial embroidery business. I have no employees and sounds much like your situation. I am considering selling as my family is requiring more attention and the business is demanding. Were you successful in determining a value for your business? Did it end up being capital gains or personal income? Thanks!!!
A Haley
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Old 05-18-2011, 01:06 PM
 
10,135 posts, read 25,614,873 times
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All small businessed sell in the range of 2 to 6 times adjusted net income. Adjusted net income means normalizing owners salary (where salary is too low or too high compared to an employee doing the same job) and facilities costs (for example where the property is owned by the proprietor and he does not charge rent) and some other adjustments of lesser importance that appraisers will want to make to justify the charge for the appraisal.

A personal service business like an insurance agency is down in the 2's. A franchise with exclusive territory or product is up in the 6's. This price includes operating assets and normal liabilities. Only excess assets are an addition.
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Old 05-18-2011, 06:24 PM
 
11,460 posts, read 49,240,277 times
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Quote:
Originally Posted by Wilson513 View Post
All small businessed sell in the range of 2 to 6 times adjusted net income. Adjusted net income means normalizing owners salary (where salary is too low or too high compared to an employee doing the same job) and facilities costs (for example where the property is owned by the proprietor and he does not charge rent) and some other adjustments of lesser importance that appraisers will want to make to justify the charge for the appraisal.

A personal service business like an insurance agency is down in the 2's. A franchise with exclusive territory or product is up in the 6's. This price includes operating assets and normal liabilities. Only excess assets are an addition.
I'm gonna' say BS on your number ... of "sell in the range of 2 to 6 times adjusted net income" when it comes to a small business in the context of a sole proprietorship.

I'm no accountant with your vast experience and clientele, but I've seen way too many businesses of this type that really have little blue sky value beyond the worth of the depreciated hard assets of the business. The problem centers of the fact that most of these businesses ... whatever little service market niche they fulfill ... are sole proprietor personality/sales ability/creativity dependent. Take that passsion, salesmanship, creativity, customer relationship ability away from the business ... and you may have nothing left except the hard assets.

I've seen this time and again where a sole proprietor tradesman, craftsman, interior designer, HVAC service company, window washer ... you name it ... sold their successful business to a technically competent proficient buyer who didn't have the "magic" to make it run once the founder left the business after the sale. This has extended to mechanic shops, machine shops, lighting design studios, carpenters/finish trim guys, cobblers, appliance repairmen ... all of these were direct sales to customers via contact with content that appealed to them.

In short, it wasn't the product or service which was the key element to making the sales (and the business profitability) ... it was the promotional ability of the sole proprietor and their ability to sell themselves that had to happen before the product or service sale was ever sold. You might say that the work product was secondary to the success of the relationship. Absent long term contracts which come with the sale of the business assets, the new owner is into a tough unknown prospect unless they've been an employee with customer contact taking over the business.

I live in a rather small community ... and I can find at least 2 major and 6 minor businesses that do embroidery. The competition in this field is fierce in many communities. And they compete with the home based hobby operator ....
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