How hard is it to sell a business?

[JPM Coachworks]

My business partner and I are thinking about selling the business off.  Both of us are getting to the point where it's work and not pleasure anymore and are ready to start something new.  We've spent years building up a rock solid reputation and have an international customer base.  We've done lots of work building a relationship with Alcantara and are often on the top of any google search that involves the material and car interiors. Our name is regularly used within the car communities in which we specialize and new communities are always asking about our stuff. 

Anyway, the point is, the business is established and not some mom and pop operation that only the locals know about.  There is zero debt, everything runs smoothly and we have a large internet presence. We were both business graduates that fell into the trim business because of our love for cars so we built our business model up pretty well for both being young and relatively inexperienced with running our own businesses.  Although we've learned a lot over the years on operating a business, neither one of us are familiar with selling one.  We both know the general by-the-book business value estimates, but in these times, those don't always reflect accurately and definitely don't tell you if your business is in demand at all.

Any advice, opinions, recent experiences with selling an auto trim business?  Do most of the retired guys just close shop and sell the machinery, pass it down to family, or sell it off to a new businessman?  If they do sell it, is it hard/easy/impossible/take forever to sell? Thanks in advance.

[Gregg @ Keystone Sewing]

I have seen this play out in my industry.  The fact is what you consider an asset may in fact have little to no value to someone who would 'buy' your business.  For example, other than the property and equipment, what else is there?  Employees?  Maybe.  Customer base?  Forget it.  How is that going to work?  People are used to doing business with YOU, and I'm sure for a very good reason.  In fact, we have individual people we do business with who are in the same industry, but on their third company!  We follow them, NOT the company!  I think it's too easy to over value your customer base, as most would jet as soon as they find out that you and your partner are no longer with the company.  People do have options, and theirs was to do business with you.   

[seamsperfect]

Greg,
I totally agree all my business comes from who I am and what I produce in the marketplace.  On many of the forums my business name gets mentioned but my name gets mentioned the most.  As you stated if you are good at what you do the business follows the individual and not the business itself.
Kevin

[Mojo]

As a marketing and business consultant I have been involved in the sale of several businesses, large and small.

There are complex formulas used to buy and sell businesses. Reputation is one of these but revenue, debt, equipment, real property, inventory and your books are several others.

Paramount in any business sale is - It has to make financial sense. So revenue is important if your hanging a price tag on your business that is above and beyond the property you may own ( buildings, equipment, etc. ). In most cases a good buyer will have your books and tax records examined by a CPA. All of the value of your property will be examined and in addition to the revenue a price is worked out.

My son is going through this same scenario, he is burnt out from the tech industry and is considering accepting an acquisition. During one of our conversations I ( off the top of my head ) valued his business at around $ 20 million based on his current revenue and property. What I didn't know was that the value of companies in his industry was also based on databases, intellectual properties, software designs, etc. and not just revenue and property. The true value and going rate for his company turned out to be
$ 120 million. ( OK, so I was off by 100 million....no biggie ). :)

The point I am trying to make is that each individual business sale is based on different factors and in the end, the price is determined by the market.

One other word of caution here. I would be extremely careful of who you let know that your considering selling. If the word gets out and starts spreading through your customer base, you may end up not selling your business but rather giving it away and closing the doors and auctioning off the equipment. No one wants to do business with a company going through a major transition. I wont even comment on how the rumor mill can destroy a business " They are selling because they are broke and going out of business ). Keep your cards close to your chest.

Looking back, one of the most difficult business sales I was ever involved in related to the sale of a  business which was a franchise and also included a liquor license. Th deal got done but took forever and included dozens of hoops to jump through.

Best of luck with whatever you decide.

Chris

[sofadoc]

I want everyone's opinion on this. I have a friend in town who works for a refinishing shop. He's around 40 and has worked there all of his adult life.
The owner is in his 80's, and hasn't been active in the business for quite some time.  My friend has run the business by himself for the last several years. Well, now the owner is ready to sell the business to my friend.
The owner's son (who is not involved in the business) has come up with a price that reflects "reputation", as well as equipment and property.
According to the owner's son, the standard rule of thumb, when assessing value for reputation, is 3 years net income X3 (or 9 years net).
Does this sound right to anyone?
Funny thing is, any reputation that the business has, is because of my friend. He's now being asked to pay for his own reputation.

[Mojo]

The formulas I have looked at were 4 times net and up ( these are for Mom & Pop businesses ). Other businesses are much higher.

Revenue is typically the driver. In regards to real property, appraised value is taken into consideration and negotiating starts at that point. On equipment I would look at auction prices since the equipment is used.

It is a bummer that someone has ran a business and provided an income for an individual in retirement while building a great reputation only to have them charge you for your work. A conscience ( and some ethics ) are in order with this scenario.

The son involved needs to know that your buddy could waltz down the street and open shop much cheaper versus buying the old guy outright and in the process take the customer base with him, leaving a shuttered business behind with little to no value except for property.

This is where everyone involved should play fair, maintain their business ethics and not get greedy. :)

Chris

[sofadoc]

The son involved needs to know that your buddy could waltz down the street and open shop much cheaper versus buying the old guy outright and in the process take the customer base with him, leaving a shuttered business behind with little to no value except for property.

Not in this case. If my friend tried to open a new shop, he would have to bring everything up to OSHA, and environmental standards (mainly ventilation). It would be very expensive. The old building is "Grandfathered in".
Several years ago, my mother died, leaving the business to me. A long lost step-brother showed up to claim HIS share. I told him he could have the whole thing, and like you said, I would just "waltz down the street" and open a new shop. He gave up without a fight.

[byhammerandhand]

I don't think the formula is quite that simple as multiplying out net.

A business that brings in $400,000 a year net is worth much more than 10x more than a business that brings in $40,000 a year net.   The latter is probably "assets only" at pennies on the dollar for equipment and inventory.


I talked to some SCORE consultants last year about exit strategies and partnering.  Their response was that my business was not salable unless I got my revenue way up.  Of course, to do that, I'd need to spend a day a week or more doing marketing and promotion.   So I'm doing 60-70 hour weeks and I'm supposed to carve out 10 to add more business, in which case I'd need to hire people and spend 3 hours a day in training and management.   I think I'd need to clone myself.  It's probably as big a hurdle getting employee #1 as it was starting the business in the first place.   

Taxes, regulations, insurance, workman's comp,  payroll, scheduling, hiring, policies and procedures, human resources administration, benefits, training, coaching and monitoring, making sure they had a full schedule of work.   Aye-yi-yi.

According to the owner's son, the standard rule of thumb, when assessing value for reputation, is 3 years net income X3 (or 9 years net).
Does this sound right to anyone?

[gene]

Let the owner of a company go away for a month. If the revenue continues just as if he was there, then the company has a salable value. If the revenue stops when the owner is gone, then it's the owner who generates the revenue, not the company.

Bottom line: The value of a company is what someone is willing to pay for it!

Tell me 10 times annual, 30 times annual, whatever. If I offer you $25.00 and that 's the highest offer, then the company is worth $25.00.

I suggest that you read a lot and talk to a lot of folks who work on selling businesses for a living. SCORE is a great resource. I hope this forum is only the beginning of your research.

Best of luck to you.

Gene

[Mojo]

If I read his post right it indicates the current business owner hasn't been active in this business for sometime. Other wise the friend is calling all the shots and running the business and sending the old guy his check every month.

While he has no risk attached to this business, it is clear the old guy has nothing to do with the business except to collect the check. Is this correct ?

Chris

[sofadoc]

Technically, yes. The old man still comes in a few times a week. But he doesn't do any work, or handle any business affairs. His health is rapidly deteriorating. If my friend doesn't continue the business, then it will have no value other than the property.
The owner's son is willing to owner finance, which allows him a little more freedom to name his own price. I am confident that they will reach an amicable agrement.
I was just wondering what some of you considered fair compensation for a business's reputation.