Buying an Established Business

[macrob1]

I would like to get anyone's thoughts on buying an established business. Without out going into too much detail, I am inquiring about a 1 man sign shop that has an establised location and client list. Current owner claims that they clear 45k per year with little or no advertising. The shop appears to be setup for vinyl, painting, sandblasting and equipment to cut/prepare materials. The main selling point appears to be location and the client base. So my question is how much is that worth? My experience is with design and vinyl, but I am wanting to expand into the other areas. So the thought of buying an established shop is appealing.

Thanks for any information

Belinda Polka
Boomer Sign Company

[3CGraphics]

There are "formulas" for all this, the main thing is the VERIFY his numbers. The value of a business can be negative to many times annual sales. Are the clients there because of the owner? A key employee? Will they stay? Will the current owner open a shop 1/2 mile away and keep his clients? What is included (land, name, lease (how long/how much/transferable get a copy and READ IT ALL, building, equipment, supplies, receiveables, PAYABLES (debt)??) will he consult for a period of time?
Just a very few things to consider. As bad as I hate to say it, an attorney is probably a good start as well and possibly a commercial real estate broker, at least to get a feel for the market and possibly things to look out for.
Steve

[GXSignCo]

I just went thru this excercise a few months ago. I was looking to buy it with a partner in hopes of it supporting the two of us full time. Initially it looked like it would do so. I got all of their financial records and equipment lists and had my brother-in-law accountant go over it. Based on his analysis of it, the business seemed to be overvalued and not producing what it supposedly was. The business was being run by a divorced couple and wanted to finally make a clean break. It supported them alright, but just wouldn't be enough for two families - and we weren't willing to work for next-to-nothing in hopes of it growing.

Not to say that this is the case with the biz you're looking at, but had I not delved into it with the right people, I may have made a disastrous decision based on erroneous information. The first thing you can usually do is to get their financial records and equipment lists for nothing simply by drawing up an "Intent to Purchase" agreement. This doesn't legally bind you to buy it or make you put up any money at first. This is merely a fact-finding mission and lets you see if it will even do what you anticipate and get a rather personal snapshot into their business. Employ the help of friends and family if you have any that are involved in accounting or real estate. If not, hire an accountant at least for probably not more than a few hundred bucks if you are truly serious about this business.

Anyway, take it very serious and do your homework.

[macrob1]

Chris and Steve, thanks for your comments and insight. I am currently doing the research part of this and will take your advice and solicit the help of an expert if I pursue further. Thanks again,

Belinda Polka
Boomer Sign Company