Business evaluation

[capitate]

Hey guys, wondering what you have used to evaluate a sign business in the past? Business does $500k in sales, and produces simple signs like vehicle graphics, coroplast, dibond, banners etc. 3 person shop. Minimal installs outside of shop

Does 5 times profit (before corporate tax) + asset value (equipment + inventory) sound fair?

Related question: what is your profit margin before corporate tax?

 

[James Burke]

Open their books a bit wider. What liabilities do they have (that you'll inherit with the purchase)?

JB

 

[capitate]

Open their books a bit wider. What liabilities do they have (that you'll inherit with the purchase)?

JB

There would be no long term liabilities - only account payables which sits at 10k right now. Receivables 30k

 

[victor bogdanov]

I would also consider if the business can run without the current owner, if you buy the business can it keep running with minimal input from you or will you have to go all in running it from day 1

 

[capitate]

I would also consider if the business can run without the current owner, if you buy the business can it keep running with minimal input from you or will you have to go all in running it from day 1

This is a good point. No, the current owner is a salaried employee (1 of 3), and to me, a tiny business like this can not be run without a very active owner

 

[victor bogdanov]

This is a good point. No, the current owner is a salaried employee (1 of 3), and to me, a tiny business like this can not be run without a very active owner

Kind of like buying yourself a job

 

[Aaron Hunter]

What is the primary revenue stream? %'s of Repeat accounts vs New accounts? How sustainable is the market for the shop? Age and condition of assets/equipment?

 

[JBurton]

Typically I see sign shops sold for their client list, not assets or employees.
I know of a two man shop that closes astronomical numbers using a gerber edge for aviation graphics. The two guys are co-owners, both looking to cash in and get out...

 

[capitate]

What is the primary revenue stream? %'s of Repeat accounts vs New accounts? How sustainable is the market for the shop? Age and condition of assets/equipment?

Revenue stream is very mixed, and distributed evenly (no one customer or item is dominant). Mostly repeat customers, this is a 30 year old business in a smaller town

 

[netsol]

5X profit sounds a little rich for my blood
i thought 2-2-1/2X was closer to standard

 

[capitate]

Kind of like buying yourself a job

Depends on how much profit it makes?

 

[netsol]

Depends on how much profit it makes?

i suppose

 

[garyroy]

Purchase the assets and customers, not the liabilities. Be specific in the contract of the sale.

 

[netsol]

Automotive and Boat	Revenue Multiple	Earnings Multiple	Median Sale Price
Auto Repair and Service Shops	0.60	2.74	$350,000
Car Dealerships	0.42	3.04	$995,000
Car Washes	1.88	4.87	$800,000
Equipment Rental and Dealers	0.84	2.90	$580,000
Gas Stations	0.46	3.31	$400,000
Junk and Salvage Yards	0.75	3.06	$537,000
Marine/Boat Service and Dealers	0.58	2.85	$499,500
Towing Companies	0.86	3.08	$750,000
Truck Stops	0.44	3.28	$2,325,000
Beauty and Personal Care	Revenue Multiple	Earnings Multiple	Median Sale Price
Hair Salons and Barber Shops	0.45	1.85	$90,000
Massage Businesses	0.42	2.18	$170,000
Nail Salons	0.44	1.60	$149,500
Spas	0.59	2.19	$165,000
Tanning Salons	0.53	2.06	$100,000
Building and Construction	Revenue Multiple	Earnings Multiple	Median Sale Price
Building Material and Hardware Stores	0.51	2.94	$650,000
Concrete Businesses	0.62	2.54	$750,000
Electrical and Mechanical Contracting Businesses	0.55	2.44	$799,000
Heavy Construction Businesses	0.53	2.50	$857,959
HVAC Businesses	0.56	2.62	$625,000
Plumbing Businesses	0.60	2.41	$577,500
Communication and Media	Revenue Multiple	Earnings Multiple	Median Sale Price
Magazines and Newspapers	0.71	2.15	$225,000
Production Companies	0.70	2.50	$386,665
Education and Children	Revenue Multiple	Earnings Multiple	Median Sale Price
Day Care and Child Care Centers	0.88	3.34	$380,000
Preschools	0.96	3.54	$437,500
Schools	0.71	2.52	$235,000
Entertainment and Recreation	Revenue Multiple	Earnings Multiple	Median Sale Price
Art Galleries	0.62	2.04	$189,338
Banquet Halls	1.12	3.18	$337,500
Bowling Alleys	0.62	3.57	$650,000
Casinos	0.87	2.32	$538,500
Golf Courses and Services	0.69	2.49	$255,000
Marinas and Fishing	0.91	2.80	$619,750
Nightclubs and Theaters	0.58	2.66	$400,000
Financial Services	Revenue Multiple	Earnings Multiple	Median Sale Price
Accounting and Tax Practices	1.01	2.12	$325,000
Banking and Loan Businesses	0.84	2.43	$700,000
Check Cashing Businesses	0.74	1.68	$94,500
Financial Services Businesses	1.20	2.79	$675,000
Insurance Agencies	1.57	3.06	$432,500
Food and Restaurants	Revenue Multiple	Earnings Multiple	Median Sale Price
Bakeries	0.49	2.14	$195,000
Bars, Pubs and Taverns	0.48	2.56	$253,950
Breweries	0.69	3.72	$350,000
Coffee Shops and Cafes	0.42	2.03	$129,000
Donut Shops	0.63	2.30	$170,000
Food Trucks	0.60	1.64	$112,500
Ice Cream and Frozen Yogurt Shops	0.55	2.32	$140,000
Juice Bars	0.41	2.02	$149,000
Restaurants	0.38	2.06	$199,000
Health Care and Fitness	Revenue Multiple	Earnings Multiple	Median Sale Price
Assisted Living and Nursing Homes	1.38	4.24	$562,500
Dance, Pilates, and Yoga Studios	0.61	1.96	$90,000
Dental Practices	0.70	2.30	$346,250
Gyms and Fitness Centers	0.62	2.35	$182,500
Home Health Care Businesses	0.59	2.89	$600,000
Medical Practices	0.73	2.13	$349,000
Manufacturing	Revenue Multiple	Earnings Multiple	Median Sale Price
Auto, Boat and Aircraft Manufacturers	0.72	3.27	$815,000
Chemical and Related Product Manufacturers	0.99	3.47	$1,050,000
Clothing and Fabric Manufacturers	0.59	2.42	$275,000
Electronic and Electrical Equipment Manufacturers	0.78	3.05	$933,000
Food and Related Product Manufacturers	0.74	2.78	$450,000
Furniture and Fixture Manufacturers	0.60	2.78	$675,000
Glass, Stone, and Concrete Manufacturers	0.73	2.91	$625,000
Industrial and Commercial Machinery Manufacturers	0.84	3.84	$1,525,000
Lumber and Wood Products Manufacturers	0.62	3.09	$950,000
Machine Shops and Tool Manufacturers	0.83	3.23	$800,000
Medical Device and Product Manufacturers	0.78	2.66	$600,000
Metal Product Manufacturers	0.74	3.05	$900,000
Packaging Businesses	0.70	3.02	$575,000
Paper Manufacturers and Printing Businesses	0.59	2.45	$325,000
Rubber and Plastic Products Manufacturers	0.77	3.22	$900,000
Sign Manufacturers and Businesses	0.66	2.43	$430,000
Online and Technology	Revenue Multiple	Earnings Multiple	Median Sale Price
Cell Phone and Computer Repair and Service Businesses	0.49	2.01	$190,000
Graphic and Web Design Businesses	1.04	2.62	$330,000
IT and Software Service Businesses	0.95	2.93	$775,000
Software and App Companies	1.68	3.26	$599,000
Websites and Ecommerce Businesses	1.09	3.33	$738,000

 

[netsol]

it is entirely possible this business justifies a 5X multiplier, (this is far from my area of expertise, )
but, looking for a strting point, i would look for industry specific multiplier

 

[damonCA21]

That table is a bit too generic and doesn't take into account the profit margins made in different industries. The profit margin a sign shop can make is very different from that a supermarket can make

 

[garyroy]

NetSol, you da man. Nice chart

 

[greysquirrel]

I think if you are looking to acquire this company and its assets...equipment, you absolutely need to hire a technician preferably not associated with any reseller for the company and have each unit inspected and evaluated. The cost the owner paid for the equipment does not always translate to its value thru usage/wear and tear. Those values are always inflated.

 

[Notarealsignguy]

That table is a bit too generic and doesn't take into account the profit margins made in different industries. The profit margin a sign shop can make is very different from that a supermarket can make

Not true at all. The value of the goodwill of a business is dependent on the net it is producing, not the profit margins. Margins may make one more appealing than another but the fundamental value is the same.

 

[Notarealsignguy]

I think if you are looking to acquire this company and its assets...equipment, you absolutely need to hire a technician preferably not associated with any reseller for the company and have each unit inspected and evaluated. The cost the owner paid for the equipment does not always translate to its value thru usage/wear and tear. Those values are always inflated.

I've always had the mindset that the assets in a complete business sale are only worth what they are able to produce in terms of net profit. If it isn't producing enough to service the debt you take on when you buy it then it is generally not viable unless it has been grossly mismanaged.
The other issue that kills the value of any small business is the intimate relationships that the owner has forged with their customers. You lose a lot of that even when you do everything right.