How To Value An Existing Business & What Skills Do I Need?

[grmi66]

Have a background in printing, promo products, labels and direct mail so I know how to value an existing business in those fields. Going to go look at an existing operation next week and want to know what to look for, what questions to ask and what is a fair price for a sign shop that has been open for 20 years. Owner is not going through a business broker and his price seems somewhat reasonable. Looks like he simply wants to retire and make sure that his operation is in good hands when he leaves.

Second part of my question is that I have always been a sales & marketing guy. I have never touched a printing press, done graphic design or post production work. What is the learning curve like if I need to learn to run a few machines or do an install? Willing to walk away from this deal if it requires production skill and detail that is out of my league.

 

[Rick]

Lot's of loaded questions here. First, not every sign shop is the same.

Is this a full service sign shop (vinyl, wraps, interior, exterior, monuments,
ADA, electrical signs) or mostly a vinyl/print shop?

You don't have to answer these questions but someone should...
What do they gross?
How many employees?
---If there are employees, are they staying on?
Will the owner stay on a bit while you transition?
Does the work that does require a contractors license?
Can you perform the task on day one to keep the business going?

Is the design and production hard? I have to tell you honestly...
you were around the graphics business for 20 years, you
didn't get involved with more of the process?

I'm reminded of Bobby Boucher (Waterboy) when Couch
Klein was teaching him the fundamentals of football,
Bobby was too busy making sure the cups were full or checking
the alkalinity content to pay attention to the game...
where were you for that 20 years?

Yeah it can be hard... or easy... just depends on your skills, talents
and how hard you're willing to work. Most on this site are self taught
some are very good at at .. and some... well... quite a few should stick
to hitting the print button. It's obvious you can sell, but it still needs to
be made and installed and you have to learn about building and sign
codes too.

I think if it were me, hire a seasoned sign guy and watch him. Grunt
for him at your shop. There are quite a few franchise companies that
use this practice with some success. Practice learning layout and
production. You're gonna have to get some practice in and your
hands dirty.

 

[TimToad]

Rick posted quite a few of the questions I would ask, but being someone who very recently purchased an existing and fairly stable sign business, my experience is very fresh. Thankfully, I have 34 years of hands on sign experience to compensate for the things I overlooked, ignored and was prevented from seeing.

Get practical, pragmatic advice from your CPA AFTER he or she has studied the companies books for the last 3-5 years. If it doesn't pencil out, you aren't going to undue a systemically weak business model, no matter how good you are.

Is the company covering its overhead expenses? Bottom line, is there enough profitable work to keep the doors open, the lights on consistently and everybody, including yourself paid a living wage?

If not, you are not going to suddenly turn it around given your lack of hands on experience.

What condition is the major equipment in? How often has it been serviced, cleaned, etc. How old is everything?

Unless you want to pay part of your profit out to IT services, computer repair and troubleshooting services, etc. regularly you better get some real hands on experience on how to fix the day to day glitches and problems that arise with these printers, laminators, etc. that we use all day.

How is the lease on the shop? You have to have somewhere to work and expecting his loyal customers to find you in a new, unfamiliar location is a stretch. Humans are nasty creatures of habit.

Can you get access to his sales records? If so, pull up a bunch of average jobs and see what he was charging on average.

Is it below the local going rate?

Was he the lowballer in the community or somewhere in the middle?

My predecessor whined a lot to me about how low ball everyone else around here is, but in reality he was the one driving the market down. I've struggled to justify to loyal customers why their jobs cost more and to gain the trust of my colleagues that I'm NOT like my predecessor.

Lastly, collections and accounts receivables. Was the guy, Mr. Nice Guy and couldn't collect on an invoice? This is our single biggest struggle. We knock the work out of the park and our track record for service is awesome, but even the most regular customers will not pay on an invoice until pressed multiple times. We've since implemented a solid deposit system and our cash flow is good, but we always carry a lot of dead weight around very month.

Good luck and frankly, get more hands on experience. Every dollar you pay others to do tasks you should be doing yourself is future dollars you won't make and won't reap when you sell to the next person.

 

[grmi66]

Thanks for the questions to ask and what to look for. Yes, I have been around the printing and graphics industry for almost 20 years but it was all on the sales side of things. Just collected artwork or had my graphic designer whip something up and the shop around for the best trade printer for that particular job. So other than delivering a package or two, never had to get my hands dirty on a press or do production.

Right now the shop is operating out of a work space in the owner's back yard. Owner said he had very little walk in business and it saved a lot of overhead relocating to his property. So most sales are made out in the field.

My spouse is a bookkeeper and her dad is a CPA, so I have lot's of free financial resources at my fingertips. Also have a relative that lives in the area where the shop is and is a business owner active in chamber and networking groups, so he is willing to help introduce me around town.

I've walked away from other deals that were not a good fit for me or the numbers did not pencil out. So not starry eyed just trying to be my own boss. Just want to know what to look for and watch out for.

 

[TXFB.INS]

Thanks for the questions to ask and what to look for. Yes, I have been around the printing and graphics industry for almost 20 years but it was all on the sales side of things. Just collected artwork or had my graphic designer whip something up and the shop around for the best trade printer for that particular job. So other than delivering a package or two, never had to get my hands dirty on a press or do production.

Right now the shop is operating out of a work space in the owner's back yard. Owner said he had very little walk in business and it saved a lot of overhead relocating to his property. So most sales are made out in the field.

My spouse is a bookkeeper and her dad is a CPA, so I have lot's of free financial resources at my fingertips. Also have a relative that lives in the area where the shop is and is a business owner active in chamber and networking groups, so he is willing to help introduce me around town.

I've walked away from other deals that were not a good fit for me or the numbers did not pencil out. So not starry eyed just trying to be my own boss. Just want to know what to look for and watch out for.

Why the interest in getting your hands dirty? this would take away from the sales side and add more steps that you will have to over see and ensure are done correctly.

regardless the previous points are VERY valid.

the other questions is if this guy is operating from his back yard and then sells the business where is the business going to be moved to?

since this guy works from home is this a business or a job? let me explain
a business can survive / operate with anyone at the controls
a job is the customers come to this business because of the current owner, and do the customers know this guy is saying if so for how long and are they already looking for a new graphic provider?

 

[binki]

We went through this a number of years ago and came up with a formula of this: Premium pricing being 2.5 times net + FFE at fair value. Discount for anything that makes the biz not a premium. Hire, for a fee (not a commission on the sale), a Valuation Attorney or a Business Broker that is experienced in doing valuations. Most owners will overvalue the business and/or do stuff like skim cash sales and/or run personal expenses through the business.

You need to make sure your contract includes a non-compete clause for a radius in miles and a timeframe and it needs to be reasonable. You also need to have a clause that the previous owner will assume all liabilities from fraudulent activities as mentioned above and all liabilities from errors and omissions in reporting to government agencies. Make sure he takes out an insurance policy for the latter for the statute of limitations time, typically 3 to 7 years.

Your other option is to buy the customer list and equipment but not the location or name.

Good Luck

 

[Billct2]

With the information provided about yourself and the business for sale I would walk away.

 

[grmi66]

Thanks for the tips and what to watch out for. This is a business that the guy is selling. It's been around for 20 years and well established in his community. When his business rent went up he relocated to shop space on his property 5 years ago. He is retiring and moving out of the area and seems to want to make sure that his business is in good hands when he leaves town. Told me that he might be willing to negotiate for me to rent his house and shop space so I don't have to move any equipment.

Anyways, it all might be a moot point. Meeting with someone tomorrow on another business venture with a little less risk that wouldn't require moving and trying to sell my house.

 

[Billct2]

Usually a business that has been winding down make a poor investment, especially when you have no knowledge of the trade.
Unless he finds a live one he'll be lucky sell the house and shop at fair market values to someone who'll take over the business
and throw him whatever the equipment is worth and little for the name.

 

[grmi66]

I know just enough about signs, banners, POP to be dangerous as I have sold them as an add on item throughout my print career. It was just the production side that I was hesitant about. Have had discussions with guys trying to sell their printing business that were in the same situation. Wanted to retire, unload their equipment and have their business keep going. In printing I know all you are buying is blue sky and a list of names. So I always structured the deal in a three year buyout for a share of the yearly profits. If the business was worth selling and the customers kept buying it was a win for both parties.

Anyways, now that I'm penciling everything out, as much as I want to relocate the timing is off. Should probably wait until I get my kids through college. Thanks for everyone's tips & advice.

 

[ddubia]

Something you can't tell through accounting methods is in what shape is the customer list. Meaning, I'm certain there is a list of customers. Are they happy customers, did the previous owner get jobs done in a timely manner? I know a shop around here that is winding down. It's been in business nearly 20 years. It has a huge customer list. Unfortunately most of those customers are tired of waiting for quotes, product getting done late or getting their signs installed way beyond any reasonable time period. I think the owner has been disinterested in the trade for quite some time and it shows in his lack of attention to his customers. That would be a bad shop to take over. Especially if one's interested in keeping the same location. "Under New Managment" means little to those who have been burned at that location.

 

[VL]

Selling printing is one thing, doing graphics design and sign production is another. Before you jump into this business I suggest you try using some of the design software programs first. Here is a project for you. Download the trial version of Adobe Photoshop and Illustrator. Redraw this graphic into a smooth and clean vector file. If you can do it and enjoyed doing the work, then I say keep going. If you find it a pain in the *** then i say you have to hire a graphic designer. It should take less than 2 hrs. TRY it!