We purchased the assets of a failing
sign shop three years ago. They were doing $90k gross /year. He was asking $75,000. My heart hit my stomach when I saw the financials. Unfortunately the owner had bought it three years prior and poured in excess of $350,000 of his own imoney into it over the three years. Needless to say that could have been avoided if he knew anything about running a business but he was trying the only way he knew how.
We evaluated the assets as follows.
1. Edge FX & Envision : $12,000 for the pair
2. Customer Files : $10,000
3. Phone Number & Website : $2,000
4. Inventory : Pennies on the dollar - we cherry picked maybe 15% of their on hand materials and tools. The rest of it was odd ball colors or specialty materials that were never going to get used.
We explained our assessment of assets and offered $24k. He balked and walked. A month later he came back and took our offer because it was the only offer he received and every day he stayed open the more he lost.
The sale was hindered for 3 months because there were liens on his equipment we we're trying to purchase. He had to pay out the remainder of the loans on the equipment before we could move forward with the sale. I don't even know if he walked away with anything at the end of the day other than stopping the bleeding.
In hindsight the most valuable assets in the purchase were the combination of the phone number, website and customer files. The return on those three items have paid the purchase price many times over. It's important to note that without the combination of the three together the value of each should drop significantly. Files are no good if customers aren't directly forwarded to you.
We found most customers were ecstatic that we had their files and that they "didn't need to start over". The idea that there is little motivation for a customer to follow a new owner hasn't rung true for us. We have been able to retain a very large number of that companies clients. As long as you can do the work to the same level of quality or better and on time you should gain a large amount of revenue from those customers. I didnt mention price there on purpose. The previous owner was significantly under charging and our prices were much higher and I never had a customer not move forward with work based on our new to them pricing.
Lessons and thoughts:
1. Assess the business on what it is ACTUALLY worth to YOU. The previous owners decisions and situation can not factor into your decisions or you will overpay.
2. Just because there is inventory doesn't mean the inventory has value. If you have $20,000 of seafoam green XXXL shirts, and $30,000 in yellow baby caps how are you going to move those? Inventory is only of value if it's bread and butter merchandise and even then, you should still be ensuring you are paying 2nd hand prices and not wholesale cost.
3. Files, phone # and website are important part of the acquisition. If the company doesn't have a strong local presence these may not be of as much value.
4. Check for liens
5. Unless you are 100% certain there is no "bad" debt, your best to approach it as an asset purchase and not a business acquisition.
6.in your case, Don't over estimate your ability to hop in and be able to produce things at an appropriate quality level. Embroidery and
signs, print are self taught industries and you'll do much better to have the previous owners contractually obligated to work for you for a given period of time. I would avoid having this as a consultant situation until you are confident in your own abilities. They will have lots of important information that they can walk away with.......I would probably give this the 2nd amount of weight behind the files and phone number honestly.
