Selling your business

[DerbyCitySignGuy]

The exception to that is when the incoming owner is actually better skilled and more business savvy than the outgoing one.

IF customers were as flighty and prone to switch it vendors as is being suggested, then the 60-75% of our business revenue provided by pre-existing customers wouldn't kerp coming back and we wouldn't have grown revenues 10% every year since 2014.

Good economy aside, our craft and it's increasingly savvy clients can see the differences when dealing with a higher level craftsperson and solid business model.

Sure, but that doesn't change the fact that a client list is intrinsically worthless.

Small businesses have a different clientele than larger print companies. It doesn't matter if your product is better or your business model is more efficient. Objectively, those things might be true, but customers don't work that way. Some people would rather do business with Bubba down the road than with Super Fast Sign Guys, LLC. Look at all the idiots shouting fake news at their TVs and voting against their own best interests. People are stupid; customers are people.

 

[neato]

Wow, I'll be sad to see you go Jodi!

I'm sure whatever decision you make will turn out great.

 

[visual800]

Stuff can be sold, equipment can be sold, buildings can be sold a clients loyalty cannot be sold.

if Amigo Signs did 2 mil last year and I wanted to buy him out there is no guarantee I will also turn those figures. If we can keep this conversation geared towards sign shops, please.

Nothing is 100% guaranteed to stay the same when you buy a business. I have so very few "dedicated" clients. Most of the large companies around here flutter between all shops as to who offers the lowest price they are not loyal to anyone.

 

[TimToad]

If that's true, then would they actually need the client list in the first place?

In that case, the reputation of the name of the businesses being sold may be more of a detriment then a positive.

But unfortunately, there is no guarantee of either scenario. People have to see how things play out.

The client list and supporting file archives are valuable regardless of the skill level differences between the outgoing or incoming owners for the same reason a restaurant's recipes and guest list are valuable.

If the expectation of every new owner was that they would be rolling the dice and starting over from scratch without the aid of the client list and work files to aid the transition, nobody would ever buy an existing business.

There are no guarantees, but a new owner in possession of at least equal or better skills and business acumen dramatically improve one's chances at both surviving the changeover and adding to the success of the business as has been true in our case.

 

[TimToad]

Sure, but that doesn't change the fact that a client list is intrinsically worthless.

Small businesses have a different clientele than larger print companies. It doesn't matter if your product is better or your business model is more efficient. Objectively, those things might be true, but customers don't work that way. Some people would rather do business with Bubba down the road than with Super Fast Sign Guys, LLC. Look at all the idiots shouting fake news at their TVs and voting against their own best interests. People are stupid; customers are people.

I think most of your comments are a generalization that insult the intelligence of masses of people and are not indicative across the board everywhere and ignore a million individualized variables.

 

[TimToad]

Stuff can be sold, equipment can be sold, buildings can be sold a clients loyalty cannot be sold.

if Amigo Signs did 2 mil last year and I wanted to buy him out there is no guarantee I will also turn those figures. If we can keep this conversation geared towards sign shops, please.

Nothing is 100% guaranteed to stay the same when you buy a business. I have so very few "dedicated" clients. Most of the large companies around here flutter between all shops as to who offers the lowest price they are not loyal to anyone.

Why wouldn't a well qualified, equally or more skilled purchaser who has done their due diligence and developed a realistic business plan for Neato's business not expect to step in, pick up the ball and run wirh it?

I'm so relieved and encouraged to have gained the skills, intelligence and determination along with my life partner to have bought several existing businesses over the last 30 years and have all of them be successful and provide for our financial security and artistic gratification. I really empathize with those who perceive such low degrees of loyalty and commitment from their customers. When my wife sold her interest in a failing restaurant she took over and turned around, her regulars many of whom were customers of the original owners literally cried over her departure. We actually have relationships outside of business with some of our current clients who were satisfied with their signs before we took over, but now have drawn even closer and share their friendship with us. Maybe it's a small town thing, but it hapoened for us when we lived in bigger cities too.

 

[WildWestDesigns]

The client list and supporting file archives are valuable regardless of the skill level differences between the outgoing or incoming owners for the same reason a restaurant's recipes and guest list are valuable.

No, if there is a huge disparity between the skill sets between the 2 owners, it doesn't matter if they have the files/recipes whatever. If they can't execute on them, no bueno.

This also assumes things stay static. Sometimes things do, sometimes they don't. Passing on work files/ contact info is only good if those items always stay static and the relationships are static.

I won't say that there is no value to it, but I also don't think it's quite as valuable as some people put on.

If the expectation of every new owner was that they would be rolling the dice and starting over from scratch without the aid of the client list and work files to aid the transition, nobody would ever buy an existing business.

Sometimes the name/brand of the business being bought is far more important or what else they bring to the table (patents, tech that they have, maybe even the real estate that the business is in/on).

There are no guarantees, but a new owner in possession of at least equal or better skills and business acumen dramatically improve one's chances at both surviving the changeover and adding to the success of the business as has been true in our case.

I thought that was irrelevant based on the first part of your post? Which is it?

Now, I would caution with the "at least" part. If this is a failing business or one that may be on the downward slide, it would depend on what is the reason for that trajectory. And hopefully it's not the same thing that one has the "at least" equal level in.

I really empathize with those who perceive such low degrees of loyalty and commitment from their customers.

I have some customers that have been with me for over 2 decades when I started working with my mom. I don't question their loyalty, commitment, but it's where it's focused, I think we have a different thought process of.

When my wife sold her interest in a failing restaurant she took over and turned around, her regulars many of whom were customers of the original owners literally cried over her departure.

That's the type of loyalty that I see and associate more with my customers then if I were to sell my files/contact info to a strange that happened to buy my business.


Now, I have to ask since recipes were brought up in this discussion, what caused the eatery to be "failing"? While it is possible for a myriad of reasons why, dated recipes could also be one (either by itself or in combination with other things) and if the recipes were bad and/or dated, taking those recipes may not be the best thing to do. That may not have been remotely the case, but those types of issues could come out with files/recipes and what I mentioned about things staying static.

 

[TimToad]

No, if there is a huge disparity between the skill sets between the 2 owners, it doesn't matter if they have the files/recipes whatever. If they can't execute on them, no bueno.

This also assumes things stay static. Sometimes things do, sometimes they don't. Passing on work files/ contact info is only good if those items always stay static and the relationships are static.

I won't say that there is no value to it, but I also don't think it's quite as valuable as some people put on.



Sometimes the name/brand of the business being bought is far more important or what else they bring to the table (patents, tech that they have, maybe even the real estate that the business is in/on).



I thought that was irrelevant based on the first part of your post? Which is it?

Now, I would caution with the "at least" part. If this is a failing business or one that may be on the downward slide, it would depend on what is the reason for that trajectory. And hopefully it's not the same thing that one has the "at least" equal level in.



I have some customers that have been with me for over 2 decades when I started working with my mom. I don't question their loyalty, commitment, but it's where it's focused, I think we have a different thought process of.




That's the type of loyalty that I see and associate more with my customers then if I were to sell my files/contact info to a strange that happened to buy my business.


Now, I have to ask since recipes were brought up in this discussion, what caused the eatery to be "failing"? While it is possible for a myriad of reasons why, dated recipes could also be one (either by itself or in combination with other things) and if the recipes were bad and/or dated, taking those recipes may not be the best thing to do. That may not have been remotely the case, but those types of issues could come out with files/recipes and what I mentioned about things staying static.

I'm not sure why so many discussions here need to devolve into a pissing match of ideas where each response is dissected and attempted to be nullified or rebutted, but it is what it is.

I think I've made it painfully clear that every circumstance is different and has many variables that may not apply in every case. I've shared my opinions and experiences as anecdotal evidence to help assert that, nothing more and nothing less.

I haven't assumed anything about a fictional business sale other than to assume that a buyer would have some baseline knowledge about his or her new venture or have inherited staff that would be helping during the transition to keep things flowing normally. If I'm a lifelong chef, why would I want to stake my investment capital and workday routine in a business type I know nothing about?

As far as the a value for the existing archives of work files, I'd say without them, there is ZERO point in buying an existing sign or graphics business. In my OPINION they hold a significant and crucial value to a new owner. WITHOUT the existing client list and work files, the skill level of the new owner takes on even more importance because that person will essentially be starting from scratch and only has the business name, built in identity and location exposure to connect it to the community.

Not every business sale occurs to those that are failing or even in a downward slide. Many are sold for such a wide variety of reasons with retirement being a major one, but not the only major reason. Some businesses are purposely started and built up to then sell and add capital to the investor's portfolio to do it all over again. Some people make lifelong careers about business acquisition and subsequent sales. We have a local craft brewery that has rapidly developed its product line and distribution areas for the sole purpose of attracting interest from a much larger concern to come in and buy them out and make the principles wealthy.

Like myself and the careful research we've done in purchasing the handful of businesses we've bought, I would hope that a potential buyer of your business would be doing the same due diligence and not just "happening" upon your business and cavalierly thinking "What a cool thing to do today"

I was generalizing about restaurants and their recipes just to cite an example of things that could and do get transferred to a new owner. Aren't there restaurants in your area that have changed hands but very little about the operation changes for either better or worse?

In the my wife's specific case, it was a case of poor management, weak branding and a mismatch of the menu and decor. The restaurant's name was Cup O' Cheer and was a breakfast and lunch place with about 24 tables and a decent take out service serving the downtown Portland, OR business clientele and visitors to the main library branch. The menu was limited by an over reliant devotion to the former owner's ethnicity and was way too heavy and unhealthy for a town like Portland. The logo, interior and decor was dark, brooding colors in tones of navy blue, fleshy pink and maroon. People thought it was a bar, not an upbeat, cheery eatery. BUT the location was prime and offered a ton of upsides. In a town where over half the population suffers from seasonal affect disorder and is gloomy and rainy 7-8 months per year, it was a business model doomed from the start. We rebranded, freshened and brightened the entire concept with butter yellow, sage green, a little plum here and there and all new logo and signage. The initial menu was offered but gradually phased out in exchange for homemade everything with an emphasis on freshness and made from scratch appeal. The place turned into a go to spot. She doubled revenues in the first full year and grew them 10-20% every year for the next five years. Being a hands on owner, she craved a less demanding schedule and sold the business close to its peak, not on the downslide.

 

[WildWestDesigns]

I'm not sure why so many discussions here need to devolve into a pissing match of ideas where each response is dissected and attempted to be nullified or rebutted, but it is what it is.

It's not a pissing match (at least not with me). When people make claims about something, they should be able to defend it. Pure and simple. Make a claim, should be able to defend it to the best of "your" ability.

This method has kept me from being a victim when people tried to BS me on things and that includes in business as well. It's not a pissing match. I always try to keep an open mind, but to me, my mind has to be swayed with reasoning. I do question things.

If I'm a lifelong chef, why would I want to stake my investment capital and workday routine in a business type I know nothing about?

People do it all the time. Even when getting into their 1st trade that they have an interest in. Most people (at minimum 51% of the time) don't actually do proper research. Don't have a business plan etc. I'm not saying that applies to you or anyone else in this thread, but I would say most do not do the research.

I remember one member of a trade group that I'm in wanted to add sublimation to their lineup (which fits in nicely with this type of work that she and I do) and was asking about if she should do it or not. I asked do you know what your ROI is? How much business would you get with this new service? Have you tried to outsource and offer this service to your customers to gauge interest?

Other members thought I was too negative for asking those questions and I never did get a response from that individual, so I would assume it was "no" to those questions. Less then a year, her machine and suppliers were up for sale in the group. Not the whole business, just what was related to sublimation.

I see that more often then not. Now granted that is just my experience. But if it happens in industries that people should know, I'm fairly sure it will happen when people try to branch out as well.

Excitement and a go get'em attitude tends to get the better of them.

As far as the a value for the existing archives of work files, I'd say without them, there is ZERO point in buying an existing sign or graphics business. In my OPINION they hold a significant and crucial value to a new owner.

Equipment, land, patents, get rid of competition etc. Not all the time, but I would say that other considerations do exist.

And if "you" are getting rid of competition, odds are closer that the old customers would come to you anyway.

WITHOUT the existing client list and work files, the skill level of the new owner takes on even more importance because that person will essentially be starting from scratch and only has the business name, built in identity and location exposure to connect it to the community.

Even if you get the work files/customer list, shouldn't this be assessed in case those things not panning out well during the research phase? Question if "you" do have the ability to start from scratch or a contingency plan if that doesn't work the way that "you" hope that it does?

I'm odd in the fact that while I'm a business owner (and that does have a high degree of risk to it), I'm also hugely risk adverse. I try to think of at least 1 contingency plan in case something goes south, but doesn't take the whole ship with it.

Not every business sale occurs to those that are failing or even in a downward slide.

I didn't say that they did. I was only mentioning that do to the explicit mention of the failing business that your wife took over (not when she left it, but when she took it over). That is all.

I was generalizing about restaurants and their recipes just to cite an example of things that could and do get transferred to a new owner. Aren't there restaurants in your area that have changed hands but very little about the operation changes for either better or worse?

As far as the restaurants that I go to in the area that I'm in now, no. While some may keep the same theme, in a small % of the time, but the menu is changed. It's not the same. Sometimes for the better, sometimes for the worst. A lot of time, the building is demolished and a new one is put up.

Now, in my hometown there was one of my favorite pizza joints (Pizza Casa, if there are any viewers from the Plano Tx area that were around there in the 80s and early 90s) and a lot of the recipes (not all) did change to the new owners, name was kept the same as well. Same building and decor as well. They closed within a year. It tasted exactly the same. But my family also knew the original owner and we went there so much that we actually got special privileges that others didn't (delivery (none was offered), had a tab and a significant one at that etc). That didn't carry over to the new owner. Now it's quite possible that it would have failed anyway, I don't know what was going on in the background.

Small businesses where owners are front and center, some of that loyalty comes about what that individual owner does all the way around. When that owner goes, there is a high probability that things will change, even if other things remained the same.

The initial menu was offered but gradually phased out in exchange for homemade everything with an emphasis on freshness and made from scratch appeal. The place turned into a go to spot. She doubled revenues in the first full year and grew them 10-20% every year for the next five years. Being a hands on owner, she craved a less demanding schedule and sold the business close to its peak, not on the downslide.

So, is it quite possible that the recycling of the old menu during that initial phase could have not been done and still have achieved the same level of success? I would argue that the old recipes weren't as valuable as one would think considering y'all went into a different direction with the menu.

Based on you saying that "it turned into a go to spot", having changed the decor and the menu from the original helped. What would have happened if you kept the decor and kept the menu?

Now, slowly changing and not doing a total about face could have been the key.

Again, things aren't static.

 

[DerbyCitySignGuy]

I think most of your comments are a generalization that insult the intelligence of masses of people and are not indicative across the board everywhere and ignore a million individualized variables.

Imagine someone of totally average intelligence (like Joe in Idiocracy) and then think about the fact that half of the population is dumber than that. Generalization, yes. Not incorrect though.

 

[Johnny Best]

To each his own, but if you have a good talent and a extra wad of cash. Why in the world would you buy someone elses' business, unless it was a real low price. I agree with others on here, customer loyalty is a fragile relationship.
That's like marrying a previous married women. Because she has good equipment and a good customer list. Of course John Steinbeck did say they make the best wives.
I am not a Hermit Crab sort of person to move into someone elses shell.
Take the lump of cash, buy new equipment, rent or buy a warehouse and start to hustle.
As far as the original poster, show them your books and have him make you an offer.

 

[rossmosh]

If you buy an existing, established business and stay in the same location, you have a very good chance of keeping your customers for at least 1 order. After 1 order, all bets are off. They might not like your face, your personality, your design work, your quality. But generally speaking, if you more or less keep things the same, you'll keep the customer.

If you're buying a customer list and files, it's depends heavily on the situation. A B&M customer may or may not want to drive to your facility. While you have advantages over the competition (having their artwork/design files) it may or may not be enough to keep them as a customer. If everything is done over email, they likely will continue to do business with you as long as they can't tell the difference.

Big picture, you need to evaluate what percentage of business do you think you'll keep. That's a huge variable and has to be done on a case by case business.

I can tell you I've been recommended by more than one person is if you're buying just a customer list and a computer full of files, you offer a small initial lump sum and then you offer them a percentage of the sales over a period of 3-5 years where the percentage trickles down over time. This keeps the seller interested in transitioning the business and it keeps the buyer from getting screwed.

As for why you buy vs build. Very simple. Buying has proven to be a better model. There's a reason why all these huge companies keep buying each other to consolidate. Owning the market, even a relatively small one, has major advantages.

 

[equippaint]

I was always told as a real rough estimate 2.5x EBIT + owners salary. Another thing was that assets are only worth what they are able to produce. You can onsie twosie sell them but as a functioning lot, they have a value based on revenue production.
Goodwill always has some sort of value, the more detached the owner is from the day to day operations the more I'd say it is worth. Typically most businesses will sell with a good portion financed by the seller which takes away some of the risk of clients up and leaving. Another thing that comes with buying a business is training. To say that a business is worthless is total nonsense.
Personally, I would never start another business from scratch. I would buy something, let the seller hold the note and hit the ground running. There is much less guess work, experimenting and learning involved that way. Plus you have instant cash flow unless its a distress / asset sale. Even then, they are producing something.

 

[brycesteiner]

[QUOTE="Personally, I would never start another business from scratch. I would buy something, let the seller hold the note and hit the ground running. There is much less guess work, experimenting and learning involved that way. Plus you have instant cash flow unless its a distress / asset sale. Even then, they are producing something.[/QUOTE]

I agree pretty much with everything you said and I think you are right even on the part I would do different. I do however enjoy starting businesses from the ground up. There is a satisfaction that you do not get from buying a business. But then again, what is satisfaction worth?

 

[Tattoosleeve]

We purchased a company's phone number, website address and customer files a few years back. We also hired one of their staff.

Even though the company was doing 1/12th the revenue we were doing, we were able to use those assets to increase our customer base and revenue immediately.

We found most customers were just excited that we had their files and could get started on their new project or re-order without having to start from scratch. Lots of customers didnt even realize there had been a change until they had to come to a new store location for pickup. The real kicker here is that we know that our pricing was higher than than the company who's digital assets we purchased by a good margin. The company was under charging but nobody balked at ours and we gotgmost of the jobs we quoted. The businrss from clients we have retained more than covered the cost of the purchase. If you can provide a quality finished product on time and with a friendly demeanor there is very little reason for a large portion of that customer base to jump ship. Even if they did have a special relationship wiyh the previous owner they still require product and services from someone, no reason it shouldn't be the guy that already has all your stuff on file.

 

[TimToad]

We purchased a company's phone number, website address and customer files a few years back. We also hired one of their staff.

Even though the company was doing 1/12th the revenue we were doing, we were able to use those assets to increase our customer base and revenue immediately.

We found most customers were just excited that we had their files and could get started on their new project or re-order without having to start from scratch. Lots of customers didnt even realize there had been a change until they had to come to a new store location for pickup. The real kicker here is that we know that our pricing was higher than than the company who's digital assets we purchased by a good margin. The company was under charging but nobody balked at ours and we gotgmost of the jobs we quoted. The businrss from clients we have retained more than covered the cost of the purchase. If you can provide a quality finished product on time and with a friendly demeanor there is very little reason for a large portion of that customer base to jump ship. Even if they did have a special relationship wiyh the previous owner they still require product and services from someone, no reason it shouldn't be the guy that already has all your stuff on file.

Boom. Mic drop!