Question What is the value of good-will?

[Chuck Taylor]

A local small business is contemplating retirement and has offered us their current "signage" client base with all their press-ready artwork files with specific job and material specs and a warm introduction for (sign work only) totaling $35,000 retail, annually. They have been in business for almost 35 years, have a great reputation and work mostly with repeat clients and referrals. What kind of offer would a person make on something like this? They are selling the equipment privately.

 

[Gino]

Ask them what they would like to walk away with. They probably have asked several shops and will sell to the highest bidder.
Are you a larger shop than they were ?? Money-wise, not in size or employees.

 

[Chuck Taylor]

Ask them what they would like to walk away with. They probably have asked several shops and will sell to the highest bidder.
Are you a larger shop than they were ?? Money-wise, not in size or employees.

We are about the same size as they are and in the same geographic area, so an additional $35,000 in retail sales would be a boost for us.

 

[StarSign]

Are there any other sign shops in the area? Is there a chance you would get some of that business anyway, for free?

 

[Stacey K]

Are there any other sign shops in the area? Is there a chance you would get some of that business anyway, for free?

This is exactly what I was going to say. When the sign shop in the next town from me closed, I LITTERALLY had 5-6 people a day in my shop asking for work. My business increase greatly just by being "the other sign shop". I was completely overwhelmed for many months. I had to recreate a lot of the artwork but some of it the customers had from the shop so, it worked out. One customer called the gal and threatened to sue her if she didn't hand over his files. Thank goodness because that was 10k just in one year, it was a LOT of artwork to recreate if I had to!

 

[Chuck Taylor]

Are there any other sign shops in the area? Is there a chance you would get some of that business anyway, for free?

Possibly, but it's always nice to receive a warm referral, especially if we had all their artwork files, as much of their work is repeat business.

 

[Chuck Taylor]

This is exactly what I was going to say. When the sign shop in the next town from me closed, I LITTERALLY had 5-6 people a day in my shop asking for work. My business increase greatly just by being "the other sign shop". I was completely overwhelmed for many months. I had to recreate a lot of the artwork but some of it the customers had from the shop so, it worked out. One customer called the gal and threatened to sue her if she didn't hand over his files. Thank goodness because that was 10k just in one year, it was a LOT of artwork to recreate if I had to!

Boy... lucky you, hey! Unfortunately, we are located within a larger city, so there are already many other sign shops around.

 

[Stacey K]

Are you going to be able to offer the same type of products, the same variety that he/she does? When that shop by me closed, she only offered sign products so those customers were going to her for signs and other shops for apparel. I provide both service so I got the signs and I would say 60% of the apparel, some of course liked their apparel person, which I understood.

A lawn cutting business in my area did $40k in sales and the client list for sale for $5k. IDK if that helps.

 

[Chuck Taylor]

Are you going to be able to offer the same type of products, the same variety that he/she does? When that shop by me closed, she only offered sign products so those customers were going to her for signs and other shops for apparel. I provide both service so I got the signs and I would say 60% of the apparel, some of course liked their apparel person, which I understood.

A lawn cutting business in my area did $40k in sales and the client list for sale for $5k. IDK if that helps.

Yes, we basically do the same kind of work. I'm thinking active clientele / good-will would account for around 1/8th of the signage retail sales volume as in the example you've shown for the lawn care company.

 

[visual800]

just buy their phone number, just because you have a client base doesnt guarantee they will stay with you BUT buying thier phone number will secure any calls coming to them

 

[Johnny Best]

So, you think an extra $35,000 a year from buying their list and artwork, offer them $6,500 if you can afford it.
You sound like you want to do it.

 

[Chuck Taylor]

So, you think an extra $35,000 a year from buying their list and artwork, offer them $6,500 if you can afford it.
You sound like you want to do it.

Thanks for your input, Johnny - much appreciated!

 

[isignmaker]

A local small business is contemplating retirement and has offered us their current "signage" client base with all their press-ready artwork files with specific job and material specs and a warm introduction for (sign work only) totaling $35,000 retail, annually. They have been in business for almost 35 years, have a great reputation and work mostly with repeat clients and referrals. What kind of offer would a person make on something like this? They are selling the equipment privately.

Is your pricing/margin similar? How much would you net from this $35,000? More importantly what are they currently netting from that 35K? I would look at what you estimate the net profit from this 35K will be for you vs what it is for them and offer multiple of what it is for them. You can improve it and you should get paid for that not them. With that said this is not a large number so I would offer 1x net to them. So if they are making for example 5k off the 35k I'd offer 5k.
Keep in mind that adding 35k to your topline should drop down to the bottom line at gross margins since most of your overhead is already covered by your existing business minus the material costs. I love geeking out on this stuff. I have bought and sold several sign shops over the years and would love to discuss if you are interested...

 

[Chuck Taylor]

Is your pricing/margin similar? How much would you net from this $35,000? More importantly what are they currently netting from that 35K? I would look at what you estimate the net profit from this 35K will be for you vs what it is for them and offer multiple of what it is for them. You can improve it and you should get paid for that not them. With that said this is not a large number so I would offer 1x net to them. So if they are making for example 5k off the 35k I'd offer 5k.
Keep in mind that adding 35k to your topline should drop down to the bottom line at gross margins since most of your overhead is already covered by your existing business minus the material costs. I love geeking out on this stuff. I have bought and sold several sign shops over the years and would love to discuss if you are interested...

Thank you for your input and insight on this - much appreciated

 

[4cpro]

Well based on $2900/mo. current sales. I don't know your operation but we're running at a 22% profit margin in the NY metro area which is great where many of my competitors are 10-12%. Almost 40% of my business is digital print but large format is 17-20% of my business.

In my situation that brings it down to netting about $638/month before taxes. I'm not at 100% capacity so that business would not affect my fixed costs.

Based on that, I would give them nothing up front and tell them you will pay them a specific percentage over a set time with a cap (whichever comes first). I'd try to get it over as soon as possible. But paying 10% over 3 years, your max exposure is $10,500 at current sales. You could cap the payment at say $15,000. Chances are they will fall short.

It's just not a ton of business... unless those clients have other oppotunities that could drive more sales.

Don't get me wrong, I would gladly grab $35k in business but...

1. What are they selling their stuff for?
2. Are they making money? How much are they making?
3. Can you reduce production expense to make more profitable?

Hard to tell but it really depends on your overhead. For me, unless it is cookie cutter simple work, an extra $638.00 in sales doesn't move the needle for me. It might if you have super low overhead. I see a ton of people that have a cost of $100 on a job and sell it for $125.00 and say to themselves "I just made $25.00" and are happy about it. My old school rule of thumb is to go 3x - 4x cost of goods sold. At 3x fairly agressive and at 4x a decent number. So if my vinyl and ink costs are $200.... Agressive number is $600 and my normal number would be around $800. It's old school printing math but it kinda works in general. Hand finishing and binding is another story where we bill by time.

From my experience, if they don't have financials and some sort of accounting you can look and an analyze, the risk outweighs the reward and they are looking to get paid and walk away leaving you with their mess.

 

[Texas_Signmaker]

I wouldn't pay anything. I'm a fan of let your business grow naturally. $35k in annual sales is nothing if you are doing this full time. That's maybe $10k a year in profit? You're better off spending the money building a better website or marketing your own business. (Vehicle wrap, in shop equipment) I'd tell them you'd give them a 5-10% finders fee for any work you get from their list for the first year or so. Otherwise you'd be happy to be an excellent referral and will treat his customers the best.

 

[Chuck Taylor]

I wouldn't pay anything. I'm a fan of let your business grow naturally. $35k in annual sales is nothing if you are doing this full time. That's maybe $10k a year in profit? You're better off spending the money building a better website or marketing your own business. (Vehicle wrap, in shop equipment) I'd tell them you'd give them a 5-10% finders fee for any work you get from their list for the first year or so. Otherwise you'd be happy to be an excellent referral and will treat his customers the best.

Thanks for your feedback on this!

 

[Chuck Taylor]

Well based on $2900/mo. current sales. I don't know your operation but we're running at a 22% profit margin in the NY metro area which is great where many of my competitors are 10-12%. Almost 40% of my business is digital print but large format is 17-20% of my business.

In my situation that brings it down to netting about $638/month before taxes. I'm not at 100% capacity so that business would not affect my fixed costs.

Based on that, I would give them nothing up front and tell them you will pay them a specific percentage over a set time with a cap (whichever comes first). I'd try to get it over as soon as possible. But paying 10% over 3 years, your max exposure is $10,500 at current sales. You could cap the payment at say $15,000. Chances are they will fall short.

It's just not a ton of business... unless those clients have other oppotunities that could drive more sales.

Don't get me wrong, I would gladly grab $35k in business but...

1. What are they selling their stuff for?
2. Are they making money? How much are they making?
3. Can you reduce production expense to make more profitable?

Hard to tell but it really depends on your overhead. For me, unless it is cookie cutter simple work, an extra $638.00 in sales doesn't move the needle for me. It might if you have super low overhead. I see a ton of people that have a cost of $100 on a job and sell it for $125.00 and say to themselves "I just made $25.00" and are happy about it. My old school rule of thumb is to go 3x - 4x cost of goods sold. At 3x fairly agressive and at 4x a decent number. So if my vinyl and ink costs are $200.... Agressive number is $600 and my normal number would be around $800. It's old school printing math but it kinda works in general. Hand finishing and binding is another story where we bill by time.

From my experience, if they don't have financials and some sort of accounting you can look and an analyze, the risk outweighs the reward and they are looking to get paid and walk away leaving you with their mess.

Thanks for your insight on this - much appreciated!

 

[Ron at Forest Litho]

Someone brought up that you should make sure they are not operating other sign shops. Need a non-compete clause for 2 years. And do their current customers do jobs that fit on YOUR equipment and in your expertise? If you get one and you mess up what they are used to, you lose them.