Why sell equipment and not shop?

[ams]

Okay here is a big mystery that has me stumped. Every sign shop I've ever seen that is closing, is selling off the equipment and supplies and not selling the actual business.

A small sign shop of about 900 square feet would be worth $100,000 with a decent customer base. Triple that for one about 1,400 square foot with a large customer base.

But sign makers close the shops down, and sell the items and equipment and that's it the end. They are losing a ton of money doing that. My father is a business broker, he says businesses that close instead of selling, make about 50% less than if they sold it.

 

[ddarlak]

maybe they just couldn't find a sucker to buy it...

 

[briankb]

I'm guessing it's because they didn't have a decent customer base and/or they needed the cash fast for whatever reason.

It would make more sense to sell it as a "business" but that may take a long time and require the new owner to have their own cash or ability to get a lease/loan to make the purchase. The later is probably the hardest part.

 

[WildWestDesigns]

They are losing a ton of money doing that. My father is a business broker, he says businesses that close instead of selling, make about 50% less than if they sold it.

That actually depends on what is going on in the background. It might be worth it to them to sell it this way versus the other. There might be other "complications" that's worth only getting half of it to them versus getting double.

Also I'm willing to bet that there are other fees etc that will have to be shelled out as well. So even though in theory a person might get 2x as much if they sold the business, after it's all said and done, it might actually only be a quarter more. Then is the time, effort, extra headache worth that quarter extra? Well that depends on the person selling and the person buying. Which changes from person to person on both sides.

 

[Letterbox Mike]

Most small sign shops are not worth anything without the owner. The owner is responsible for it's success, it's not a life of it's own yet. Even with a good deal of transitional training the chances of the success of a small operation to continue without the original owner are slim and buyers (and sellers) know this. Typically, a very small operation is worth at best the value of the equipment and maybe (and that's a big maybe) a token amount for the customer base if and only if the customer base has any valuable customers in it.

Companies that are sellable stand on their own two feet and do not rely on the presence of any one specific person. There is still considerable effort required to transition a new owner or management team over, but companies with directors, employees and procedures and protocols in place to deal with the absence of any one key employee or director are much more valuable and attractive to potential buyers.

 

[WildWestDesigns]

Companies that are sellable stand on their own two feet and do not rely on the presence of any one specific person. There is still considerable effort required to transition a new owner or management team over, but companies with directors, employees and procedures and protocols in place to deal with the absence of any one key employee or director are much more valuable and attractive to potential buyers.

This is going to depend on location, but around here a one person operation can be set up as an LLC and that would be more attractive to a potential buyer then just the sole prop. that most are. Depending on location again(here for sure), there would need to be protocals already established to deal with transfer of ownership((whatever the reason may be).

However, despite all this, don't underestimate that a person still isn't the "lifeblood" of an operation that has protocals to deal with transfer of ownership. In theory, that would be true, but in practice things usually are of a different story unless everything is laid out on how things are done, beyond that of just transfer of ownership and that would hopefully be done by someone that knew what they were doing.

 

[chopper]

or...maybe the sign shop does not own the building maybe it is leased, or they have an offer to rent the building and that is why they are shutting down,or the land lord is giving them the boot?
//chopper

 

[showcase 66]

I have bought out 8 business out in the past 3 years. All but one have been an at home business in which they were running part time from their regular job. The other one was in a building by itself and he wanted to sell the whole business not just the equipment. In this economy, you need to have a flourishing business to sell the business as a whole. Even so, most people consider this to be a "Blue Sky" deal. Meaning, other than the equipment, you have no guarantee on keeping clients or being successful.

If a shop is up for sale, I would contact them and tell them I would buy the assets of the company but not the company itself. Better deal for me. I tell them all I want is the equipment and supplies and they dont have to hand over any client info. They always leave the computer the way it was and so I end up getting all the client info anyways, but that is never my intention.

 

[CES020]

A friend of mine works with clients to help them grow their businesses. He's done well in the people he's helped. I know a small family own business that he's working with. They are all in their mid to late 50's. He asked them "When will you retire", and they said "In about 10 years". He said "What will you do with the business?", they said "Umm, close it down, I guess".

He then started working with them to build something that will be a business that can be sold. They have a really good business, family owned, been there for decades, and his point was "why flush that down the toilet for nothing when you can build it properly and it'll be attractive for someone to buy".

From all the work I've seen them doing together, I think he's heading them down a really nice path.

I think most people just don't think about stuff like that. They are jut working people and they don't realize that they don't know what they don't know.

I believe it's more ignorance than stupidity.

 

[ggsigns]

Also when you buy the entire business you also buy all the liabilities of that business. Some like A/P may be easily computed but some can be unknown or unexpected. Suppose something the previous owner did fails or there's an unexpected warranty issue, the new owner is on the hook for that.

 

[ams]

Well it's up to the new owner to decide if he is going to be a success or not. Most businesses train the new owner. But I do agree that there could be hidden problems with the business, it happened to me before.

I owned to lease to own a mobile sign shop, it was in a box truck, and had computer, work table, plotter, all materials, lights, generator, everything in the truck and could pull up to a business and do the work in the parking lot.

Owners wanted $110,000 for it, but later I found out it was only worth $40,000 max because it ran for about 8-10 years before I bought it, nothing worked right, generator was bad, too much power on the circuits caused power failures, truck had high mileage, plotter was wearing out, and barely a 5 - 7 customer base. So glad I didn't get sucked into that one.

 

[Billct2]

Same reason you can't sell a dead horse...just take the saddle and move on...

 

[threeputt]

Also when you buy the entire business you also buy all the liabilities of that business.

This is something I'm going thru at this very moment.


One needs to do their "due dillingence" and check to see if there is outstanding taxes, unresolved L&I claims, lawsuits pending, and kind of encumbrances, equipment liens, equipment pledged as security for loans, broken leases, etc.

This we've done. It costs dough,though.

 

[Billct2]

It's easy enough to have a contract that doesn't pass on any liabilities hidden or otherwise and as soon as you take ownership re-register the company as a new LLC or Corp entity.

 

[VINYLIMAGEZ]

most small sign shops are not worth anything without the owner. The owner is responsible for it's success, it's not a life of it's own yet.

amen!

 

[Pat Whatley]

95% of sign shops are not BUSINESSES....they are JOBS for their owners. A business produces income for it's owners, with a JOB the owner produces the income. Nobody in their right mind buys a job.

The average sign shop is worth less than the depreciated cost of the equipment, the customer list is almost always worthless. Look at shops that have closed, they're lucky to get half of what their equipment and inventory is worth. I've bought things from three who were getting closer to 15%.

 

[Gino]

Why would you or anyone else pay anything at all..... for a failed business ??

Most of the shops selling their crap jumped in without testing the water with a business plan or even an idea of how this industry works. They got burned and want to get as much back on their stuff as possible. The lucky ones find places like this to help them along if there's still hope.

Your dad should be telling you that he sells and buys prospering businesses for his clients, not failing businesses. That would be irresponsible on his part to suggest someone doing such a thing as you're questioning.


The businesses [any kind] out there that are doing well, is a different story, and they probably have enough horse sense to do just that.

 

[WildWestDesigns]

Why would you or anyone else pay anything at all..... for a failed business ??

Just because they failed doesn't mean that they don't have good stuff worth getting. More then likely they are eagerly wanting to get rid of the stuff and get something(no matter how little) for it. Buyer's market right there.

Most of the shops selling their crap jumped in without testing the water with a business plan or even an idea of how this industry works. They got burned and want to get as much back on their stuff as possible. The lucky ones find places like this to help them along if there's still hope.

Not exactly true. A lot of reasons why a business fails. Quite a few of them are due to variables that are beyond you, I or anyone's control. Unless you know what exactly happened to the business it's hard to say. Even something as little as the location of the shop(is it easy to get in and out of etc, not just in a bad area) could have been why it failed. Doesn't mean that the owners didn't know what they were doing or not doing with regard to how to run a sign business. If they leased the building, was the leasor trying to "force" them out by making the fees so high that it was better to fold up shop then it was continue to pay? Stuff like that.

 

[Pat Whatley]

Locally there's a shop for sale that has made it's owner a decent income for 20 years and shows every indication of continuing that. He's selling it for the depreciated value of the equipment and roughly one years salary.

Three years later and it's my understanding that he's only had three people interested and no buyers.

 

[Gino]

WildW……

The OP was talking about selling the business along with the equipment and getting more money as a combined effort. Most sign shops line up like vultures when a shop goes out of business or just closes its doors before the last flurry of attempts to stay open. Most places I’ve seen trying to sell the business end up…. the guy goes back after hours and tries to take things out illegally to sell a few more things cause he didn’t get his asking price. I know of a guy that got caught in his shop because he said it wasn’t right what he was being forced to take and was caught red-handed coming out through a chained off window at a Sheriff’s Sale with ink and screens.

If location, equipment, proper help or any other problem stands in the shop’s way of doing their fullest potential, no… it doesn’t mean the guy is a lousy business person or lacks knowledge about his craft, but it does say he probably won’t get a good rating when the accountants and lawyers look over the boks. The owner’s capabilities boil down to what the books say, not what you think or say. Black and white or red is all that matters in a buyout.

I guess I’m lucky. We’ve always strived to stay away from high traffic areas. We didn’t want walk-in trade or tire-kickers. We stayed low-key for many years. We managed to make ends meet and continue to grow. We knew our strengths and geared our business towards the very people that needed our expertise. Eventually we bought a building and will probably retire from the sale of that building alone.. It doesn’t need to remain a sign shop to sell. It can go as any number of businesses. So, you see…. location, equipment, and many other things will not deter a customer if you market yourself wisely.

I can understand your point, but those cases are far and few between for the most part.

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