selling the business, topics of "what is it worth"

seymour

Grumbler
Joined
Apr 13, 2003
Posts
29
From
toledo,ohio
Hi all. I am considering selling the frame shop. Do we have any books or topics on how to: and finding the right selling price.

thx, seymour
 

CAframer

SGF, Supreme Grumble Framer
Joined
Nov 19, 2003
Posts
3,834
From
Orange County, CA
The short version is whatever the market will bear … varies by geography, demographics, etc.

There are as many opinions as there are people out there … naturally sellers think high, and buyers think low.

Therefore, suggest you talk to some local business brokers … make sure you talk to BUSINESS brokers, not residential realtors

For a quick valuation use this formula:
Potential business sale price = (1.6 x adjusted net) + inventory + value of furniture, fittings, & equipment
 

fourcorners

CGF II, Certified Grumble Framer Level 2
Joined
Jun 13, 2002
Posts
311
From
Sacramento, California
We met with a business broker last month and he informed us that you either use your net profit from the previous year (can't remember the multiple he used) OR your inventory/equipment/fixtures to determine a value. Not both added together.

We won't be selling yet. ;)
 

gemsmom

SGF, Supreme Grumble Framer
Joined
Oct 10, 2000
Posts
3,576
I sold my business last year. I went through a commercial real estate agent. The business was sold in less than a month to the first person who looked at it.

He looked at three years of records, plus factored in alot of other things, such as type of business it was, location, inventory, equipment.

Anyone who inquired about the shop had to produce a financial statement before being told the name of the business and shown our records. There were many, many, inquiries. He weeded out the curious and the time wasters.
 

HB

SGF, Supreme Grumble Framer
Joined
Mar 26, 2003
Posts
1,774
From
Alberta CANADA
Business
The Framing Nook
For starters:
3 x the avg of last 3 years net profit plus
usuable mldng & matte inventory wholesale price / 2 plus
framed stuff inventory retail / 3 plus
equipment 80% appraisal value


Thats just a guideline - assumes everything average condition & likely to sell to customers(not stale out of style stuff). Also assumes the following to be good (not exc. not poor): location, staff, marketing, neighbourhood condition, past experience, customer database etc. You can change the 3x profit factor(opening sentence) to either 0 (for lousy)to max of 6 (excellent conditions).

Should at least help you out.

If you want more details, email me.
 

Dave

SPFG, Supreme Picture Framing God
Joined
Jun 11, 2004
Posts
13,355
From
Edwardsburg, MI
Simple formula I've always heard is to take 5 times the weighted average adjusted net profit over the last five years. The adjusted net profit would be your actual net business profits + your salary adjusted upward or downward depending on fair market compensation for your labor contribution + any noncash benfits you receive. Such benefits could be a company vehicle, free family framing services, etc.

Example:

Year Net profit Weight Amount

2000 12,000 1 12,000
2001 20,000 2 20,000
2002 23,500 3 70,500
2003 8,250 4 33,000
2004 -5,000 5 -25,000

Total for 5 years 90,000 / 10 X 5 = $ 45,000.

Then adjust for benefits...

Car $ 5000.00 per year.
Family framing $ 1800.00 year

Then adjust for owner contribution to labor...
In this example owner only oversaw operation and workd average of 5 hrs week in business, but took out 50,000 year.

Adjust total for owner salary... say 45,000.


Simple value based on profitability accounting for business trends by weighting the years would be $ 45,000.

Add benefits...6,800
Add owner salary above contribution 45,000

Valuation based on profitability $ 96,800.

This formula does not account for value of inventory, furniture and fixtures and "goodwill".

You could then arrive at another value based on assets and average the two together. Adjustments might need to be made for expected industry future and other intangible factors. Goodwill in this example may be negative as the last few years things were hurtin'.

I apologize if any of my math is off, I didn't use a calculator or triple check anything. If I missed anything that would seem applicable...sorry...working from memory and haven't pulled out the old textbooks.

Dave Makielski
 

HB

SGF, Supreme Grumble Framer
Joined
Mar 26, 2003
Posts
1,774
From
Alberta CANADA
Business
The Framing Nook
Dave

If you are calculating based on the net profit - that essentially covers "Good will" in my opinion. without "good will" you can't make that profit.
 

Dave

SPFG, Supreme Picture Framing God
Joined
Jun 11, 2004
Posts
13,355
From
Edwardsburg, MI
Goodwill is an extremely hard to enumerate and in the instance above it may even be "badwill" as profits have declined dramatically in the past two years.

The only way you can really assign a value to goodwill is to say that it is an amount a willing buyer in a lazaifaire (spelling?) environment would be willing to pay above and beyond an appraised value.

I agree that for the most part goodwill in today's business environment is often worthless above and beyond what the profits reflect. Often goodwill is also stuck to the original owner(s) and wouldn't project onto a new owner, especially in a trade business like the custom framing business.

Dave Makielski
 

RevBev

True Grumbler
Joined
Aug 29, 1999
Posts
89
From
High Point NC
There was a two-part article on this subject that ran in PFM (Dec.1998 & Feb. 1999) by Paul "The Guerilla Framer" Cascio. A real reality-check piece that pulled no punches. Bottom line: "1X to 2X Net Profit from the most recent year, plus inventory."
 

Jim Miller

SPFG, Supreme Picture Framing God
Forum Donor
Joined
May 19, 2000
Posts
19,079
From
Suburban Central Ohio
Originally posted by RevBev:
...Bottom line: "1X to 2X Net Profit from the most recent year, plus inventory."
That doesn't work very well if the business is well managed. As many small business owners know, there's a tax advantage to keeping the net profit low. As such, excess net profit is siphoned off as income or spent on equipment, promotions, or some other worthy investment.

When I sell my business, it will be based on a multiple of owner's total compensation (some direct, some indirect) plus leftover net profit. And some consideration will be given to the value of inventory, equipment, goodwill (history of the name), and lease advantages.
 

Jay H

PFG, Picture Framing God
Joined
Dec 8, 2003
Posts
9,908
From
KY
Don't we keep throwing around this bogus stat about 1/2 of the frameshops closing in the next X years? If that’s true, this sounds like a bunch of naive optimism.

There is a 20-year-old business for sale here. She wants $80,000 for it. After seeing and smelling and touching the store, I think its worth about $40,000 (at least to me anyway). So a good formula to start from might be 1/2 x what you think its worth. That may not be true if your knocking down some huge numbers but then you should have a rock solid reason for baling out of a business like that.

That’s just an average Joe's view.

Carry on!
 

JRB

PFG, Picture Framing God
Joined
Aug 12, 2000
Posts
7,106
From
San Diego, CA
The one I heard was the previous years reported gross volume. I think the real number is whatever you can get from the buyer.

I have heard of shops here in San Diego fetching exorbitant prices and others being pretty much given away. I bought an entire business, inventory, tools, everything, that had a wholesale value of around fifty thousand dollars for two hundred and fifty dollars ($250.00) about twenty years ago.

I sold every bit of it out of my old Midway store at retail. Love it when things like that happen.

John
 
Top