How to value a one owner part time business?

[tallyho8]

Since this is an unusual part time business it can't be valued by the usual methods found on the web and the owner is having difficulty figuring out how much to ask for it. Here are the details he is willing to share.

He works an average of one hour a day, 7 days a week. Sometimes he takes off a day which means he has to work 2 hours the next day. He takes a couple vacations each year for a week or two but has to catch up on his work immediately upon return. There are no special skills required and any high school graduate should easily be able to learn it and do it. He has run this business for 40 years with it steadily growing each year. It is run from a desk with a computer in one room of a house. You never have to leave home. everything is picked up or delivered. He usually has only about $1000 in inventory. The only reason he is selling is because he is getting too old and may have to go in a home before long. He has no one he wants to leave the business to. Items are mailed so there should be a mailbox that is in a location not visible from the home. This business could easily be run by someone who has a regular 40 hour a week job in their spare time.

After all expenses, inventory, postage, computers, web page charges, shipping supplies, etc. he makes a net profit of $55,000 a year. This is not one of those "work from home scams" that you always see advertised but a highly profitable business. Naturally, he can not give out sensitive details to just anyone or others would try to imitate him. He has never had any type of complaint with the BBB or online. There is a limited amount of sales this job can get so even though he makes about $150 an hour if would be hard to get more hours of work a day on a large scale. He is willing to train someone for a week which should be enough to learn it and he can show his tax records to prove his income.

How much do you think he should be able to ask?

 

[RickB]

Not more than a years' net profit. Probably less than that.

 

[plowhog]

he can not give out sensitive details to just anyone or others would try to imitate him.

Hard to price and sell something you can't describe. And, if others can easily imitate whatever he does, that would greatly reduce what a prospective buyer would pay.

 

[ericm979]

The usual rule of thumb for selling businesses is 7x annual revenue but that's probably not applicable here. If he's willing to carry a note then he'll probably get more, but that's more risk than an up front payment.

It's going to be hard to sell if he can't give details for fear of people stealing the idea.

 

[tallyho8]

He could give more details to someone who he believes is really interested and shows that he has the financial ability to purchase it but not willing to give all details in a national publication where dozens of people would want to do it for only $50 an hour and try to undercut his price. It would still take anyone years to really get many of his thousands of regular customers away from him as it took him 40 years to get this many customers. Selling his customer list is one of the main assets of the business.

Of more worry to him is the number of scammers online who could just advertise what he has for half the price and then just make off with the money. This could prevent him from getting new customers because of the notoriety of scammers in this business. It is very important to him to not let scammers get the idea of copying him.

 

[Midniteoyl]

Sounds like he wrote a get rich quick book if you ask me. Its not internet **** since its been going for 40+yrs.

 

[Doughknob]

So all businesses "can" be valued in the same manner by using a multiple of revenue. It is just a matter of what the multiple is. 7 is 'generally' on the high side. 3 or 4 is probably on the low side.

Hurting him are the secrecy ahead of time and the very limited growth potential. But still, 3 times revenue would not be out of order at all. A wise buyer should still envision possible cost cutting and offshoot potential.

He can always lower the asking price. Start high and see what happens!

 

[scaredychicken]

CAUTION needed

Just because he can do it, ... does not mean that it is a transferable business & skill that others can manage, and not necessarily as well.

I wouldn't be interested at all, the details are (deliberately) vague - tough to make any kind of business plan or evaluation of it. Forgot to add that covid circumstances, make this even more difficult.

What would the Business purchase ACTUALLY get you ??? perhaps ...
- client list
- current inventory
- market assessment
- exclusiveness (not likely, sounds like it is online sales, and www scope)
- proprietary items / products to sell, unique to this business
- business guidelines / manual etc (the how to ...)
- the BUSINESS COMPANY NAME, Logo ... (is it a franchise perhaps, is it MLM, a networking business)

sounds risky to me

$10,000 tops

 

[ponytug]

Congratulations to your friend for nurturing this business. Over the years, I have come to know a number of interesting niche business, but this actually sounds rather risky. The fact that he believes anyone learning the details could drop the sales to a third suggests that it isn't worth a great deal to a third party. It seems like a reasonable sole proprietor business today, but the risk of someone coming along and taking his customers means that it would be hard to pay much for it.

Without knowing the details, I would suggest something like a small amount up front, and milestones over a few years if the profit stays up. It would be hard to pay more given the risks, at least for me. If the profits don't stay up, the business reverts to the current owner, and the buyer agrees not to compete in that field.

All the best,

Peter

 

[plowhog]

The usual rule of thumb for selling businesses is 7x annual revenue

I've done a number of M&A transactions, and never heard of such a multiple.

A typical small business is 3x SDE (seller discretionary earning.) SDE is similar to net profit but needs some adjustments to calculate. But-- this isn't a typical small business.