How to value a one owner part time business?

[Oaktree]

It is essentially a mail order business and everyone knows how many packages ae being stolen in these times. It is easy to see why so many people are suspicious of the job because it sounds too good to be true. All businesses have trade secrets which could cost them loss of income if they became general knowledge.

IMHO, if a deal sounds too good to be true, it usually is.
Almost sounds like the guys who sell HF tools on Ebay at a markup, when the get an order they run down to the store, buy it & ship it. Or else it's something illegal.

Let me name a few. Doctors, lawyers etc. You must invest a few years of your future wages in order to prepare for these jobs with no guarantee that you will make it.

These are skilled professions that require many years of education as well as state-issued licenses to practice. You've even stated that your "friend's business" requires no special skills...that anyone could learn it in a few days.
Smells like a scam to me.

 

[Midniteoyl]

The whole spiel sounds exactly like what a pyramid scammer would say trying to hook a mark.

 

[tallyho8]

Post 12 states 365 hours a year. One hour per day.
Post 17 states 55000 per year net profit.

That works out to 150.68 per hour for instead of the 70 per hour mentioned as a wage.

Not trying to make any points. Just an observation to the conversation.

A new member posted $70 per hour for some reason. Nowhere else is that figure mentioned.

 

[crashz]

Seems like he should find a trusted person to take it over and give it to them. Otherwise too much risk.

But I also feel that goes for a lot of small businesses for sale. Especially restaurants and landscapers. There are usually very little in assets (or the assets are worn out) and the selling price is typically based upon the yearly income, but that income is just a prediction. The buyer has to go into massive debt (at high interest rates) to pay off the business loan, only to go into more debt to update the assets, pay rent, employees, taxes ect.

 

[tallyho8]

No one is going to give him 3-4 times EBITDA up front based on what you have been able to share.

An earn out will not work if he is too old...which it seems he may be.

BTW, why are you not interested in buying it?

I am not interested because I, also, am too old and I am retired and have enough savings to live the rest of my life very comfortably without working more than I am working now. If I were 20 years younger I would jump on it. Right now my life ambition is seeing the world. I have visited 35 countries in the last 10 years and plan on visiting at least 5 more each year I am able to which leaves no time for more work.

This person is a lifelong friend and had mentioned to me that he was considering shutting his business down soon because he may be going into a nursing home. He has no one to leave anything to except nephews he has never seen.
I told him I would inquire as to what his business is worth without giving out any trade secrets. He has not mentioned any price. This is a legal business he started out as mail order until the internet got big and then he switched to his web site with online sales.

 

[LD1]

Seems like he should find a trusted person to take it over and give it to them. Otherwise too much risk.

But I also feel that goes for a lot of small businesses for sale. Especially restaurants and landscapers. There are usually very little in assets (or the assets are worn out) and the selling price is typically based upon the yearly income, but that income is just a prediction. The buyer has to go into massive debt (at high interest rates) to pay off the business loan, only to go into more debt to update the assets, pay rent, employees, taxes ect.

Sounds similar to a couple of friends that are partners in a landscaping company.

One is ready to call it quits and cash out. But they value the company too highly. They think the "name" of the business is worth a fortune and its just a small local company.

All the trucks, mowers, tools, assets, skid loader, trailers, etc etc maybe total $100k. No property is owned as its a leased building. They have ~15 employees and do ~7 figures a year. The partner that wants out hasnt put a number on it yet but has hinted around that it would be somewhere around half a million.

Maybe he is spot on....I just dont see it. Not really getting anything for half a million spend other than $50k worth of equipment and current customer base and a name. Not sure there is even any "profit" on paper. Each owner pays themselves ~$50k per year salary, employee wages probably total $400-$500k. Building lease and some of the leased equipment probably another $100k. Then the million a year "gross" that they do has ALOT of overhead, because alot of that is material for pavers, retaining walls, mulch, plants/trees, seed, fertilizer, straw, topsoil, etc etc. What if any little bit that is left gets funneled back in to update trucks and equipment as needed.

I have expressed interest in the half of the company that the partner that wants out wants to sell (other partner gets first rights), but IMO, way too far off on what his valuation is. Simply he values his companies "name" way more than I do.

 

[/pine]

In stead of selling outright...Perhaps the person could find a local (community etc.) college student who would be worthy of becoming a protege and then take over the operation...
...It should not be difficult to find a worthy candidate...maybe someone who is studying business or marketing etc...

 

[tallyho8]

yup

I know this is a rhetorical example - this is a concern, sounds illegal to me

tallyho8 said:
Does anyone know how many $100 prescription drugs (not narcotics) you can make with $5 worth of over the counter drugs purchased from the drugstore?
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Yes, this was a poor example for me to use to demonstrate what trade secrets are. I was just thinking about what could be a trade secret (but isn't anymore) that Advil is nothing but generic Tylenol and generic iburprofen and that when a lot of people found that out they just started using the generics instead and saving money. Many businesses have trade secrets that they don't want to be common knowledge as it would hurt their income. Just thinking about businesses that remove hail bumps from cars and refinish porcelain tubs. Although these methods are known to some people and now Google lets them be known to many others, they still try to keep it secretive. I had 2 trade secrets in my air conditioning business that I had for 38 years that helped me make profits.

And yes, I mentioned from the beginning that it was just a well paid part time job ($150 per hour) and not a full time business and that no one should try to take it on as a full time business as there are a limited amount of people in the USA who would be customers although this does increase slightly each year.

I am certainly not trying to talk anyone into buying it, but was just trying to get a rough idea of what people thought it might be worth. I have already told him that the best way to sell it would be to advertise it to your customers, one of which might be interested in buying it and is already aware of what it is and how long it has been having thousands of satisfied customers.

 

[Steppenwolfe]

I have / own my own business
I have zero employee's
I only hire subcontractors
I carry zero inventory
I do the work at another location, never my home
I gross between 1 and 5 million dollars per year
Guess what my business is worth?
ZERO... It's only a business because of me.

 

[plowhog]

I have already told him that the best way to sell it would be to advertise it to your customers,

I would never do that. However, stated many times-- none of us know the product or circumstances.

Usually the best notification to a customer is after everything is 100% wrapped up, assuring them of the stability of the business, introducing the new owner, and reassuring them the things they have liked about the business will stay the same. An owner broadcasting "I'm for sale!" to all their customers invites a lot of the wrong doors to open ... some of which are difficult to close again later.