Aces High Bulletin Board
General Forums => The O' Club => Topic started by: Habu on June 11, 2003, 07:02:29 AM
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Any business valuators out there?
What would you value a retail business that does about 2 million in sales, nets a profit of 200,000 before taxes, (this is after it pays its owner a salary of about 75k), has no debt, owes about 80 k in receivables, has 250k in the bank and about 400k in current inventory, has a good lease for next 5 years?
I need any opinions asap please.
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A lot of it depends on the TYPE of business, market share, ect.
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Ill give you five bucks, but the offers only good till noon est today... ;)
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Originally posted by Habu
Any business valuators out there?
What would you value a retail business that does about 2 million in sales, nets a profit of 200,000 before taxes, (this is after it pays its owner a salary of about 75k), has no debt, owes about 80 k in receivables, has 250k in the bank and about 400k in current inventory, has a good lease for next 5 years?
I need any opinions asap please.
Need LOTS more info.
"Owes about 80k in receivables"...you mean payables? Or do you mean the business in question is OWED 80k in receivables?
If the company is owed 80k in receivables you need to look at an "aged" receivable listing. This will show what balances for each customers are for given time periods. If you find that a large chunk of the 80k is, say over 120 days old it is possibly uncollectible, and that a reserve will need to be in place which could effect the value of the company.
If the company does owe 80k to vendors then there is clearly sufficient cash to cover it.
"Has no debt"....are you SURE? Forget what is recorded in the company books. Do some digging yourself and see if assets of the company have been pledged against something else (like personal assets of the guy selling etc). There may not be direct debt, but there could be some hidden debt.
What is the inventory? Need to value this properly at net relaizable value...not at what it COST the company to purchase which is what it may be valued at currently. How old is the merchandise etc etc. That is a great big number..400k. What was the turnover rates in the inventory during the last few years?
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Originally posted by Curval
Need LOTS more info.
"Owes about 80k in receivables"...you mean payables? Or do you mean the business in question is OWED 80k in receivables?
Actually it owes about 80k to suppliers. It is a retail garden center so it has not receivables.
"Has no debt"....are you SURE? Forget what is recorded in the company books. Do some digging yourself and see if assets of the company have been pledged against something else (like personal assets of the guy selling etc). There may not be direct debt, but there could be some hidden debt.
I am half owner so I know that there really is no debt outside of the payables.
What is the inventory? Need to value this properly at net relaizable value...not at what it COST the company to purchase which is what it may be valued at currently. How old is the merchandise etc etc. That is a great big number..400k. What was the turnover rates in the inventory during the last few years?
Well it is pretty standard to have about 400 or 500k in inventory on hand. Most of it is current. Therefore based on the sales the turn is about 4 or 5 times a year
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LOL sounds like my finance class. :)
Prof. Curval I'm not gonna make it to class next tuesday, whats the assigned reading?
:)
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Sounds like a great little business.
If I were you I would look at 5 years worth of net profit...add 'em up and divide by 5. This would be your average annual profit.
Gererally the rule of thumb on the income side is to pay 5-7 years earnings. Taking your number of 200,000 (at 5 years..you being the purchasor ;) ) is 1 million.
Adjust this for any savings on the purchase (like the 75k a year you save on your partner's salary, assuming you do not simply substitute yourself for his salary) and you then have the figure for income.
Then you would look at the balance sheet.
250k in cash is a straight add. No adjustment necessary.
Add in the value of the inventory and subtract the payables.
You need to still be very careful with the inventory. I would forget cost and value it at NRV...what you can actually realise from the sale of the inventory.
Are you buying fixed assets too? The property, the building, shelving, tools, etc etc. These would need to be valued and added to the purchase price.
Finally there needs to be a determination of "Goodwill". Did your partner start the business and poured the last 20 years of his life building the business? If so he might attach a premium to the sale of his company. Don't let this amount get above half the value of the assets. This is a very "mushy" figure and is very subjective.
If you do purchase make sure you hold back a certain percentage of the sale to cover late or unexpected invoices from vendors.
Hope that helps.
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I re-read and see you have a lease, so I assume you are not buying the property or building....but the question still applies for furniture and fixtures, vehicles etc.
On the lease...check the terms of the lease. You may want to renegociate an extension prior to or as a part of the purchase. Make sure the owner is limited as to increases in payments after the current lease expires.
Grun...lol. Missed that earlier.
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I am selling my share to the other partner. I wish I had asked earlier. I agreed to a lower price than it was worth.
Thanks though. It was most useful.
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Originally posted by Habu
I am selling my share to the other partner. I wish I had asked earlier. I agreed to a lower price than it was worth.
Thanks though. It was most useful.
You should have talked to a business broker.
Anyway, this site was useful to me when I was doing small business consulting work:
http://www.strategic-p.com/StartUp/Buy/businessprice.html
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If the business is in California, it is basically worhtless so whatever you got for it is good. Unless Grey Davis is thwarted, CA businesses are going to be in greatly devalued due to their tax burdens.
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When I sold my Retail business, I took an average 5 yr profit plus 10% over cost of current inventory. Equiptment was negotiated but we took an average of 10% off the original purchase price for wear and tear. All accounts were paid and current. There was no lease as they had just purchased the property from my landlord. They were happy, I was doing backflips!!
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It looks like someone wants a free appraisal and this type of appraisal would cost you a few bucks. But basically, you won't get any professional appraisers giving you any opinions here due to licensing restrictions and requirements of the Uniform Standards of Professional Appraisal Practice (that basically requires any opinion ever stated is based on diligent research and work.) I just quickly read this thread but it sounds like you are looking for a Going Concern type of value. If you are talking big bucks here, you shouldn't be asking for opinions on here but should seek a professional and bite the bullet and pay the fee.
I saw in another thread that you are still swimming. Way to go! I swam for about a month and then had to stop. I'm hoping within a couple months things will slow and I'll get back to it.
[edit] Oops, I just see you already agreed to a price. Oh well.
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Originally posted by Puke
licensing restrictions and requirements of the Uniform Standards of Professional Appraisal Practice
The USPAP! OMG! I've got to hide.
:D
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Let me see... Puke and swim...... I'm staying out of that pool!
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Originally posted by Steve
If the business is in California, it is basically worhtless so whatever you got for it is good. Unless Grey Davis is thwarted, CA businesses are going to be in greatly devalued due to their tax burdens.
Wow! You mean that Chevron/Texaco, Intel, Northrop Grumman, Oracle and all the rest are going to be worthless?
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Debt is semi irrelevent... its all about cash flow.
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Originally posted by midnight Target
Debt is semi irrelevent... its all about cash flow.
Please define semi-irrelevant.
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As in "a debt free company". This means nothing if the cash flow isn't on the positive side. While some debt is OK as long as cash flow is good.
That is all.
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Hard to sell as it's a lifestyle business........
Assuming LTM EBITDA is normalized and forecasts for next 3 years would hold, then $600,000 maximum .....
To get that, you may have to take a mixture of cash with the balance in the form of a VTB.........
If offered all cash, take 450,000 and run........
Just my two cents.......
Regards,
Badger
BTW, do you have a "shotgun" clause in your shareholder or partner's agreement?
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I took 550,000 for my half. But I financed 400,000 over 5 years with 5% interest partly secured by the guys house.
The only reason I made the deal that low is I get all of it (except the interest) tax free.
I am free to start another business anywhere except within 1.5 km of the existing one.
It really is a big cash generator but the guy was starting to dip into the till so I had to end the partnership.
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Originally posted by Habu
I took 550,000 for my half. But I financed 400,000 over 5 years with 5% interest partly secured by the guys house.
$150,000 Cash with a $400,000 (5x5) VTB for a half cash-out owner/operated lifestyle retail garden business with the rough fiscal normalized numbers you mentioned, IMHO is a fair exchange of values.
You NC is reasonable and the only thing you really need to ensure is that the security on your VTB is solid and enforceable quickly, particularly if he drives the business "sideways", which sounds like it may be a possibility if he's exhibiting stick fingers right now. Again, the key to your deal being fair is getting a tight legal VTB signed off and registered. Besides his personal assets (ie: house ... in his name I assume and not a relative?), you might even want to get the right to re-assume the business assets if payments fall in arrears by a certain amount.
Congratulations and good luck...... :D
Regards,
Badger
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I had a firm that specializes in Bankrupcy cases write up the security portion of the deal. All of the points you made are in the agreement. If he defaults I not only get my shares back but his as well. But the shares would be worthless as if he defaults then the business is probably in big trouble. But I also have a personal guarentee as well as the pledge of assets.
In any case it would take 2 or 3 years to run it into the ground (now that I am not controlling the cash that is a possibility) but at least by then I would have taken most of my money out.
The other reason I considered when selling is that we only started the place up 3 years ago, and it is a sideline from my wholesale business.
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Habu,
You clearly didn't sell yourself short.
The figures I gave you were for the value of the entire company. If the other partner already owned half the business the figures I gave you (1 million plus the balance sheet items) is the TOTAL value of the business selling to a third party. You would need to divide that by two to determine what your half would be worth.
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Originally posted by Rude
Please define semi-irrelevant.
It's when the freight hits San Pedro, on it's way to Japan.
-Sik