How and where to sell a business, and how to price it?

Zascar

A friend of mine has asked me to help him sell his business. It's a small car valet business, complete turnkey business with premises, customer base and all the equipment needed. Can anyone suggest the best way advertise this and try to find a buyer?

Also, he has put a figure on it which I think it possibly too low. I need to figure out how to accurately put a fair price on the business based on its current performance and what the buyer will be getting out of this. Can anyone enlighten me as to how this is done?

Buttercake

Zascar wrote: »

A friend of mine has asked me to help him sell his business. It's a small car valet business, complete turnkey business with premises, customer base and all the equipment needed. Can anyone suggest the best way advertise this and try to find a buyer?

Also, he has put a figure on it which I think it possibly too low. I need to figure out how to accurately put a fair price on the business based on its current performance and what the buyer will be getting out of this. Can anyone enlighten me as to how this is done?

Sell it to a competitor? If I was buying a valet business I would only be interested in contracts or agreements, if there was an increasing yoy turnover for the past 3 years. If the business was an attractive brand, might be something there.

It's very difficult to put a price on a business that is unregulated, can be easily replicated and requires no formal skills/training(no insult to your mate intended)

Add up all the equipment + a "projection" of earnings for 12-months? or just stick a number on it and see what happens

Adverts.ie have a business for sale section might be something on there or businessforsale.com

Peterdalkey

http://www.boards.ie/vbulletin/showthread.php?p=78321333 This thread was quite interesting on this topic.
Typically sales prices are determined by the value of the assets plus a figure for goodwill or just a simple multiple of profits.
Due to potential for hidden liabilities, very few want to buy a company. They just want to buy the trade!

The type of business described generally only generates an income for the owner with little surplus, so most likely a sale will only likely return the asset value plus a modest amount for goodwill.

terryhobdell

I think that the earlier two answers and Peterdalkeys link sum up everything. For an owner operated business in a lowtech area so much of its income rely's on the personal involvement and energy of the owner. If he/she leaves what remains often very little. Do what the other posters have advised.

For me the value would be 3 x Net profit + Assets if any at current market value.
I reckon thats a good place to start with a valuation. if theres some less tangible stuff in there as well, like brand, goodwill and so on these are much harder to put a solid figure on them. Everyone is going to have a different idea of what their worth

pedroeibar1

Zascar wrote: »

A friend of mine has asked me to help him sell his business. It's a small car valet business, complete turnkey business with premises, customer base and all the equipment needed. Can anyone suggest the best way advertise this and try to find a buyer?

Also, he has put a figure on it which I think it possibly too low. I need to figure out how to accurately put a fair price on the business based on its current performance and what the buyer will be getting out of this. Can anyone enlighten me as to how this is done?

I do not want to sound too severe, but if you are to advise him and have to post here to ask questions like the foregoing (which are not well described – e.g. is it a company or a sole trader?), it is a sure way to lose a friend.

Acquiring or disposing of a business is not a simple matter – there are serious tax and legal implications involved for both the vendor and the purchaser. If your friend has a company, usually the buyer will dictate whether or not it is a share or asset purchase. The decision on the choice of purchase type then sets the scenario for the subsequent questions.
The friend needs professional help.

Voltex

A bit of ratio analysis is essential...e.g if the ROCE is below deposit rates or bond rates (which is probably the default metric) why bother?

Gearing is another important element to look at. A gearing ratio of >50% LC:total capital structure is getting on the high side and signifies greater risk so higher the ROCE needs to be.

terryhobdell

Is there a stock market float I am missing?

barneystinson

Voltex wrote: »

A bit of ratio analysis is essential...e.g if the ROCE is below deposit rates or bond rates (which is probably the default metric) why bother?

Gearing is another important element to look at. A gearing ratio of >50% LC:total capital structure is getting on the high side and signifies greater risk so higher the ROCE needs to be.

good one - OP is asking about how to value a small, probably sole trade, car valeting business... :rolleyes:

Zascar

Thanks for the replies guys - yes all valid points. So the business has only been going 9 months, and he's taken it from zero to breaking even (employing one other person) in that time. So so significant profit as such, but there is much headroom to grow. There is all of the equipment needed, a customer base, and also the agreement with the location (its in a carpark). He will be happy with basically the assets and a few grand on top of that. I think it sounds like excellent value for someone to jump in and work hard on building the business further.

Buttercake

I still say a competitor would be the best option, I had an office cleaning business many moons ago and sold it to a competitor, got cozy with him first and then told him I was looking to sell, moving onto something else. I have contracts with a few offices and pubs so he pretty much bought them, any equipment I had and a few quid for my trouble. I paid myself a good wage during the time (2years) and had it debt free so i wasn't looking for anything much more than the value of the contracts and equipment.

On adverts there is a similar biz for sale, for €1

http://www.adverts.ie/business-services/complete-car-valeting-business-for-sale/4568691

pedroeibar1

Zascar wrote: »

Thanks for the replies guys - yes all valid points. So the business has only been going 9 months, and he's taken it from zero to breaking even (employing one other person) in that time. So so significant profit as such, but there is much headroom to grow. There is all of the equipment needed, a customer base, and also the agreement with the location (its in a carpark). He will be happy with basically the assets and a few grand on top of that. I think it sounds like excellent value for someone to jump in and work hard on building the business further.

There still is quite a lot of basic info missing, such as sole trader or Ltd company. If your friend finds a buyer with a smart advisor both of you could find yourselves in deep water. I realise it is “only a few grand” but the liabilities could stretch beyond that and a ‘few grand’ could easily disappear with bad or incorrect advice.

Regardless of being either Company or sole trader, it is most probable that the vendor will need the consent of the premises / carpark landlord, plus consents from anyone who has a charge on the assets (e.g. bank/leasing/HP/supplier with retention of title on equipment).

If it is a company, the stamp duty on the transfer of shares is 1% whereas if it is selling only the assets it usually is 6%. Also, if it is an asset sale there are more significant tax issues involved (extracting the sale proceeds usually involves double taxation.) He needs to ascertain what is best tax-wise for him and what to do with a shell company.

As there is an employee, under the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003, that employee will transfer automatically to the new owner/buyer on the same terms and conditions of employment, with his continuity of service intact.

Warranties and indemnities also need to be considered.

If he is getting out now after just 9 months and just reaching break-even, he is IMO selling too soon. I agree with Buttercake that a sale to a competitor would be the best option.

Voltex

barneystinson wrote: »

good one - OP is asking about how to value a small, probably sole trade, car valeting business... :rolleyes:

Financial ratios apply to all businesses...just as the large VC's like Berkshire look beyond basic info on biz performance of large corps. small investments require a relative level of due diligence.

If im going to yield 4% on 10 year Gov bonds, why would I "risk" investing capital into a small biz that yields 5% return with a greater amount of risk?...but if its a 30% return then its a different animal altogether.... its about analysis of the numbers..amongst other things!!

sawdoubters

how much does he want to sell it for

barneystinson

Voltex wrote: »

Financial ratios apply to all businesses...just as the large VC's like Berkshire look beyond basic info on biz performance of large corps. small investments require a relative level of due diligence.

If im going to yield 4% on 10 year Gov bonds, why would I "risk" investing capital into a small biz that yields 5% return with a greater amount of risk?...but if its a 30% return then its a different animal altogether.... its about analysis of the numbers..amongst other things!!

I'm not saying there's no relevance to it - simply that you haven't pitched very well to your audience...

Seriously, what do you think the OP made of your post? Anyone who understood it, wouldn't be on here asking the questions he/she asked...

The plain English version of what you said, if you hadn't been trying to show off with all your jargon, would be along the lines of:

How much profit will the business be expected to deliver to the new owner, and as a % of the cost of buying the business, how does it compare to the amount he could get by investing it elsewhere... (Not a ROCE to be seen... )

And as for that waffle about gearing, explain how that is relevant to a person buying a small sole trade for cash?!

Peterdalkey

Zascar wrote: »

Thanks for the replies guys - yes all valid points. So the business has only been going 9 months, and he's taken it from zero to breaking even (employing one other person) in that time. So so significant profit as such, but there is much headroom to grow. There is all of the equipment needed, a customer base, and also the agreement with the location (its in a carpark). He will be happy with basically the assets and a few grand on top of that. I think it sounds like excellent value for someone to jump in and work hard on building the business further.

This a startup, not an established business and is in a market with virtually no barriers to entry. If the guy customers like/trust deal with is no longer there, the goodwill may well walk out the door with him!
He appears to have a good pitch, which may have a value if it is transferrable and a buyer has some security of tenure.
He might luck in to a person looking to buy a job or more likely sell to an existing player who wants an additional site/outlet , as already suggested.
The value, if any, apart from the bits of equipment, is in the pitch.

If it is such a great opportunity, most will ask as to why he is getting out!

Voltex

barneystinson wrote: »

I'm not saying there's no relevance to it - simply that you haven't pitched very well to your audience...

Seriously, what do you think the OP made of your post? Anyone who understood it, wouldn't be on here asking the questions he/she asked...

The plain English version of what you said, if you hadn't been trying to show off with all your jargon, would be along the lines of:

How much profit will the business be expected to deliver to the new owner, and as a % of the cost of buying the business, how does it compare to the amount he could get by investing it elsewhere... (Not a ROCE to be seen... )

And as for that waffle about gearing, explain how that is relevant to a person buying a small sole trade for cash?!

TBH..first time round I missed the bit about the business being a valet operation. I spend a lot time scrutinising published accounts of current customers, potential customers, suppliers and competitors and maybe I assumed wrongly everyone else would be familiar with the usual terms.

Apologies if my post came across wrong....

SeanSouth

I'm a business broker. We buy and sell businesses.

As previously mentioned this business will be worth as a minimum the fair value of its combined assets.

A business that has been operating for just nine months will normally have little or no goodwill value.

If I was the owner I would take the first offer that repays my investment.