Know-How Exchange : Other

In my prior non-marketing life, I did a number of business valuations. Subject companies ranged from mom-n-pop operations to businesses worth hundreds of millions of dollars.

There's really not enough information here to know how you should most fairly structure your deal. This is made even more difficult because you, personally, appear to be a very key part of your business.

My guess is that, despite what you might think, the "business" itself -- the entity and operation that would live on if you were to walk away from it -- is not overly valuable. (Please keep in mind, I could be wrong.)

For example, "what you bring to the table in experience" is of no value to the business if it were a stand-alone entity. The business needs to be valued on its own merits. This is where it gets tricky, because really, when all is said and done, what most small-business owners are really doing is little more than creating a job for themselves. They are seldom creating an enterprise that actually has any value independent of their involvement.

That being said, your business probably has *some* value. In buying any business, there's always a "make or buy" decision that has to be taken into account, that is, what is the cost to "make" this business from scratch vs. just "buying" it?

It does sound as if most of the value of the business rests with you personally, though.

I can probably be more helpful if I have access to more information. Feel free to contact me outside this forum if you think that will be a benefit.

- Paul

What would YOU pay to buy your business if you didn't already own it?

A good way to start the valuation process is to recast the company P&L to determine the profitability after it pays you a fair-market salary. (That's the salary you would reasonably expect to earn if someone who owned your business hired you to run it.) Then take that profit amount and multiply it by 2-3x. For a business that's mostly driven by your efforts, that's probably the right range for a multiple ... maybe even on the high side if it's mostly a consulting/service business.

With that figure in mind, you can call in a professional and have them look at what you've done, ask some questions, and refine the effort.

My guess is that you'll conclude that this isn't a financial decision for you as much as a lifestyle decision. Do you want to continue as an independent businessperson, or do you want to become an employee? The amount of money involved is rarely the deciding factor in businesses like yours.

10x gross sales? That's a place to start.

Great advice above already, but the real issue is IF you should sell. Do you really like this person enough to work for him? Most people don't like their competitors

Michael

Unless you have a lot of speciality equipment or inventory, the true value to prospective buyer is your customer list. Contacts you've made over the years, people that have hired you, etc. Anyone can generally buy inventory quickly - but not everyone can quickly touch those that are likely to need (and trust) their services.