Value of a small business

[Marsh]

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Looking at an opportunity for a group of investors, who may be interested in purchasing a local small business. It's an industrial service business that's been in operation 40 years by the same owner. I know the invstor guys know how to do this, but I want to educate myself. How would you value this small business?

- Owner operated with 2 unskilled laborers
- Steady work, lots of repeat business, but likely no long term contracts.
- Some expensive capital equipment, all fully owned, but nothing custom or unusual. Probably $500k to buy new replacements
- Doesn't own the land/shop he operates out of.
- Good potential of increasing the business, as he hasn't been putting much effort into that.
- No local competition, although several companies in other cities that do this service.

If his Annual revenue is X, his costs are Y, and the depreciated value of his equipment is Z, what's his business worth? Thanks in advance, beyond university.

Depends on a bunch of factors but generally 2-5x SDE/EBITDA. in this particular case, business value is next to none. Would pass on this deal.

[ExtraSlow]

I'm being deliberately misleading here on a couple of details, but y'all have given me the education I wanted.

There's also a non-financial reason to purchase this business in terms of efficiencies and cost reductions for a different company.

This is why I love beyond, a true wealth of knowledge.

[Buster]

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I'm being deliberately misleading here on a couple of details, but y'all have given me the education I wanted.

There's also a non-financial reason to purchase this business in terms of efficiencies and cost reductions for a different company.

This is why I love beyond, a true wealth of knowledge.

This changes everything

[killramos]

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This changes everything

“Don’t worry guys, I’ve timed this market perfectly”

[ExtraSlow]

Timing the market is my favourite asset class.

[Bytem3]

Owner operator IS the business and if he’s like 99% of all the other old school twits who think goodwill is a thing, the asking price will not ever make any sense and the business will wither and die with the owner

Almost as important as the business would be the real estate that it resides in. Is it a lease, is it owned by the O/O, does it sell too?

IMO unless there’s some grand plans to makes this take off, a group of people to buy this business should be approached with extreme caution

It’s all a good idea until money decisions have to be made between partners

[Buster]

It ALL depends on the business.

[ExtraSlow]

Oh I've had two PMs asking me what company it is. I'm not telling. The deal may or may not happen, but I can gain nothing by being more specific, other than potential legal trouble. I got what I needed from this thread.

[riander5]

Cmon.. tell us

[Tik-Tok]

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Cmon.. tell us

https://www.realtor.ca/real-estate/2...gary-chinatown

[suntan]

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Goodwill is determined in retrospect.

If ES and his consortium determine that they want to buy the business for $xxx over it's book value, then that's the goodwill.

It sounds like this business is an appealing acquisition for more than book value so the goodwill is by definition non zero.

Gross. I would never want GW on the books for a business like this.

[Buster]

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Gross. I would never want GW on the books for a business like this.

A business like what?

[suntan]

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A business like what?

Three dudes that do ad-hoc work.

[ExtraSlow]

maybe it's a mismanaged social media company, currently too heavy with software engineers.
.
Or maybe it's a tire installation business?
.
or maybe it's a jewlery and watch retail store?
.
or maybe hand-made cowboy boots?
.
or maybe not today satan.

[Buster]

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Three dudes that do ad-hoc work.

You're making too many assumptions about the value of the business.

[suntan]

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You're making too many assumptions about the value of the business.

All I'm saying is that putting GW on the books is a bad strategy. Make it "management fees" or something that you can expense right away.

[Buster]

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All I'm saying is that putting GW on the books is a bad strategy. Make it "management fees" or something that you can expense right away.

Accounting isn't the relevant part of this discussion. If you are paying more than the assets on the books for a business, then you are paying for intangibles. You have no idea what that is worth without knowing the specifics of the business. If the owner won't sell it to you for less than X over book value, and you are willing to pay that, then bingo bango, the business has "goodwill value." The entire tech industry is built on this concept.

[suntan]

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Accounting isn't the relevant part of this discussion. If you are paying more than the assets on the books for a business, then you are paying for intangibles. You have no idea what that is worth without knowing the specifics of the business. If the owner won't sell it to you for less than X over book value, and you are willing to pay that, then bingo bango, the business has "goodwill value." The entire tech industry is built on this concept.

Yes if you want to discuss unicorns and sunshine your take is great.

Me? I want to maximize my after tax income. Your analysis is worthless for that.

[Buster]

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Yes if you want to discuss unicorns and sunshine your take is great.

Me? I want to maximize my after tax income. Your analysis is worthless for that.

Regular businesses have goodwill value - happens all of the time.

[vengie]

I have a small yoga and fitness studio I'd sell you.
Would be a great addition to the portfolio with the art room... Think about it, art room yoga!

For you, special price, much low.