i’ve been in the business 15 months, and have had a good start. about 300K in sales at a gross margin of 25%. i know my margin needs to move up, but for a beginning, i’m not unsatisified. recently a GC i really respect has approached me about partnering with them for a year, and then buying them out. they serve a more high end market, and have had sales of about a million a year over the last seven years. very strong reputation and client base, supplier relationships, and well developed (if not technologically advanced) systems. i’m wondering if there is a rule of thumb on how to value a business like theirs, which is remodeling/renovation, on an income basis. they’ve virtually no assets. one times sales? one times profit? please let me know what you may have heard about this.
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Can't help you with the valuation question, but here's a story about a 'sale' that I know a lot about. Small company like you describe, more than $1M in gross, 10 guys, lots of equipment, jobs on the schedule coming up, client list, everything. Company was 'bought' by a larger outfit that wanted to add the productive capacity of this smaller company to their stable--all of the employees transfer over to the new company, the clients and jobs do too. Sounds good, eh? Sale happens, but shortly thereafter the owner of the small company leaves the industry, the production manager moves away, the best lead carpenter goes on his own, another goes to a new company, etc. Bottom line is that the 'sale' probably turned out to be a handful of the mid-level employees and a bunch of tools. Whether or not the clients stick around is anyone's guess. If you're buying, watch out!
i'm currently in the process of selling my little company (totally unrelated industry). i absolutely hate to have to recommend you hire an attorney, but a good one- if there is such a thing- will earn their keep. i just spent two and half hours this morning just reviewing relatively minor changes to about 70 pgs of contract boilerplate and my operation is minuscule- (out of season, two employees). one part of particular interest to you is the ongoing consulting agreement and obligations i have with the buyer. since i am the preeminent authority in this market niche and on our products, the buyer knew they wouldn't be able to maximize their investment without my assistance for another couple years. maybe you could arrange something like that?
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thanks for the repsonse. i know, the question is, what exactly is for sale here? what they offer is a reputation and a ringing phone. they have no crew, sub 100% of every job out, except the design and field supervision.
part of me figures i'll be at their volume in a few years anyway so i should not buy, but another part of me is compelled to learn their successful methods, and not try and learn everything from a book or through trial and error.
One common way that these are done is for a(realatively small) fixed price for the hard assests and work in progress. Then payments for the next "x" years based on the sales or maybe sales over a fixed amount or similar formula.
About a million years ago I worked in a commercial bank, and placing a value on a business for purposes of a sale was always a hot potato issue. There are companies that do nothing but calculate this. There are also specific accounting rules, which I have long since forgotten.... If memory serves at all, from the bank's perspective hard assets were all that really counted (with perhaps a very little amount of weight given to name/reputation). Be absolutely sure of exactly what you are buying before entering into any agreement, and at the very least consult with an accountant who has knowledge in this area.