Business valuation

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Discussion

anonymous-user

53 months

Friday 24th April 2015
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9mm said:
It's not money out of nothing, it's a service, just not one I'm going to specify, but the model applies to all sorts of things. If I said I collect debts (I don't) and have X associate bruisers around the country (I don't), all of whom take a fee and that I also do some collecting in my own area, can you see the business model?

What makes this one a bit different is that the overheads are minuscule. Unfortunately my most trusted associate (and the least for that matter) doesn't have the cash to tempt me.

What's DD?
Due diligence

Ask your associate to pay more but over a longer period of time with nothing up front.



Mr Overheads

2,436 posts

175 months

Friday 24th April 2015
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loafer123 said:
Definitely sell to your most trusted associate - they'll understand the business, believe you can make money out of nothing, and won't need to DD it too much.
Sell a master franchise to the most trusted associate for the UK region, he can then divide up geographically or other basis and sell franchises to the other associates.

Eric Mc

121,788 posts

264 months

Friday 24th April 2015
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9mm said:
Thanks. I struggle with the idea that it's worth what I could pretty much guarantee you'd receive in the next twelve months if 'you' bought it from me now. That seems like quite a good deal to me and makes me think I'd be better off just milking this business until it stops providing an easy income stream and in that time subbing out the admin so I can get on with the other project.

Eric - I'm sure you know that I was being traditional tangible in my comments about assets and liabilities. There is no plant, no contracts, no debt, no employees, etc.
No, I'm not a mind reader,. When someone says "no assets, no liabilities" I assume that's what they meant. So that would also mean that the business has none of the fol;lowing either -



No Debtors,
No Cash in the Bank or on hand,
No Stock,
No Work in Progress,
No Goodwill
No Intellectual Profit

No Creditors
No Bank Overdraft
No Loans
No Borrowings or financial commitments

And if it has no employees, who does its work? Even if you don't have formally hired staff surely the business must use people in some capacity to carry out what it does - or is it run by robots (oh - I forgot, no plant or equipment either).




9mm

Original Poster:

3,128 posts

209 months

Friday 24th April 2015
quotequote all
Eric Mc said:
9mm said:
Thanks. I struggle with the idea that it's worth what I could pretty much guarantee you'd receive in the next twelve months if 'you' bought it from me now. That seems like quite a good deal to me and makes me think I'd be better off just milking this business until it stops providing an easy income stream and in that time subbing out the admin so I can get on with the other project.

Eric - I'm sure you know that I was being traditional tangible in my comments about assets and liabilities. There is no plant, no contracts, no debt, no employees, etc.
No, I'm not a mind reader,. When someone says "no assets, no liabilities" I assume that's what they meant. So that would also mean that the business has none of the fol;lowing either -



No Debtors,
No Cash in the Bank or on hand,
No Stock,
No Work in Progress,
No Goodwill
No Intellectual Profit

No Creditors
No Bank Overdraft
No Loans
No Borrowings or financial commitments

And if it has no employees, who does its work? Even if you don't have formally hired staff surely the business must use people in some capacity to carry out what it does - or is it run by robots (oh - I forgot, no plant or equipment either).
There are no debts.
There is cash in the bank. It doesn't stay there.
There is no stock.
There is some work in progress.
I've indicated goodwill.
What is intellectual profit?

There are no creditors.
There is no bank overdraft.
There are no loans.
There are no borrowings or financial commitments.

Most of its work is done by associates - absolutely not employees - some by me personally.

See my debt collecting example above.

Someone approaches me to get a debt collected. If it's in my area, I collect it and pocket the fee in entirety. If it's in Northumberland I ask Big Dave if he wants to collect it for a fee. I get paid and Big Dave gets paid. No-one needs a loan, or special equipment. I just need a mechanism (website and phone) to process leads. Other people may also do debt collecting but they pay their employees or associates st, I pay the best money in the business, so I have the best (most successful) debt collectors. They stay with me and customers come back to me.

Get it?



Edited by 9mm on Friday 24th April 14:30


Edited by 9mm on Friday 24th April 14:31

Eric Mc

121,788 posts

264 months

Friday 24th April 2015
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Sorry - I meant to say "Intellectual Property" (profits on the brain).

So, you DO use people. I'm not concerned whether they are called "employees" or not. The important thing is that you need a team of people to make it work and there will be commitments and reliance on them - whether they are defined as "employees" or some other expression, such as "associates".

9mm

Original Poster:

3,128 posts

209 months

Friday 24th April 2015
quotequote all
Eric Mc said:
Sorry - I meant to say "Intellectual Property" (profits on the brain).

So, you DO use people. I'm not concerned whether they are called "employees" or not. The important thing is that you need a team of people to make it work and there will be commitments and reliance on them - whether they are defined as "employees" or some other expression, such as "associates".
I don't believe there is any intellectual property.

I said that I used associates on the first page. You must have missed it.

And yes, it follows that there is a reliance on them. Well-founded, based on the track record, but there is also a succession plan and when people have parted ways with me I have not found it difficult to replace them.

Eric Mc

121,788 posts

264 months

Saturday 25th April 2015
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So - the specific individuals aren't that important - just the tasks they do?

9mm

Original Poster:

3,128 posts

209 months

Saturday 25th April 2015
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Eric Mc said:
So - the specific individuals aren't that important - just the tasks they do?
That's right. I suppose you could say they are like sports people and I'm the agent but they don't have individual brands like Beckham or Messi. Therefore if one goes I just recruit another with the same skills.

Quattromaster

2,904 posts

203 months

Sunday 26th April 2015
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I'm in the process of buying a small garden maintenance company, est 35 yrs, assets worth approx 10k.

One part time member of staff of 7k a yr, plus the owner.

Turnover of 58k with profit of 31k.

Asking price of 35k, deal done at 33k.

Good, bad, I've no idea, but I do think like anything, a business is only worth what someone is prepared to pay for it.

anonymous-user

53 months

Sunday 26th April 2015
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Quattromaster said:
I'm in the process of buying a small garden maintenance company, est 35 yrs, assets worth approx 10k.

One part time member of staff of 7k a yr, plus the owner.

Turnover of 58k with profit of 31k.

Asking price of 35k, deal done at 33k.

Good, bad, I've no idea, but I do think like anything, a business is only worth what someone is prepared to pay for it.
So do you see that as buying yourself a job? Or is it augmenting an existing garden business?

9mm

Original Poster:

3,128 posts

209 months

Sunday 26th April 2015
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Quattromaster said:
I'm in the process of buying a small garden maintenance company, est 35 yrs, assets worth approx 10k.

One part time member of staff of 7k a yr, plus the owner.

Turnover of 58k with profit of 31k.

Asking price of 35k, deal done at 33k.

Good, bad, I've no idea, but I do think like anything, a business is only worth what someone is prepared to pay for it.
Thanks for your input. Seems in line with Desolate's thoughts.

I can't get excited about swapping at least half a mill over the next ten years for seven or eight hours work a week for a £50K one off payment. Seems like an incredible deal for the buyer so I think I'll just carry on as I am unless something changes. Maybe even look to develop the business. I think a chat with the accountant might be the next step, in case he has any other clients who might be interested.

anonymous-user

53 months

Sunday 26th April 2015
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9mm said:
Thanks for your input. Seems in line with Desolate's thoughts.

I can't get excited about swapping at least half a mill over the next ten years for seven or eight hours work a week for a £50K one off payment. Seems like an incredible deal for the buyer so I think I'll just carry on as I am unless something changes. Maybe even look to develop the business. I think a chat with the accountant might be the next step, in case he has any other clients who might be interested.
There's a lot more work required in Quattromaster's case though.

In general a business is worth more to those that work in it, to a supplier to secure distribution or to a competitor.

Is there a recognised industry group/association for what you do? May be worth touting it around there to see if anyone will offer a multiple of income.

9mm

Original Poster:

3,128 posts

209 months

Sunday 26th April 2015
quotequote all
desolate said:
9mm said:
Thanks for your input. Seems in line with Desolate's thoughts.

I can't get excited about swapping at least half a mill over the next ten years for seven or eight hours work a week for a £50K one off payment. Seems like an incredible deal for the buyer so I think I'll just carry on as I am unless something changes. Maybe even look to develop the business. I think a chat with the accountant might be the next step, in case he has any other clients who might be interested.
There's a lot more work required in Quattromaster's case though.

In general a business is worth more to those that work in it, to a supplier to secure distribution or to a competitor.

Is there a recognised industry group/association for what you do? May be worth touting it around there to see if anyone will offer a multiple of income.
In addition to my accountant idea, I can see potential in the ideas of selling to an insider or a competitor.

There isn't a recognised association and it's an unregulated business. Given that I'm not keen on a long payment plan for an insider I'll have to think carefully about approaching a competitor. To be honest, I have very little faith in the competition. Business ethics don't seem to exist in their vocabulary which is one reason why I have been able to differentiate my business in the marketplace. There are lots of other factors but a key one is that I feel that I'd be selling out loyal associates who would see an immediate reduction in income. I'm also grappling with the idea of how a payment plan would work that would satisfy both parties' financial needs yet protect me from the eventual new owner from screwing up the business before they had control and I had my money.


Edited by 9mm on Sunday 26th April 14:06

Quattromaster

2,904 posts

203 months

Sunday 26th April 2015
quotequote all
desolate said:
So do you see that as buying yourself a job? Or is it augmenting an existing garden business?
Buying it more for my brother in law, he works for me in a completely different industry, but has done garden maintenance before.

The business I'm buying at present requires 30 hrs a week for 9 months a yr, and 10 hrs a week during the winter months.

Once I have my original purchase and other costs back then the plan is for him to have the business, and I'll just take 10% of future profits for the few hrs a month it takes to do the books.

berlintaxi

8,535 posts

172 months

Monday 27th April 2015
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9mm said:
There is cash in the bank. It doesn't stay there.


There are no creditors.
So what is your tax set up, self employed sole trader or limited company?

AyBee

10,522 posts

201 months

Monday 27th April 2015
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Do you want the money or the time 9mm? If it's the latter, would it not be easier to find someone to help you run it for a profit share? PM me if you'd rather.

9mm

Original Poster:

3,128 posts

209 months

Monday 27th April 2015
quotequote all
AyBee said:
Do you want the money or the time 9mm? If it's the latter, would it not be easier to find someone to help you run it for a profit share? PM me if you'd rather.
A bit of both but more the money. As I said a few posts up I can't see the point of giving up £50K or more a year for a one off payment of £50K. If the multiple starts increasing I will get interested but for now I've pretty much decided to withdraw from providing the service myself, add some associates and just treat it as an income stream I might use to subsidise another start up. As long as it doesn't take me more than five or six hours a week (which should definitely be the case if I stick to admin) then I'll be happy.

akirk

5,377 posts

113 months

Tuesday 28th April 2015
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You mention that the % growth is declining due to lack of your drive in growing the business / increasing competitors - that for me would be instant warning flags in terms of buying a business - if I came to talk to you / did the DD / understood who was working for you as associates - what would be the block to stop me from setting up my own business / tempting your associates away / competing...?

i.e. what are you really selling - an ongoing concern for someone one wishing to not start from scratch, or something which I need to run a successful version of your business (client base / IP / process systems / etc.) which have a value where it makes more sense to buy than to reinvent?

if it is so simple to run, could you not just get someone local in to run it for you?

9mm

Original Poster:

3,128 posts

209 months

Wednesday 29th April 2015
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akirk said:
You mention that the % growth is declining due to lack of your drive in growing the business / increasing competitors - that for me would be instant warning flags in terms of buying a business - if I came to talk to you / did the DD / understood who was working for you as associates - what would be the block to stop me from setting up my own business / tempting your associates away / competing...?

i.e. what are you really selling - an ongoing concern for someone one wishing to not start from scratch, or something which I need to run a successful version of your business (client base / IP / process systems / etc.) which have a value where it makes more sense to buy than to reinvent?

if it is so simple to run, could you not just get someone local in to run it for you?
I think all businesses experience a slowdown in growth at some point. There are many reasons but the warning flags can also represent opportunities. This business works in a highly specialised field where it enjoys a great reputation with loyal customers, repeat business and recommendations. It would be quite easy and cheap to broaden its service using the existing customer base. So my lack of interest in doing it is equally a big opportunity for a new owner.

If you stick with my example of someone acting as agent for a national chain of regionally based debt collectors, with me doing some debt collecting but thinking of purely acting as agent, the blocks to stop you competing/tempting my associates away are obvious and not really any different. The problem for an existing competitor is that you will have to dramatically erode your existing profit margin as I pay my associates at least four or five times what they pay. So, as an existing debt collector, earning say £100 for a job, why on earth would you leave for £150 a job or even £300 a job, and leave someone who has provided you with all those £500 jobs for six years? Would you even leave for £500 a job - on a promise rather than six years of track record? These figures are all notional. If you want to set up in competition you will have to set up locally and hope to grow or regionally with an immediate team. Where will that team come from unless you immediately offer more than I do? I think if any of this was going to happen, I'd have seen evidence by now.

The reason that competitors exist is quite simple. They aren't as good and some customers are happy to pay less for an inferior service/product. Just as they are in the case of cars, airline travel, FX, watches, vets or hifi. I position this business as the best in the market, pay the best rates in the market but don't charge ludicrous fees. That's because the position in the market, associate loyalty and longevity are more important to me that squeezing every last drop of profit out of the business. Competitors come and mostly go.

So to answer your question, what I'm selling is a ready made income stream with the potential for growth, that can be run out of your spare bedroom for six or seven hours a week and gross you a minimum of £50K a year. I could indeed pay someone minimum wage to take care of the admin but I'd always pay someone a lot more because that would be in line with the way I treat my associates. This might be a problem for a purchaser who wants to increase profits by reducing fees paid but I'd see that as rather stupid greed. You would instantly make it easier for competitors or new entrants to tempt the associates away or incentivise them to try and work independently. Better imo to not be greedy and keep everyone happy.

berlintaxi

8,535 posts

172 months

Wednesday 29th April 2015
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9mm said:
The reason that competitors exist is quite simple. They aren't as good and some customers are happy to pay less for an inferior service/product. Just as they are in the case of cars, airline travel, FX, watches, vets or hifi. I position this business as the best in the market, pay the best rates in the market but don't charge ludicrous fees. That's because the position in the market, associate loyalty and longevity are more important to me that squeezing every last drop of profit out of the business. Competitors come and mostly go.
So what are the barriers to entry for a competitor who decides they will pay better rates and lower fees than you?

What is the tax set up?