Business Valuation

[pomp1]

Hello

So I have a mate who has a business, he's looking to retire in the coming years. He supplies consumables to medical practices.

He is essentially a one man band, the business is him so I'm struggling to value it as it's buying a job really but one that can be scaled which is what appeals to me.

Does anyone have any suggestions/ comparables we can use to find a value?

Thanks!

[akirk]

I think you need to know the detail:

contracts you could buy into
suppliers where there is an advantage to the current relationship
assets (website / equipment / etc.)
goodwill

what value do the components of the business actually have - that will give you an indication as to its value...
then discounted on the basis that if no-one bought it you could walk in and pick up those contracts / contacts anyway...

[skilly1]

Whatever you value it, stagger the pay-outs based on company performance over a few years, ideally get him to stay 3-4 years as well !

That way his performance helps you to buy the business out and learn everything about it.

[Wilmslowboy]

Complete back-of-the-envelope calculation and based on the assumption the buyers (customers) will stay once he retires.

Profit, adjusted for a fair market salary, times 4, plus stock value.


When I was looking at small businesses to buy, from online shops to specialist distributors, this was the rule of thumb I tried to apply.

[Frimley111R]

His relationships will be the business essentially so whatever you do, make sure there is a long handover with clients. The relationships are everything.

[Abdul Abulbul Amir]

If it's a one man band then it's not worth diddly squat.

ETA
That should read, it's worth diddly squat.

Edited by Abdul Abulbul Amir on Monday 13th December 16:41

[Al Gorithum]

There are metrics for a valuation according to the variable factors.

DM me and I'll share info with you. I may even be interested in a JV!

[V8mate]

Abdul Abulbul Amir said:

If it's a one man band then it's not worth diddly squat.

Yep. Unless he has contracts in place for guaranteed work into the future.

[anonymous-user]

I would do some kind of earn out plus the stock.

[pomp1]

Thanks for all the comments so far! Very little in way of contracts, it is essentially him but it’s an industry I know well and there’s a lot of scaleability!

[Jonathan27]

If there are no contracts in place, then the value cant be much higher than that of the stock. After all, you could just buy some stock yourself and set up. You'd just be missing the relationships, but they will go when he retires anyway.

[Panamax]

bulldong said:

I would do some kind of earn out plus the stock.

I'd want to know the stock was (a) there, and (b) saleable before paying one penny for it. Most businesses are pretty much "just in time" these days and it sounds to me as though that stock could easily be date-coded.

I don't think that business is worth much from what's been described. The usual exit route from that sort of business is selling to a competitor who,

• Wants the increased turnover
• Wants to get rid of a competitor, and
• Can benefit from economies of scale.

[thepeoplespal]

Jonathan27 said:

If there are no contracts in place, then the value cant be much higher than that of the stock. After all, you could just buy some stock yourself and set up. You'd just be missing the relationships, but they will go when he retires anyway.

Getting your foot in the door of a Medical Practice is very difficult, so existing relationships have a lot more value than you'd think. A long handover period with introductions to customers would be essential.

[pomp1]

Al Gorithum said:

There are metrics for a valuation according to the variable factors.

DM me and I'll share info with you. I may even be interested in a JV!

I’ll send you an email shortly!

[pomp1]

Panamax said:

I'd want to know the stock was (a) there, and (b) saleable before paying one penny for it. Most businesses are pretty much "just in time" these days and it sounds to me as though that stock could easily be date-coded.

I don't think that business is worth much from what's been described. The usual exit route from that sort of business is selling to a competitor who,

• Wants the increased turnover
• Wants to get rid of a competitor, and
• Can benefit from economies of scale.

Completely agree with you. The guy suggested about 3.5x but I think that’s high?

[pomp1]

skilly1 said:

Whatever you value it, stagger the pay-outs based on company performance over a few years, ideally get him to stay 3-4 years as well !

That way his performance helps you to buy the business out and learn everything about it.

Striking a deal based on this. 3 years of buy out

[Al Gorithum]

pomp1 said:

Completely agree with you. The guy suggested about 3.5x but I think that’s high?

3.5X is too high IMO but it depends on the variables. Awaiting your email.

[pomp1]

Al Gorithum said:

3.5X is too high IMO but it depends on the variables. Awaiting your email.

just emailed again, let me know if it doesn't come through....

[MustangGT]

My first question would be is he a sole trader, or a limited company?

[AB]

Consumables, especially in to medical, is really a case of buying from the person rather than the product. Especially if they're similar to lots of other branded products out there. Doubly so if the people you are dealing with aren't spending their own money.

There really is no way to ensure that existing customers remain customers after the 'face' has left.

Part of what we do is selling larger medical devices in to medical/dental and we're very good at it. What we don't sell are consumables.

I'd be interested in having a chat with you. Where does the company operate or is it national?