Valuation of a Sole Trader for purchase
Discussion
Hi guys,
I want to make an offer for a small cab business. The offer will be for 4 cars, Trading name, phone number, ranking rights and taking over the lease on a porta-kabin office (which stinks!!).
The guy has been trading as a Sole Trader, and his accounts aren't that informative... the company was advertised with a local agent with a turnover of £170,000 and a net profit of £38,000.
Looking at his daily work sheets, the £170,000 Turnover looks realistic enough, but his accounts tell a different story.
The latest accounts available are for 31/01/05 and show a profit of £6,000 against T/O of £84,000.
Now, I'm no idiot... there is obviously a lot of cash that moves through that company unrecorded, but where would I stand with regard to an offer?
How do you value such a business with that much to go on?
Effectively he is the business, without him, its just some 250,000 mile 406 diesels that smell of Kebabs and a scabby office. I'm in it for the potential, but I can't bring myself to pay for something that doesn't exist!!!
Help!!!
I want to make an offer for a small cab business. The offer will be for 4 cars, Trading name, phone number, ranking rights and taking over the lease on a porta-kabin office (which stinks!!).
The guy has been trading as a Sole Trader, and his accounts aren't that informative... the company was advertised with a local agent with a turnover of £170,000 and a net profit of £38,000.
Looking at his daily work sheets, the £170,000 Turnover looks realistic enough, but his accounts tell a different story.
The latest accounts available are for 31/01/05 and show a profit of £6,000 against T/O of £84,000.
Now, I'm no idiot... there is obviously a lot of cash that moves through that company unrecorded, but where would I stand with regard to an offer?
How do you value such a business with that much to go on?
Effectively he is the business, without him, its just some 250,000 mile 406 diesels that smell of Kebabs and a scabby office. I'm in it for the potential, but I can't bring myself to pay for something that doesn't exist!!!
Help!!!
glocko said:
Probably the only thing of value there is the phone number.
Cars...end of life.
Name...maybe but people ring a number not a name
Portakabin...don't go there
Rank...only if it's a busy walk on rank, not as just a call receiving office.
Cars...end of life.
Name...maybe but people ring a number not a name
Portakabin...don't go there
Rank...only if it's a busy walk on rank, not as just a call receiving office.
It's a Supermarket rank and an installed direct phone line from the checkout area (Big supermarket, think Jamie Oliver) with the potential for similar contracts at neighbouring stores. A couple of underused local authority accounts and thats it.
What you reckon? He wants £40k
I was thinking more along the lines of £5k + an income for a set period? Is this normal or what?aceparts_com said:
Sounds like he wants his cake and to eat it too!
What's it worth to you?
What's it worth to you?
I'm trying to assess the potential of the local market at the moment... but thats the problem, it's all potential.
The agent has come out with something about "adjusted net profit" and "true profitability" being much higher when you discount things like depreciation and sundry expenses.
Is this agent advertising his clients tax evasion to the world?
Also the accounts I have do not show any drawings... or does a sole trader not list them?
Cadbury Schweppes end of year it is not...
funny you should say that :P
i don't think the business is worth much- the ONLY thing which gives it any worth are any contracts and phone numbers. How you value these is up to you- you'd need to know how much income comes from those sources. Cars should be valued at the low end of market value- so a few grand tops.
i don't think the business is worth much- the ONLY thing which gives it any worth are any contracts and phone numbers. How you value these is up to you- you'd need to know how much income comes from those sources. Cars should be valued at the low end of market value- so a few grand tops.
superlightr said:
KingRichard said:
aceparts_com said:
Just read another post....
You're not buying it off pugwash are you?
You're not buying it off pugwash are you?
I did spot that thread... No, but I think it may be one of his brothers...
I though you were going into the property side of things?
I thought he was an IFA, turns out he's a recruitment consultant
Rule of thumb for buying a cab firm is - half the last year's profit plus any stock at valuation.
Does he own the cars? Are they still on finance? Who services them (VV important!)?
Ditch the portakabin - not needed. The rank outside Sainsburys is a free for all. Any cab company can pick up/set down there, it belongs to Sainsburys not the cab co. The freefone number inside the shop generates how much business? How long has the company been trading, do they have a good name/reputation locally? Are they well known? How much room for expansion is there and why the downturn in turnover, is the business in decline and he's selling whilst he still has something to sell? How are the drivers paid, hourly rate or percentage of take? How is that controlled? How much competition is there?
Get the answers to these and you are halfway to finding out a true value of the business.
Does he own the cars? Are they still on finance? Who services them (VV important!)?
Ditch the portakabin - not needed. The rank outside Sainsburys is a free for all. Any cab company can pick up/set down there, it belongs to Sainsburys not the cab co. The freefone number inside the shop generates how much business? How long has the company been trading, do they have a good name/reputation locally? Are they well known? How much room for expansion is there and why the downturn in turnover, is the business in decline and he's selling whilst he still has something to sell? How are the drivers paid, hourly rate or percentage of take? How is that controlled? How much competition is there?
Get the answers to these and you are halfway to finding out a true value of the business.
Firstly, clearly the company's more profitable than the books indicate - the auditor is duty bound to tip off NCIS nowadays, because of money laundering regs. The current owner could well end up in serious problems - he's an idiot! As such, get him to reveal the 'real' profit which he's hinted at. If it's, say, £50k then decide what:
a) You think you can get away with;
b) What retur on investment you'd need;
c) What the level of risk is;
Commit to paper the above thoughts so you can see it visually. Then try and figure whether the seller has any other prospective bidders. Then pitch a figure! The figure will be 'what you're prepared to pay for it'.
Secondly, USE A DECENT LAWYER.
a) You think you can get away with;
b) What retur on investment you'd need;
c) What the level of risk is;
Commit to paper the above thoughts so you can see it visually. Then try and figure whether the seller has any other prospective bidders. Then pitch a figure! The figure will be 'what you're prepared to pay for it'.
Secondly, USE A DECENT LAWYER.
emicen said:
superlightr said:
KingRichard said:
aceparts_com said:
Just read another post....
You're not buying it off pugwash are you?
You're not buying it off pugwash are you?
I did spot that thread... No, but I think it may be one of his brothers...
I though you were going into the property side of things?
I thought he was an IFA, turns out he's a recruitment consultant
Been an Estate Agent, IFA and a Recruiter... Was an IFA and a recruiter at one point!
I still want to get into the property side of things, but I want a cash cow to help leverage my investments... My old man has run cab firms for years, so I should be ok for a bit of advice from the old sage
Tyre Smoke said:
Rule of thumb for buying a cab firm is - half the last year's profit plus any stock at valuation.
Does he own the cars? Are they still on finance? Who services them (VV important!)?
Ditch the portakabin - not needed. The rank outside Sainsburys is a free for all. Any cab company can pick up/set down there, it belongs to Sainsburys not the cab co. The freefone number inside the shop generates how much business? How long has the company been trading, do they have a good name/reputation locally? Are they well known? How much room for expansion is there and why the downturn in turnover, is the business in decline and he's selling whilst he still has something to sell? How are the drivers paid, hourly rate or percentage of take? How is that controlled? How much competition is there?
Get the answers to these and you are halfway to finding out a true value of the business.
Does he own the cars? Are they still on finance? Who services them (VV important!)?
Ditch the portakabin - not needed. The rank outside Sainsburys is a free for all. Any cab company can pick up/set down there, it belongs to Sainsburys not the cab co. The freefone number inside the shop generates how much business? How long has the company been trading, do they have a good name/reputation locally? Are they well known? How much room for expansion is there and why the downturn in turnover, is the business in decline and he's selling whilst he still has something to sell? How are the drivers paid, hourly rate or percentage of take? How is that controlled? How much competition is there?
Get the answers to these and you are halfway to finding out a true value of the business.
'Kin hell... thanks mate... lots of info there. My old man has been involved with bigger firms like Chauffeurcar, GCS etc in recent years, so someone still at the sharp end giving advice is dead handy
srebbe64 said:
Firstly, clearly the company's more profitable than the books indicate - the auditor is duty bound to tip off NCIS nowadays, because of money laundering regs. The current owner could well end up in serious problems - he's an idiot! As such, get him to reveal the 'real' profit which he's hinted at. If it's, say, £50k then decide what:
a) You think you can get away with;
a) You think you can get away with;
Hopefully quite a cheeky offer, he's retiring and seems to be pretty comfy... I'm planning to show how well we can run his baby.
srebbe64 said:
b) What return on investment you'd need
The funds we have available for purchase are not needed elsewhere, I have a primary income that will remain constant, with me working evenings and weekends, the family pitching in to man the phones at other times. Currently the company is undertrading... It's not even 24 hrs ffs!
We can wait to get our money back out, but the idea is to maximise current business, cut initial cost, market heavily and then recruit to capture the growing opportunity. srebbe64 said:
Secondly, USE A DECENT LAWYER.
Aah, the old sales pitch
Your welcome to send me details of your charges mate. I know very little about the legal aspects of company transfers, and to be honest, I don't trust that agent one little bit srebbe64 said:
Firstly, clearly the company's more profitable than the books indicate - the auditor is duty bound to tip off NCIS nowadays, because of money laundering regs. The current owner could well end up in serious problems - he's an idiot! As such, get him to reveal the 'real' profit which he's hinted at. If it's, say, £50k then decide what:
a) You think you can get away with;.
a) You think you can get away with;.
I would suggest that whatever the real profits are, you can only go by whats his formal profits are. The fact he may have not been declaring profit is no help to you. - you will need to declare all the profits when you take over. I would give no credit for undisclosed profit at all.
Would the IR come after you if you take the business on a as a going concern for back tax or tax for that financial year?
Not a tax person but I would be worried about buying it at all.
If it was a sale trader, then his personal Self Assessment tax liabilities are his and his alone. The liabilities may have been derived from his sole trading activities, but they are his liabilities.
However, if there are any VAT liabilities or PAYE liabilities outstanding, you would need to ensure that you are indemnified from any liabilitie in respect of these. I would certainly be wary of taking over a business and retaining the "old" business' PAYE and VAT registration numbers - especially if therre is any doubt as to the previous trader's integrity.
However, if there are any VAT liabilities or PAYE liabilities outstanding, you would need to ensure that you are indemnified from any liabilitie in respect of these. I would certainly be wary of taking over a business and retaining the "old" business' PAYE and VAT registration numbers - especially if therre is any doubt as to the previous trader's integrity.
Gassing Station | Business | Top of Page | What's New | My Stuff