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    15 Replies Latest reply on Dec 28, 2007 1:27 PM by Uncle Leon

    Opportunity to Purchase a business...should I?

    MsSofty88 Newbie
      I need some advice/information. I have an opportunity to purchase a successful embroidery business. It is a one owner and she is the only employee and is working from her home. She wants $85K for the business....$15K in embroidery machinery, $10K for inventory, software for embroidery, FF&E,customer list, all the training I need, and she would do some digitizing for me for a year. The other $60K comes from 2X her NET Profit. I have not analyzed her books other than I peeked at the P&L. She nets about $30K....maybe a little more. But she does not have any of her cost of labor taken out of that nor any kind of building/rent expense. Is that a fair value without including those 2 things? Personally, I think that if you do not include the cost of your time to produce the product then it is not a fair evaluation. But before I counter, I was curious to find out what the norm was for that.
        • Re: Opportunity to Purchase a business...should I?
          CorpCons08 Ranger

          Honestly, 85K sounds like it could be a reasonable offer. If this business is netting what you say it is, and she is including the machinery, operating software, and inventory; that is a pretty good sounding offer. I have worked with people in the embroidery business in the past. I would be more than happy to consult you and we would help you with the financing to purchase this business if you are interested. My firm has been working on helping entrepreneurs like yourself acquire businesses for over 30 years. You can contact me at if you are interested in our services.

          1 of 1 people found this helpful
          • Re: Opportunity to Purchase a business...should I?
            Lighthouse24 Ranger

            You did not mention any debt or other liabilities, so I'll assume there are none (but you'll see where to plug them in if that's not the case).

            Not knowing anything else about this business opportunity, there are at least two formulas we could apply:

            1. Price/Revenue Multiple for this type of business in my region is 0.78


            Value = Annual Revenue x P/R Multiple + Assets - Liabilities


            Plugging in numbers: Value = $30K x 0.78 + $25K - $0 = $48,400

            2. Price/SDE Multiple for this type of business in my region is 2.05


            Value = Seller's Discretionary Earnings x P/SDE Mutliple + Assets - Liabilities


            We don't know her SDE, but it has to be less than $30K - let's just say $25K (i.e., she pays taxes on profits and that's about it).


            Plugging in those numbers: Value = $25K x 2.05 + $25K - $0 = $76,250

            That give s a "high-low" framework, and $62K is somewhere in the middle of the two. I'd assign monetary values to the "intangibles" (like her client list and continuing assistance) and add it to that midpoint amount. So if you think those intangibles are worth $23K, then $85K is probably a good price. If not, you could offer less on the basis of the above, and even use those formulae to get more specific information about her SDE and assets.

            Please keep in mind that these are just guide guidelines. Those Multiples I cited are averages for all the reported sales of similar businesses -- which means for every actual sale of a business like yours, about half had higher multiples and about half had lower. Ultimately, it's what it's worth to YOU.

            Hope this helps. Good luck!
            • Re: Opportunity to Purchase a business...should I?
              thesmartguys Newbie

              Shot me an email an I will help you with this situation.
              • Re: Opportunity to Purchase a business...should I?
                thesmartguys Newbie
                The Email address is, outside of me being a computer tech, graphic designer, marketing specialist & attorney, I also try to find the time to help people so they don't have to make the mistakes I made when I originally started my business.
                • Re: Opportunity to Purchase a business...should I?
                  abloo08 Newbie
                  {font:'Times New Roman'}{size:12pt}Most people tend to over think these type of
                  decisions and thus end up a bit dazed and confused about the true goal - which
                  more often then not is to simply earn a living.

                  Based on what you have told me I would take a long hard look at what you fee
                  that you can bring to the business that would improve its cash flow - as it
                  stands now and assuming that you are able to maintain income/expense rations as
                  she has done -- you will be looking at roughly 3 years to pay off the dept/loan
                  assuming you can apply 100% of the NET income towards this goal and assuming
                  that this is an interest free loan (most likely not;).

                  Other things to consider:
                  Most Mom and Pop shops live on personal relations to generate business... Additionally
                  the majority of customers are not under any obligation/contract for future
                  business and thus are just as likely to move on to another service provider. So
                  I would expect to loose a large % of her original customers right out of the
                  gate. You may be able to survive this by bringing your own existing customers

                  Get the numbers... Any discussion of purchase price with out seeing her actual
                  books is premature.

                  Once the business is sold do not count on any true assitance from the previous
                  owner.... There is a reason she is selling (Health, Family, Tired) if she
                  dosent have the time/desire to do it for herself then do not expect that to
                  change when you take over the business.

                  Final thought - At face value the business has assets worth aprox. $25k and one
                  year Net sales of $30k If you need to pay rent power and or insurance...
                  this business is a break even business at best (assuming that you do not need
                  to be paid and are happy working for free)

                  - Consider purchasing the tools of the trade on ebay and spending 10-20k
                  over the course of a year promoting your new service (locally and on line). You
                  may be surprised at how quickly you can generate your own customer base and
                  {font:'Times New Roman'}{size:12pt}
                  Embroidery Machine:

                  Embroidery Thread:



                  • Re: Opportunity to Purchase a business...should I?
                    Uncle Leon Tracker
                    First, let's consider only the value of the business. There are two types of sale of a business like this. One is an asset sale, which is based upon the market value of the assets. The other is profitability value. Let's discuss profitability valuation first.

                    Forget about the business assets in profitability valuation. Those assets are only part of what generates the income. You wouldn't buy those assets just to sit in your living room. Most small businesses sell for between one and 3.5 cash flow. The type of business afffects that multiple, but mostly, the smaller the cash flow, the less the multiple. This business has no cash flow. The 30K showing as positive cash flow does not account for owners salary or for some other expenses. Also, (assuming that you borrow money to accomplish this purchase), the "Sensibility" factor requires that you have enough cash flow to pay the debt service and have enough additional cash flow to pay your salary.

                    ASSET SALE:
                    Essentially, that's what thiw purchase is. - Market value of assets.

                    EXCEPTION: The training, along with her customer list, plus the business she does have, is valuable to you....especially the training.

                    Recommendation: Since (in a previous post you indicated that) cash availability is an issue with you; and considering that the lady was just going to "SHUT DOWN" her business; I suggest that you (pleasantly and calmly) explain these facts to the lady offer her the value of the assets plus a compromise of part of the (Pie-in-the-sky) value she believes is in the business, PROVIDED that you pay her a small portion in cash, and tha balance over 5 years. I suggest allocating the portion over and above the asset value to initial training and follow-up counseling over the next 6 months.