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Selling my business....tips?
Old 02-21-2006, 04:11 PM   #1
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Selling my business....tips?

Hello all,

First let me say that I am overwhelmed by the sheer collective intelligence displayed on this board. Several members stand out individually, but as a whole, this place is a godsend.

I have read the contents of this board, thread by thread, over the last several days. Sometimes 12-16 hours per. I was hoping to find some answers on my own, but there are not many topics related to this thread....so I'll get on with it.

I have a business here in Hawaii. I am a state licensed contractor and have a product that affords me the luxury of little competition. The product, while new in the islands, is a standard in the construction industry across the mainland. Nords will agree that things move a bit slower here.

I have had this product for 3+ years. I have an investment of approximately $300-400 thousand in related equipment and promotion of this product. It is starting to take off, as all the real (big) players in the industry here know that it is far superior to products currently in use.

I have blown out my back (severely) and I am now limited to how much time I can spend romancing customers and setting up jobs. My crew is very competent and some have been with me for over 15 years. They can handle the work...but I need to be the mouthpiece and I need to line up the work.

Long story short; I fear that with my current condition, the company will lose ground. As of today, we are still very much "ground floor". I have watched sales over the past 3 years climb from (approximately) $700,000 to around $1 million in 05. At the advice of my accountants, I have spent alot of this money on vehicles, equipment etc....I guess the term is "discretionary spending".

It is my firm belief that a profit of $500,000 per year is VERY doable and with very little exposure. Back to my fear. I definately want to sell and feel I need to sell. However, I have been told that a construction (type) company is worth no more than 1/3 of yearly gross. So let's say $250,000 - 300,000.

Does this make sense to you or is this particular broker looking to score a quick, effortless sale?

I am concerned that this year's numbers will more than likely be smaller than last year's. I do not want to worsen matters by allowing this to happen and feel the time to move is now. I have great tech support, fantastic equipment and an even better reputation. Because of my back and other recent personal set-backs, I feel it is time for me to join the ranks of the fine members of this board. I am jaded and need seperation.

Your advice will be much appreciated and I thank you in advance. I want to remove the "Nomo" (no more) from the "aloha".

Re-reading my post, I do not know if I've asked a clear question. Clearly, I want to sell and I'm seeking the advice of people who know about selling a business and how to gauge the worth of a business. Also any tips on marketing the biz...or a mainland broker of reputation would also be welcome. I am hesitant to deal with Hawaiian outfits as i cannot afford word getting around that I want to sell. This is also why I am not describing the actual product. Anyone within the state (reading this) would know who I am immediately.

Thanks again.
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Re: Selling my business....tips?
Old 02-21-2006, 10:41 PM   #2
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Re: Selling my business....tips?

I'm unsure of that type of business...but I know a fellow who sold a contracting type business for about 2 yrs net profit....

im sure that doesnt help much, but hey....
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Re: Selling my business....tips?
Old 02-22-2006, 02:03 AM   #3
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Re: Selling my business....tips?

Business valuation metrics are all over the map.* * One fairly universal approach is discounted cash flow, so you might want to compare that to what the broker gave you.* * Brokers will probably have a pretty good idea if they specialize in your segment, so if you can find another broker to give you a second opinion, that's a safe approach.

I've used to this site to browse potentional acquisition targets before, and I was pretty impressed by their inventory.
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Re: Selling my business....tips?
Old 02-22-2006, 05:35 AM   #4
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Re: Selling my business....tips?

hey Nomo,
Im in the same business as yourself, I'm in MD. I looked into selling my business. I had a guy place a value on it and basically what he did was take three years and average the net then add in a bit for future contracts.
They also came up with a couple of good ideas, your welcome to pm me and I can give you some of the details.
Pat
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Re: Selling my business....tips?
Old 02-22-2006, 05:49 AM   #5
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Re: Selling my business....tips?

Nomo,

Just some general reading:

http://www.businessbookpress.com/art...article148.htm

Also a decent reference book:

The 2005 Business Reference Guide (Essential Guide to Pricing a Business/ 15th Ed) by Tom West

Take care of getting that back healthy again and good luck.
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Re: Selling my business....tips?
Old 02-22-2006, 11:04 AM   #6
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Re: Selling my business....tips?

Good mornin' folks,

Thank you very much for the links and well wishes. All very interesting and most helpful.

I fear the answer to at least one of my questions is becoming painfully clear; The biz just isn't worth as much as I'd hoped or anticipated.

I've never shyed away from hard work but damn, I just feel like I've put way more into this than the equivalent of 2 years net profit. In fact- if I am reading your post accurately, PJ03-I think you are saying that you were quoted a value of just one year's net!

I don't know why anyone would even bother to start a (new) buisness if one can be purchased turn-key for such a nominal investment. I don't know if I'm more dissapointed or embarassed.

Again I thank you for the replies. I think the reality here is I need to figure out how to stay afloat. I've worked too hard to give this thing away knowing what the future holds for this product.

I hope you all have a great and stressless day!

Please do not hesitate to add more to this thread. There is definately a lesson here that may be useful to others in a similar situation.*
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Re: Selling my business....tips?
Old 02-22-2006, 11:46 AM   #7
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Re: Selling my business....tips?

Hey, nomo, what about finding a partner? Maybe one that might come in with the understanding that you would be interested in potentially selling the business to them if it works out right?
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Re: Selling my business....tips?
Old 02-22-2006, 01:47 PM   #8
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Re: Selling my business....tips?

Take 5 - 8 times EBITA (earnings before interest taxes, and appreciation). So if the business made $100,000 profit you would be selling it for $500K - $800K, depending on the ability to reproduce that revenue without you there and the amount of growth that is possible. If you say that the business is going to be doing less than last year, you should probably stay close to the 5 multiplier mark instead of the 8.

I sold my business for about 8 times EBITA but it was an internet business in a very fast growing market with the ability to scale very easy. For instance, it would not be unheard of for the company to go from 8 million in revenue to 100 million in revenue with the correct management and capital.

I say all this only to say that a business is only worth what someone is willing to pay. When someone buys a business, they are purchasing a future stream of cashflows.
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Re: Selling my business....tips?
Old 02-22-2006, 03:30 PM   #9
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Re: Selling my business....tips?

Nomo, I did not finish my post...was in need of coffee.
well they did a three year average and did a 2.5 to 3 times that average then added in for tools trucks and equip along with upcoming contracts, I think they valued the upcoming contracts at about 11%.
They also give me some better ideas on selling the company which I'm working on at the moment.
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Re: Selling my business....tips?
Old 02-22-2006, 05:28 PM   #10
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Re: Selling my business....tips?

Quote:
Originally Posted by brewer12345
Hey, nomo, what about finding a partner?* Maybe one that might come in with the understanding that you would be interested in potentially selling the business to them if it works out right?

I have given this some thought as well. I suppose that along with such an understanding, I could request them to sign a no-compete clause, thus protecting myself from breeding my own competition.

Do you think I should advertise on the mainland for such a situation...or deal thru a broker? I have always harbored the thought that enticing someone in this field, perhaps from the winters of Wisconsin, to the climate of Hawaii would be quite easy. Especially this time of year, where northerners are either inside...or out of work.

Thank you very much for your reply. I have read about a thousand of your posts and I am very impressed with your stock trading. Are you in the Bahamas?
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Re: Selling my business....tips?
Old 02-22-2006, 05:44 PM   #11
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Re: Selling my business....tips?

Quote:
Originally Posted by CybrMike
Take 5 - 8 times EBITA (earnings before interest taxes, and appreciation). So if the business made $100,000 profit you would be selling it for $500K - $800K, depending on the ability to reproduce that revenue without you there and the amount of growth that is possible. If you say that the business is going to be doing less than last year, you should probably stay close to the 5 multiplier mark instead of the 8.

I sold my business for about 8 times EBITA but it was an internet business in a very fast growing market with the ability to scale very easy. For instance, it would not be unheard of for the company to go from 8 million in revenue to 100 million in revenue with the correct management and capital.

I say all this only to say that a business is only worth what someone is willing to pay. When someone buys a business, they are purchasing a future stream of cashflows.

Wow...that sheds a whole different light on the subject! Thanks for your response, cyberMike. Sounds like you created a nice little niche, there. Congrats on the sale!

I mentioned earlier that my accountants really frown on my taking profits. They constantly have me spending on new equipment, trucks, etc. and I pay myself a relatively meager salary. With this said...I think the books would still show a minimum of $150,000 per annum of absolute profit after everything. Again, I guess this falls under "discretionary spending" because I know that I could just as easily be designating $250,000 as profit

While not as attractive or comfortable as a business as yours, It is definately an up and comer. It requires a hands-on kinda guy that can read blueprints and buy lunches, lol. I am just one of two people in the state with this technology and anyone else trying to get in will be 3-4 years behind. All a potential buyer would have to do (to realise the upside) is punch in this product on a search engine and see the incredible popularity it maintains everywhere else. This product will dominate any market that has building, money and weather. Welcome to Hawaii.

So....just so that I fully understand. If my "bring home pay" shows as $150,000 per year..I should ask 5-8 times this amount? This seems much more reasonable and if this formula applies to the construction industry as well as yours, I feel alot better. Thanks again!
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Re: Selling my business....tips?
Old 02-22-2006, 05:52 PM   #12
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Re: Selling my business....tips?

Quote:
Originally Posted by PJ03
Nomo, I did not finish my post...was in need of coffee.
well they did a three year average and did a 2.5 to 3 times that average then added in for tools trucks and equip along with upcoming contracts, I think they valued the upcoming contracts at about 11%.
They also give me some better ideas on selling the company which I'm working on at the moment.

Thanks again PJ03, Looking at cyberMike's post and using his equation involving EBITA....does this seem pretty much in line with the formula you used?

Looking at the two, one would almost get the impression that the numbers would be similiar. If this is the case, I definately feel like I can at least begin to have an idea of what to ask...or expect. Your company was also construction related, right?

Please consider your sale price if conducted like cyberMikes and let me know. This seems to make much more sense than 1-2 years net or 1/3 annual gross.

Any regrets??
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Re: Selling my business....tips?
Old 02-22-2006, 07:11 PM   #13
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Re: Selling my business....tips?

Quote:
Originally Posted by nomo-aloha
While not as attractive or comfortable as a business as yours, It is definately an up and comer.* It requires a hands-on kinda guy that can read blueprints and buy lunches, lol. I am just one of two people in the state with this technology and anyone else trying to get in will be 3-4 years behind. All a potential buyer would have to do (to realise the upside) is punch in this product on a search engine and see the incredible popularity it maintains everywhere else. This product will dominate any market that has building, money and weather. Welcome to Hawaii.
Geez, NA, you're killin' me here.

When this is resolved, could you PM me the name of the product that you're selling? Spouse & I are home-improvement junkies and I'd hate to be missing out on something that we might have the gimmes for need to make our home nicer.

BTW I regularly see Pacific Business News listing companies for sale via MergerPlace.com. Have you looked at MergerPlace's or PBN's website and seen what tools they have?
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Re: Selling my business....tips?
Old 02-23-2006, 01:01 AM   #14
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Re: Selling my business....tips?

I have used this in the home sector...in fact, my company is the first to do so, but it's more of a commercial / indu$trial thing. we just completed the work down at the pier II cruise terminal for Miller/Watts and we also work with Dick pacific, Swinerton, Hawaiian dredging etc. FINALLY breaking in with the big boys.

We have every Marriott in the Pacific rim as well.

I'll send you an e-mail.
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Re: Selling my business....tips?
Old 02-23-2006, 05:39 AM   #15
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Re: Selling my business....tips?

Hey Noma, No regrets here on my plans to sell, Yes the system seems to be the same but the sales price would come in well under 8X.
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Re: Selling my business....tips?
Old 02-23-2006, 07:25 AM   #16
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Re: Selling my business....tips?

Quote:
Originally Posted by nomo-aloha

I have given this some thought as well. I suppose that along with such an understanding, I could request them to sign a no-compete clause, thus protecting myself from breeding my own competition.

Do you think I should advertise on the mainland for such a situation...or deal thru a broker? I have always harbored the thought that enticing someone in this field, perhaps from the winters of Wisconsin, to the climate of Hawaii would be quite easy. Especially this time of year, where northerners are either inside...or out of work.

Thank you very much for your reply. I have read about a thousand of your posts and I am very impressed with your stock trading. Are you in the Bahamas?
I really have no idea how you would go about finding a partner. Maybe a broker, but maybe an industry association (local builders, realtors or property owners association, perhaps) or another connection would be a bettter choice. I suspect that a broker would have a strong financial motivation to get the deal done and quick, which might not be in your best interest. If you have someone who works with you for a while and then takes over, you might be able to structure part of the payment as a series of earn-outs over a few years after the transition. You wmight also structure some continuing involvement in the business for yourself.

Hahahah, no I am not in the Bahamas. I live in NJ, pretty far from the Carribean.
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Re: Selling my business....tips?
Old 02-23-2006, 09:55 AM   #17
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Re: Selling my business....tips?

Quote:
Originally Posted by nomo-aloha
So....just so that I fully understand. If my "bring home pay" shows as $150,000 per year..I should ask 5-8 times this amount? This seems much more reasonable and if this formula applies to the construction industry as well as yours, I feel alot better. Thanks again!
Your "bring home pay" or net profit, would have to be reduced by a reasonable salary to get your real profit. You said you pay yourself a meager salary. How much would someone make if you had to hire them to do your job? $50k/yr? Or is that "meager"?
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Re: Selling my business....tips?
Old 02-23-2006, 10:34 AM   #18
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Re: Selling my business....tips?

Quote:
Originally Posted by nomo-aloha
I'll send you an e-mail.
Thanks, gotcha-- check your e-mail.
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Re: Selling my business....tips?
Old 02-25-2006, 02:47 AM   #19
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Re: Selling my business....tips?

Quote:
Originally Posted by justin
Your "bring home pay" or net profit, would have to be reduced by a reasonable salary to get your real profit.* You said you pay yourself a meager salary.* How much would someone make if you had to hire them to do your job?* $50k/yr?* Or is that "meager"?
Ahhh, Sorry Justin, I thought this thread had fallen thru the cracks. That is exactly what I draw, $50k per year.

I suppose a manager would be satisfied with the same. So, I guess my multiple would be x 100 and not 150. This still better than that crazyass 1/3 gross rule...atleast in my case. Thanks for the help again.


Hey Brewer, I don't know what gave me the impression you were in the Bahamas, lol.....I read so many posts and threads that I guess I got confused. Were you in the Bahama..or planning a trip there?

I do reacall being impressed with your stock-picking though. Right guy...right? You work in the market? Definately a field i would like to figure out. I didn't do so good with my telecoms, lol.


Hey Nords....You have e-mail too!


For anyone that doesn't already know, Nords is about as generous and cool of a guy as you will ever hope to encounter. I can't believe the time I've wasted on Seahawk boards and the likes, lol. This is where the action is.

Thank you all. I'm getting quite the education.
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Re: Selling my business....tips?
Old 02-25-2006, 08:26 AM   #20
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Re: Selling my business....tips?

$50K won't even get you a Carpenter, a GM for a medium sized business would gross at least $150k plus benefits plus car.

noma, don't screw around with a bad back , you are rolling the dice and they are all loaded.

One wrong move and you can be in major problems, Back Surgery is one of the most complex surgeries performed and results are not always great.

Sometimes you just have to cut your losses, and Yes, I am very famiilar with Orthopedics that is why, if you can choose an alternative to Surgery , do so.

You are still Gambling.
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