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  • #988787
    Anonymous
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    Hi,

    Hope I’m posting in the right place, if not many apologies.
    I’ve just joined this forum as I’m looking into purchasing a newly started business, and would like some feedback on what it is potentially worth.

    It has been operating for just over 6 months, home based producing product and delivering to clients. Current turnover of $600-$750per week, roughly 25-30% cost, 8-10 customers, a lot of potential to expand.. However there is real no financials to go off as only just started up, only invoices. Plant/equipment worth $1500-$2000, asking $15000.

    If anyone can give me feed back on how to work out what the business is worth as I believe I definitely have room to negotiate, it would be much appreciated.

    Cheers…..Ringo

    #1168898
    MissSassy
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    It does seem a bit pricey as there is no history and 6months is just such a short time.

    Do the 8-10 clients have contracts in place securing them purchasing from you ongoing? Or could they stop once the business sells!

    You still should have someone (Accountant) look at whatever paperwork they have and in the end you may have to go with your gut feeling.

    The product you are producing – If it is food are you able to meet the regulations as this should be run from a commercial kitchen and not from a home.

    I am happy to help you come up with more questions if you would like to be in touch.

    #1168899
    bb1
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    They are asking almost 75% of one years profit, sounds a lot. Do your homework.

    Talk to the current (and any past) customers to get a feel for what there thoughts are. It is common that when a business is taken over a percentage of customers take the oportunity to jump ship. Why are they selling after only 6 months, is it they see a lack of potential, talk to the customers (think I said that already).

    It does seem a lot (I hear an echo)

    #1168900
    PRO
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    $15k is a lot on a percentage basis for something that has been trading that long.

    BUT

    If you can weigh up the starting costs of doing something similar from scratch, the difference in income over the period it takes you to get it up to the same turnover etc it may be worth looking at.

    Need to look closely at the chance the customers could leave.

    If $15k is all the money you have in the world, or you need to take a loan for it then that would also weigh on the negative side IMHO. If however you are saving twice that a year then it is not such a large risk.

    As for valuing it.

    Different industries have different values of annual net profit.

    Eg
    a law firm is typically priced at 0.8 of NP.
    a lot of other businesses are around the 3xNP (plus stock & something for equipment)
    and anywhere in between.

    Law firms are lower because the risk that the clients follow the selling principal are very high. If you are buying a convenience store then the risk is lower.

    #1168901
    Spurious
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    Ringo, post: 195788 wrote:
    Hi,

    Hope I’m posting in the right place, if not many apologies.
    I’ve just joined this forum as I’m looking into purchasing a newly started business, and would like some feedback on what it is potentially worth.

    It has been operating for just over 6 months, home based producing product and delivering to clients. Current turnover of $600-$750per week, roughly 25-30% cost, 8-10 customers, a lot of potential to expand.. However there is real no financials to go off as only just started up, only invoices. Plant/equipment worth $1500-$2000, asking $15000.

    If anyone can give me feed back on how to work out what the business is worth as I believe I definitely have room to negotiate, it would be much appreciated.

    Cheers…..Ringo

    As MS and bb1 have said, the customers are the attractive part of this deal, but are they worth $13500.

    Knowing a bit more about the product would help, you dont have to get too specific if you dont want to, but is your product a food item? a kitchen item? a gardening item? the more details you can give the better the quality of advice you will get in my opinion. The advice i might give someone manufacturing theft proof gilded marble bird baths would be different to the advice id give someone manufacturing childrens clothing or meat pies for example.

    Based on the information provided I would want satisfactory answers to the following questions before committing to spending that kind of money (effectively 90% of the purchase price is goodwill)

    1. Is the product a one off purchase (like the birdbath) or a repeat business (like household cleaning products)
    2. Have any of the customers made repeat purchases or at least indicated that they would like to?
    3. Does the business have a database of missed sales or unconverted leads? ie is there room for organic growth, is there demand for the product and is there something you could do better than the previous owner to convert more of the leads into sales
    4. Would copying the product and business model with your own branding, starting from scratch, and acquiring your own 8-10 customers (or even poaching them from the seller) cost you less than the $15k, or even if it cost you the same $15k or even a little more, what is the learning curve, and how far would buying the business get you along the learning curve
    5. What is the existing reputation of the business? are there 8-10 unsatisfied customers and dozens of others that have heard about the product and will avoid it? conversely has it been generating any buzz that will bring in demand?
    6. What are the opportunities for growth? if youre planning on operating this business as a 1 person operation what is the maximum manufacturing capability you have? if you can only make enough widgets in a week to satisfy your 8-10 customers then youre essentially stuck at that level of income (which may even reduce if competition picks up and squeezes your margins) how much time does the production leave you for sales and marketing?
    7. Are the customers loyal? Are they loyal to the product/brand or to the previous owner? can you make them loyal to you?
    8. Why is the business being sold? This is perhaps the most important. Maybe there just isnt that much demand, maybe the manufacturing is hard work and doesnt justify the return, maybe there are hazardous chemicals involved.

    The insurance broker in me would also warn you to check on the status of their business insurance because you dont want to be stuck with claims against the business because of actions made by the previous owner. This is another reason id advocate starting from scratch if its achievable.

    I dont mean to imply that you havent already got satisfactory answers to the above, just that based on the information I have in front of me, these are the things I would want to be satisfied with before going further with the deal.

    Best of luck

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