Pricing a business

[fyrmnk]

Hi all, just curious how to go about setting a price to sell a home inspection business. Basically, been opened 3 years, on track to gross about $40,000 this year and growing. Just kicking around ideas. Thanks.

[chrisprickett]

I was approached by a national company, last year, to buy my business. At the time I was a one man show, grossing $170,000.

They offered me 60% of my gross, some incentives for growing my "book", benefits, and a job for at least a year.

I countered with 100% of my gross, and a position as a marketing guy. We did not come to terms.

It's very tough to sell a one person business, as you are the business.

[Scottpat]

When you think about it what do you really have to sell as a solo inspector? Not very much. Now if you are an established company with lets say 10+ years in the profession and you have a couple of inspectors than you have something to sell.

[fyrmnk]

Company reputation, advertising, computer, tools/equipment, radon monitors, in place advertising, etc.

Originally posted by Scottpat

When you think about it what do you really have to sell as a solo inspector? Not very much. Now if you are an established company with lets say 10+ years in the profession and you have a couple of inspectors than you have something to sell.

[chrisprickett]

Originally posted by fyrmnk

Company reputation, advertising, computer, tools/equipment, radon monitors, in place advertising, etc.

Reputation is you. When you sell, the reputation (to a degree) has to be earned all over again.

Advertising is an ongoing expense, and is not worth much. As a buyer, I would argue that your advertising hasn't gotten you much. You'll gross 40k after three years in business. Either you haven't spent much on advertising, or it hasn't been effective.

Used equipment? 2k, tops.

Another way to look at it:

You gross 40K, what is your net? when you deduct expenses (advertising, equipment, vehicle expenses, etc...) and payroll (what you pay yourself comes off of the net) what is you profit? Let's say you pay yourself $15 an hour, 40 hours a week. That's 30k. Take that off of your gross, you've got 10k, before expenses and overhead.

I could make the arguement that the business is operating at a loss. so what you're offering a potential seller is a $15 an hour job, with no benefits, that is operating in the red. What would YOU pay?

I'm not busting your chops, really. Having sold two businesses, in the past, I'm just trying to show you what you have, from a buyer's standpoint.

[fyrmnk]

Actually, I am a firefighter full time. The business I've had as a part time endeavor on days off and when I'm not out of town on other things.

I haven't taken a paycheck from the business. This year I'll have to because I can't come up with other ways to offset the majority of the income for tax purposes. I just let it keep growing on its own from referrals and people that find me on the internet theough various advertising (I don't market to realtors [iHINA]). I also get a lot of referrals to the company, not just to me.

I'm at the point that I turn down a lot of inspections every month, so it's either get a good sub or sell.

[pete]

Don't people pay 30K or more to buy a franchise that then takes a percentage for life?? WHy not buy our little biz that grosses 45k? You pay us 65k and then you have everything a franchise offers you--a report, an identity a working business plan (that you can change), marketing experience past clients, tools, and most importantly something that a franchise can not give you a ringing phone.

I totally agree that it is not hard if you have the time and money to start from scrathc you should not buy an existing business. But if you can not afford to have no income for 2 years than buy an existing business. I see the franchise decision as the same. If you have no business or marketing skills buy a franchise they will tell you exactly what to do.

We are in the process of selling our business. We grew beyond our resources, we tried hiring a few different inspectors and were not happy, we had to make the decision to either sell or really push more reources to the business and we opted for selling. We are currently working with a business broker. I recommend that anyone looking to sell a business meet with a professional biz broker.

Pete

[Brian G]

Originally posted by chrisprickett

I was approached by a national company, last year, to buy my business. At the time I was a one man show, grossing $170,000.

That's damned impressive Brother Prickett. When do you sleep?

Brian G.

[Jim Morrison]

One person grossing $40K a year is a job and people don't generally buy jobs. I could get a job making $40K on my own tomorrow. It's impressive on a part time basis, but that isn't how potential buyers would look at it.

One person grossing $170K is a business and there are a bunch of people who'd pay something for that king of gig.

A couple years ago I had preliminary conversations with two big corps about buying our little 3 inspector firm. What I took from those conversations was: Unless you have several inspectors working for you, your business will be worth more to you than to any potential buyer.

Chris is dead-on. Your tools, vehicle, previous ads, report writing system, etc. are worth next to nothing. Most of it is fully depreciated in 3 years.

As near as I can figure, selling your business seems to make sense for folks who don't want to do this anymore and want to get a little coin rather than just close up shop; or established guys who are tired of the headaches of running a business and want to exchange those responsibilities for a little change.

[chrisprickett]

That's damned impressive Brother Prickett. When do you sleep?

Brian G.

At night. I just charge a lot.

[fyrmnk]

Thanks for all the input gentlemen. That's what I was looking for was several different perspectives and ideas.