one of the biggest mistakes people make in considering their “profit” is to consider their own pay as part of the profit it’s not! unless you are completely unnecessary to business.
if you 100 k in wc by yourself and your total expenses are 15k many will consider that they have 85k profit. to accurately calculate profit we must deduct an amount for salaries to replace you completely.
cleaning staff to replace owner. 30k
office staff to replace owner answering phones schedu;ling etc 20k.
if for those amounts you can walk away and only check the bank balance occassionally then you could say you have a job that pays you 30+20=50k and company profit of 35k
it might if we add our favourite soap!
line 31 looks to me like just income less expenses which produces net income. the government calls that profit. an investor is going to ask what you personally did in the company and what it would cost to replace you, then remove that from the “profit”
I don’t claim to be an “expert” but I have been self employed since I was 19. I have bought and sold restaurants, and been involved in numerous business transactions… I am also in a family of business owners…several have large companies that were all started from scratch… That evaluation is irresponsible coming from someone who claims to be a business broker. How can you give an evaluation without understanding the industry, inventory, accounts, and numerous other factors that determine a sale. Garbage… straight garbage.
$50k salary for the owner means absolutely nothing. If that owner is working 60-80+ hours a week to get that 50 K salary then its worthless. 30k profit? is that pre tax? cause if it is… have fun knocking about 8 grand off that unless you have one hell of an accountant you are paying an additional 3 grand a year to get that 8 grand tax liability down to 5500. You also have to understand the industry. In the cleaning industry your biggest asset is not your used equipment, not your customer list because most of us do not have written contracts with our customers. What makes a cleaning company sellable is if it is systematized. No way in hell you, me, or anyone else would drop 150k-200k on a cleaning business where you immediately assume all the responsibilities and take on a bunch of risk and uncertainty. If you have the 150k+ cash to spend you would be better off waiting for a systematized business or starting your own brand for cheaper.
One final point… a business that is paying an owner salary of 50k and a profit of 30k… thats a very small company. Maybe one fulltime truck and a part time truck during busy season with a couple employees. Lets say profit margin is 20% which is ok but not great… then that’s a 150k a year company. A very inefficient 150k company if I can speak from experience from when I was at 150k. No body is going to pay that kind of evaluation for that a 150k company…
What would I pay for a company that size you might ask? Well first I would say, what would it take for me to add 150k in sales? …off the top of my head…15k marketing budget… 15 grand in vehicle and equipment… 8 grand in reserves to train and get 2 techs going in that truck… So just under 40 grand. So I would Low ball and make it worth my investment and offer 20k… and if I didnt get it oh well.
Mark…do your alleged job and be a better business broker…
Kyle,
Thanks for the response. I really appreciate the time it took for you to formulate the response and you’re correct when you say my response did not take several things into consideration. Had I done a true valuation on the business, there are many things to take into account, but the true measure is the SDE. When I did sales comparisons for window cleaning businesses, the average multiple was 2.7 with a range of .9 to 3.1 SDE. One business asked for 1.6MM and sold for 1.2MM and the smallest asked 50k and sold for 47k. You also know, given your business experience, that one rarely gets a full price offer.
Back to the valuation: the seller generally has a much different view of the business than the buyer. I would never even take you to the seller with a low ball offer. That offer just means you don’t have the cash to buy.
