Thanks for the business genius comment, I’ll take that!
That’s the true net (this year). That’s why later on in my previous post for the business valuation I factored on a 3 year average of 200K net profit (probably more, but that would be on the safe side).
Yes, I agree the net profit this year is amazing and might even be a bit more, the problem with that is it’s in the heavily custom architectural Millwork realm which is extremely hands on. So, a bit hard to hire someone run it.

You need to adjust net profit and move items to net profit that wouldn't be there if an employee was doing your job and you were fishing.

All of this depends on structure (corp, sub s, llc, sole proprietor)
Examples of items that would go to the net.
Car for owners wife, car for owner, max out 401 k contribution paid by the companies, owner taxes paid by the company, expenses for anything that isn't part of the true operating cost.

If you are a sole proprietorship then your distributions would reduce the net unless that is after you are paid.

You add that back to the bottom line.
You would want to have more backlog, close to a year or more of clean good margin sales.

I would ask my attorney or CPA for a broker to use, CPA's and attorneys do real valuations all the time and know who to use.

You would probably own the receivables and payables.

Basically its going to come down to ROI for the buyer so better cash flows and margins will be easier to sell if they can be sustained with you gone.

Come back when this is done and let us know what the price was and what the multiplier was.

I would be curious.

When selling a business the key factor that determines value is the net taxable profit to the owner. The profit multiplier will increase with that profit margin. Your estimate of a 3x multiplier is a reasonable (and perhaps conservative) estimate based upon a $450k to $500k profit. The question is whether the $450k to $500k profit is actually accurate.

There are a few factors to be considered:

1) Value of equipment does not come into the equation. It doesn't matter if you make that amount of profit with $100 or $100,000 worth of equipment. Whatever equipment is required to make the product is expected to be included in the sale regardless of its value. In fact a high equipment value might even lower the business value if some of that equipment is aging and will be needing replacement in the near future.

2) You have to deduct the expected salary cost of your position from the net profit amount. If an investor were looking at buying the business they would have to hire someone to do what you are doing. In a very small company this can be overlooked if the new owner were to be full time hands on doing what you do. In a larger business though the outlook is that someone will need to be hired.

3) Your bargain lease cost may need to be increased in the future so a higher rent cost may need to be factored in to the equation. A buyer is sure to ask "what will my costs be when the lease comes up for renewal." This could be balanced by an existing long term lease agreement but any potential buyer would be looking closely at this issue.

As to where to find a buyer my best suggestion is to talk with local and regional business people to try and find someone who has successfully sold a similar business. If they used a broker then you can contact that same firm. They might even have some potential buyers in mind from that earlier successful sale. If the business owner sold on their own then you can find out what method was used to develop the buyer interest. There are a number of national level business sale sites on the internet. You can list there yourself for a modest cost. Most brokers will list the business on those sites as well as approaching their own list of potential buyers waiting in wings.

Good luck,
BH Davis

PS: one last point.

The value of the business will not be based upon the most recent sales year alone. Any buyer will need to see sales/profit records from the past 3 to 5 years. This most recent year's high profit margin will not be ignored but will be put into the larger perspective of a multi-year trend.

BH Davis

I just sold my business to two of my employees. I own the 25,000 Sq. Ft building and will lease it to them at about 2/3 the going rate. I am financing the operating capital as a 10 year loan, secured by the equipment. I will get a monthly payment that is more than enough for me to live on. I have other income that is plenty to live on. I wanted to make sure the rest of the employees continued to have jobs. Many of them have been with me for a long time.
I know there will be ups & downs and that I may not get some of the payments, when due. We have a lot of work now but I remember what happened in 2009.

The age old question what is my business worth and who will give that to me. I went through that in 2005. I told my CPA I wanted to have all the proper paperwork to be able to sell my business in a few years. A had a unique business plan before that, make as much money on every job as you can. I started in 1989 and have been successful every year. In 2005, 2006 2007 I averaged 1.5 million with 6 employees with about 350,000 in profit. I purchased the building I was leasing along with two others. I had a years worth of work on the books, a lump of cash in the bank, Good receivables and very little debt. I had it all lined up and even had some serious potential buyers and then WHAM 2008 hit. Nobody could get a loan, nobody was buying anything, it was all for nothing. Just surviving the downturn was chore in its self, taking jobs just to keep the doors open and people paid, i worked for three years and everyone who worked for me made more than I did. The only person who would buy the shop was someone looking for good equipment. I did have a small retirement plan however, two years ago all the buildings and land was paid for, now I collect rent on seven warehouse units. When I get tired of collecting rent I'll sell the properety and that will give me enough to live my remaining years. I doubt that I can sell the business which is a shame but it did supply the money i needed to buy the property that will support me the rest of my life. Here's to sawdust and money!

Larry - 25 bonus points for you. To make the business available to the employees is smart, since they have a vested interest in keeping a stable and presumably growing income. Good economics, good practice, and good business.

Your plan is exactly what I was working towards when the greed took over the system and nearly forced me out of business.

Congratulations Larry, good for you

Good for you Larry, I hope you continue to contribute here.

Mark

Go Larry? I want to know where he found employees who would stay around that long and have money to invest in a business. Lets be honest here, if you run a small shop it is very hard to keep good help, someone who is young and has a good head on his shoulders will eventually get an offer from a large company with benefits and perks that you just can't possible match, and probably from one of the companies that you subcontract from. You can't blame him for leaving. The guys that stay around are the ones that generally live paycheck to paycheck. Do not forget we are in the construction industry and generally do not get the cream of the crop. I know that the guys working for me could no way muscle up the down payment for my business and I seriously doubt that they could run the business, except they could run it into the ground. Generally what we do is start a small shop, try to make enough money to support our families, then after doing this for a number of years we learn all the nuaunces of a small business, estimating, purchasing, finance, taxes and insurance, collections,
quality control, human resources, etc. Now you tell me where are you going to find someone to fill those shoes and just how much are you going to pay him? So I want you tell me and tell me honestly what is the biggest asset of your business? and when you leave what is it actually worth besides the brick and mortar?

d conti - I don't know that your experience with small shops is the same as everyone's.

I have a small shop that at one time did $1M a year, and had 5-6 employees. We had health insurance paid by the company 100% for the employee, and paid 50% for the family. I had 2 men that worked with me for 11 years, and 2 ,more that worked with me 6 - 7 years. They all made a living wage. We still have paid vacations, even though I have only one employee now - here for 6 years. Most years had year end bonuses, as we do now. Free materials and shop time for home projects or similar is also a benefit.

The shop did not have open books when larger or even now, but the employees knew what our overhead was, the time and materials budget for every job, how we came out and why. They knew that if they could make or beat the time budget that they would benefit from it.

A well-run company that knows what they are doing can do all this. It is not easy, but it certainly is not impossible. I think that if the company is living from check to check, then it is likely to attract people that do the same, and the whole thing becomes a shaky affair.

David,
I hate to inform that what you assumed about my business is totally wrong. I have been in business for 29 years, each one has been successful. I have an excellent reputation not only for good quaility work, but for honesty as well. I have done quite well for myself. The point I was making that in a small shop it is owner that really makes things work and that when you are selling a business you (the owner) is not going with it. You are the greatest asset the business has and basically without you and your contacts and your business sense that the business is nothing more than a building, a bunch of machines, and few employees, which with about $500,000 all can be purchased and put into place in 60 days or so. So why would anyone purchase an exisiting shop for a premium ? Now about the employees maybe in a more rural area where jobs are scarce you might be able to hold on to some good people but I am in large metro area where people change jobs often, and I can not compete with the likes of General mills where they are paying people 80,000 per year a plus benefits. I know my turn over is going to be high it is just part of the business so I deal with it.

Employees: Why do they stay or go? Like what they are doing and feel appreciated. Good environment, can work together as part of a team. Decent pay but it doesn't have to top other places. Feel like they are kept in the knowledge circuit and have a chance to learn new skills. Open door policy for access to the owner/manager.

How? Actively ask for their input and get back to them on any suggestions. We have monthly employee meetings where up coming work is explained, any problems that have come up are opened for discussion. A safety meeting is part of it. Lunch is served. Annual picnic in the park with families. Cross training for everyone. Friday after work cold beer & snacks along with lots of BS. Limit 2 beers.

Result: 2 of my original (3), 1988, guys are still here. Several more have 15+ years here. Hire for attitude.