Business goodwill, what's it worth?

[slice&dice 2,450]

If you want to sell an operating business that's in a retail store, is there some kind of formula for calculating what the "goodwill" (established accounts, reputation, etc.) would be worth?

 

 

[OWJones 1,981]

If you want to sell an operating business that's in a retail store, is there some kind of formula for calculating what the "goodwill" (established accounts, reputation, etc.) would be worth?

 

I've never bought or sold a business, but I do listen to the Clark Howard Show and the Dave Ramsey Show, and the general rule of thumb I've heard mentioned is 3 times the annual revenue is a fair starting price for an existing business.  If the business has lots of good will and repeat customers the annual revenue should be high - if it doesn't, then the revenue will be low.

 

Are you looking to buy or sell?

[WHIT72 36]

I never understood the rationale especially in small business. It's nearly impossible determine the rate of return customers especially after an ownership change. In corporate business I'm sure it's more valuable because they don't know ownership personally.

In small business its nearly impossible because customers associate the owner with the quality of work or service.

As far as a calculation there are different methods. I think the value method is most popular. But I couldn't tell you a sure fire method. I believe the formulas widely vary based on multiple factors.

Good luck

[Friedrich07 16]

Huge Dave Ramsey Fan here as well..

 

 

Basically OW has the right concept to it just depends it would be 3 times the annual income AFTER you can pay someone to run it though. You dont want to spend three years of income at the chance of owning a job that would be silly. Pretty much what I am saying is if your selling a business that you have to work 60 hours a week in and have zero employees but make 60k a year that business would be worth the market value of the equipment your selling realistically because who says that the guy who buys the business can operate the business like you do and who wants to work 60 hours a week for 60k,... not me. If your business has 4 employees pays you 60k a year to run it and you clear a % of profits at the end of the year as well then that business has a much higher selling value and will attract guys with deep pockets who like to buy business's.

 

Then again the old concept my dad always taught me is its worth as much someone will pay for it lol... those are just some general guidelines to get you in the ballpark.

[slice&dice 2,450]

I tend to think that both WHIT and Friedrich have hit the nail on the head here.

 

 

"In small business its nearly impossible because customers associate the owner with the quality of work or service."

                                            and 

"...who says that the guy who buys the business can operate the business like you do..."

 

 

In other words, there is not going to be "goodwill" transferred, because the entire operation is no longer being run by the guy who people have come to trust.

 

Anyway, just for the record, I'm contemplating selling out, or just closing, and going overseas to live (Israel).

[mopar691 281]

In this business all your company is really worth is its liquid assets. Customer files and such really add nothing to the value. 

[slice&dice 2,450]

Liquid assets?

 

I have plenty of those sitting around  --

 

[xpaperman 719]

What is the lowest you will take for those liquid assets?

[MadHatterGraphix 1,258]

Why slice,why?

[jaybyrd 3,770]

When selling a small business I think more people see it as a fire sale (liquidation) than see it as an entity being sold and as such most buyers are going to want to offer you somewhere around half of what your inventory and equipment is worth retail since they are not getting that perceived value of a branded business. May not seem right but I see this happen fairly frequently in signs and when I was in construction.

[slice&dice 2,450]

When selling a small business I think more people see it as a fire sale (liquidation) than see it as an entity being sold and as such most buyers are going to want to offer you somewhere around half of what your inventory and equipment is worth retail since they are not getting that perceived value of a branded business. May not seem right but I see this happen fairly frequently in signs and when I was in construction.

 

This is very perceptive, and so far the potential buyers I've talked to are approaching the sale that way ---- as a liquidation, not as a transfer of an ongoing enterprise.

 

I find it frustrating, because if someone were to create from scratch what I have already organized as a sign store, they would spend much more than I'm asking.

 

Anyway, I want to get someone to take the store over AS-IS and continue with it, and I don't wish to sell the contents, equipment and inventory separately.

 

I may just have to hold onto this operation, and continue to work, and not go anywhere until I retire.

Israel will always be there.

[jaybyrd 3,770]

I understand and I know if I were to try and sell I'd be going through the same thing. Building a business is like building a hot rod no matter how much love and money you put into it the next wants to bleed you dry.

[WHIT72 36]

This is very perceptive, and so far the potential buyers I've talked to are approaching the sale that way ---- as a liquidation, not as a transfer of an ongoing enterprise.

 

I find it frustrating, because if someone were to create from scratch what I have already organized as a sign store, they would spend much more than I'm asking.

 

Anyway, I want to get someone to take the store over AS-IS and continue with it, and I don't wish to sell the contents, equipment and inventory separately.

 

I may just have to hold onto this operation, and continue to work, and not go anywhere until I retire.

Israel will always be there.

It only takes one buyer.  Are you going to sell the name along with it?  I think name changes deter the small business buyer because basically now your starting over.  If you sell the name with it, it may give the buyer some time to build his reputation under a name synonymous with quality.

[Dakotagrafx 7,297]

It only takes one buyer.  Are you going to sell the name along with it?  I think name changes deter the small business buyer because basically now your starting over.  If you sell the name with it, it may give the buyer some time to build his reputation under a name synonymous with quality.

on the same note if you are associated with the old name they may drag you down with them for future endeavours.  just a thought

[slice&dice 2,450]

The name is "SIGNS" --- that's what my main sign says.

 

 

[Dakotagrafx 7,297]

The name is "SIGNS" --- that's what my main sign says.

O hell, were all cooked now!

[jaybyrd 3,770]

I'm gonna go back and delete any of my posts that even mention the word "signs", don't need any copyright issues. J/K that's actually a pretty unique idea for a name. I like it.

[xpaperman 719]

I like the name signs too, but the sign seems to be missing something..... I know,  big 'ol pair of scissors!  

[Dakotagrafx 7,297]

seen a truck 35 minutees north of here last week - guy goes by "a good sign"

[sleeveofwizzard 104]

I'll fall in line with the other guys here. I have heard a fare price would be 3 to 5 years of recorded annual revenue (on the books and accounted for, not someone's word!). Of course this would be an average of  the annual revenue for the life of the business or at least the last few. The new owner would be silly to think that there wouldn't be a change in business with the transfer of ownership but that is part of their situation, not yours. The other way to determine a price is for equipment and supplies. This is good for a business that is not turning a profit or at least an appealing one. Fair market value for all equipment, supplies, furniture and so on. If the building is owned then that would also be included. The last factor is training if it would be included. Some sales include the seller training the buyer on how to use the equipment.

[slice&dice 2,450]

Hmmmmmm, training, now there's an angle.

 

That should be worth a few thousand, right there.

 

Good suggestion.

[sleeveofwizzard 104]

It could greatly vary depending on the situation.

 

You could be onsite for a period of time then be available by phone to answer  questions for a month.

 

Maybe just have you work in the shop a couple days a week and go over how to do the jobs they have.

 

Or they could hang around in the shop and learn for a few weeks while you are still running things.