Whats Your Business Worth?

Chris G

I pursue commercial accounts because they are sellable, (they also pay well).

I have a retail chain of stores that call my office for all their general repairs, (in someone elses case: electrical, plumbing, hvac....). My name is in the book that the maintenance department uses. It's right next to the electrician's name, and the plumber's name.

And when a new maintenance person comes into their department, they will open that book and call my number when they need me. And they will have had no previous relationship with me, but I am in the book of people to call. That IS something I can sell to another service company, (through a transitional phase).

Tom M

I must say some of these feeds are inspiring and I feel I should be trying different things. But all kidding aside I always felt a "system" worth anything would only be a business that does or has maintence accounts for their type of service with a fleet of vehicles, and staff. What would be worth buying is a visual growth in accounts and the value would be the amount generated from annual earning. Getting their is nearly impossible unless you have a family trusted partner or unstoppable gimmek that is so unique it sells itself.

Brian

While I am a huge advocate of having systems within your business, systems alone won't make a business valuable. Cash flow-- putting money in your pocket-- is what a prospective buyer will want to see.

Of course, having systems is one of the most effective ways of doing this. But the systems must be the proper ones, and they must continually be tweeked.

The purpose of systems is to get predictable, consistent, and desirable results. It's a simple cause and effect situation. If we know what actions will cause the results we want, we create a procedure that codifies those actions. If we want an effect (result) we must enact the cause (action). If the procedure is followed, the desired result is likely.

This applies on a micro scale-- specific tasks-- as well as a macro scale-- making money. If we have a system for making money, that is, for our business to consistently generate positive cash flow, our business has value.

This does not mean that our employees are robots or that we have no contact with our customers. It means we have specific ways of operating our business-- nothing more, nothing less.

Brian Phillips

__________________
Houston Interior Painting
Houston Exterior Painting
Houston Painting Contractor

ruskent

Stone Mountain- I never knew there were franchies for decks. I checked out a few of the companies sites and if decks can be franchised, ANY BUSINESS CAN.

My question is, is it better to sell franchises of your company, vs. just setting up offices in other locations, keeping it 100% corporate owned?

Just something else to ponder!

mahlere

Chris, how can you quantify that? There is no guarantee that two weeks after the sale, a new facilities manager doesn't come in with his own guy and your name is out of the book. Or that the customer doesn't sign a national agreement with a company to handle all the facilities maintenance. Both have happened to us in the past.

So, I really don't see what it would be worth to someone else.

mahlere

my sarcasm was lost in translation.

I misquoted it earlier, but I found the correct quote, it's by Henry Ford- "Whether you think you can, or you think you can't, you're right" Go for it, I think it's a good move.

Stone Mountain

Ruskent, in the last few months I have been to several large frsnchise shows. I have also purchased a number of books listing franchises. There are over 2500 different franchise systems out there. Some of them are a little strange, some are quite different, some are wacky, and some are, quite literally, ****ographic. One company is franchising pay phones and telephone booths, of all things!
My franchise lawyer is the chief councel for the Canadian Franchise Association, and he says you can franchise anything!


If I have a franchised outlet, I get a cut off the top, true, but the franchisee puts up the money and has the exposure. I have to hold his hand and help him to run his business and make money, but ultimately it's his show.
If I open a `second outlet, I have to put up all the money and I have to run it. I would only be able to open and finance a few outlets. With franchising, I can sell as many units as there are customers for.
Which way would you go?

__________________
Residential Deck Specialist: Vist our Website
www.fenceanddeck.ca

Stone Mountain

Thanks for the vote of confidence (no sarcasm meant). The quote from Mr. Ford is very profound.
I'll incorporate it into my training program.

__________________
Residential Deck Specialist: Vist our Website
www.fenceanddeck.ca

mahlere

no sweat stone, some people feel there is a limit to what we can accomplish as contractors, I personally don't. The only definite I know of is that you definitely won't succeed if you don't try.

Good luck with it. Look at ESI/PSI for their franchise model (Benjamin Franklin Plumbing/Mr. Sparky/One Hour HVAC) from what I hear, they have a lot going for them....

john elliott

I think franchising is good, too, but I need to take you up on your point above. With a franchise, the franchisee is the one who makes most of the profit, whereas with a second outlet, the owner is the one who makes most of the profit. That is why many firms choose to open outlets

John

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Ed the Roofer said "John too, in his crass and blunt demeanor.............."

mahlere

Look at it this way, 5% of the gross of 50 franchises who are averaging $1 mil/yr gross (not far fetched at all) is $2,500,000. To handle 50 franchises would require probably 10 people in the home office.

versus opening 3 company locations to generate, say $3 mil/yr, but require 30 employees overall.

If 1 franchise fails, you lose $50,000 income on average. But if one of your 3 locations fails, you lose $1,000,000 income.

These numbers are hypothetical, but by spreading out the risk over multiple franchises and multiple areas, IMO you are better off then taking all the risk.

But that's just my opinion.

tzzzz216

My business is worth every penny i've put into it and then some , plus my book of business of repeat customers plus the protential growth of the business , I would say the same for anyone who has their own business .

Teetorbilt

Your business is worth whatever someone else is willing to pay for it.

Same for your product.

__________________
You can't solve you're problems with the same level of thinking that created the problems.

Albert Einstein

tzzzz216

This is true Teetorbilt .

Mike Finley

Ah, yes, the book of business...

When I sold my photo business, I really sold the book of business I had to another photographer, we agreed on a price, I gave him all the images we had on file, some were like an inventory and the clients would periodically order prints of past items we had photographed to send out to whomever in their company needed them, then I sat down with him and told him what we charged for what we did, each client was a little different, I gave him the names of the contacts, told him what I knew about them, their hot buttons, did a passing on letter of introduction to introduce them to him and wished him luck.

It was nice, it furnaced our move to Colorado and put my wife through college so she could finish her degree. Course those would all be considered commercial accounts. Memories...

BrickTricks

Just on your site for a short time. Would first like to commend all that participate here, you are actually like a "Band of Brothers" a lot of complete openess, and genuine help, and advice! EXCELLENT SITE!

Me personally, I did college, and then the corporate thing; and ended up as CFO (Chief Financial Officer) of a rather large private company. What a crock of SHI*!! Was a fantastic experience though. Learned how ruthless the potential for position, and power makes an individual, and money is not worth your soul.

Anyway sorry for the derailment above - I left all that and went back to what I always loved, and paid my way through school - Construction, primarily Finish Carpentry.

But I know numbers, and can spin them any way you'd like. What you have to realize is that a business is not a Member of your Family, it is not something to become attached to & emotional about; although at times this is almost impossible to achieve.

A business is a vehicle of which a return on investment is derived. Whether it is return on capital invested, or good O'le sweat equity; it is established to hopefully reward the individual(s) that have stepped up to the plate, and made the sacrifices & risks, with a return for their hard work, and risks taken.

Now, one does not always guarantee the other will occur! Just because you are willing to work hard, does not guarantee you 1 cent return on you efforts or investments! This is the part where a lot of entreupeners get sucked in! Thinking the business is a "Friend" "Child" whatever; if I just add a little more capital, work a little harder, whatever, it will be O.K.!

The situation must continually be analyzed! And, if the numbers are not working - 'The Plug MUST Be Pulled!" Stop lighting ne fresh capital on fire from the burning embers of a business that isn't going to work!

The fact that most all of us are Small Owner Operators - the business is 'Just Us', and whats wrong with that. As long as the machine that generates the income that supports your lifestyle - who cares that in 35 years when you retire, that the machine just retires with you? What you have to realize now, which I see you have looked out 35 years; is how you are going to pace yourself for retirement.

There are tons of financial models for evaluating capital investment. The ones you would have to weigh would be, what portion of your net income would you be willing to reinvest into your company to grow it, position it to be purchashed in 35 years? Would you be willing to have those retained earnings blended with some financing capital to help the business grow a little faster (Leverage)?

Now based on what you could reinvest, and your cost of capital, should you deceide to finance some growth, what would your expected return be 10, 15, 30 years from now? Based on the Capital, & Financing input what growth did you obtain over the investment period! A lot of analysis has to be input on this!

Now, what if instead of reinvesting in your business, you planned for retirement using real estate rental properties as your vehicle? do the analysis for this investement, the same way you looked at reinvestment into your existing business. How much can you invest per year? Would you use any financing? FActor in historic appreciation rates for area of investment, ie commercial, residential, value of income stream from units etc.

Which returns the greatest return for your invested capital, and financing mix? This is the one you pick! It's all about return on investment! YOUR BUSINESS IS NOT YOUR CHILD!!!!!

PressurePros

Hiya Bricks, welcome to the board. Bricks, whats your contingency if the business retiires you due to injury, lets say next year? That's the problem I see with your assessment (or at least what you failed to adress).

I come from a family of craftsmen and while my father swore I would not work with my hands, its a part of me. I attended Wharton and received a degree in economics and also did the corporate thing and hated it. I'm entrepreneurial by nature. I'm also a realist. Not everyone has the aptitude for or wants the headache of owning a large scale operation. There is nothing worng with that. My neighbor just sold his pizza place last year. He is 62 and opened it at age 25. You could count on one hand how many days in all those years he wasn't at the shop. He was savvy, saved and invested and rode the wave through changing markets and made a fortune when tech stocks split and went through the roof. He just bought a home in Punta Cana and will live out his years there in Carribean bliss. All of his children attended good schools and are professionals. He chose to be at his shop because he loved it like a child. It did well by him. By the same token if he did fall ill the shop would have run with or without him. But then again, making pizzas and laying subfloors are different beasts.

I enjoyed reading the enthusiasm in your post but I am still unsure of your message.

__________________
Ken Fenner
Pressure Washing PA
Roof Cleaning Services PA

ruskent

I think Brick tricks made some good points!

My father owns his own business also. He is a locksmith. Has been running his own shop with 1 employee since 1981. He lives a hour from his shop. His hours are 8-5 m-f 8-1 sat. Due to all the traffic now, he leaves the house at 5am and gets to work and sleeps for 2 hours. He never gets out on time and often does get home until after 7. Saturdays he closes at 1, but never leaves before 3. He has been doing this since 1982. He shuts down for 1 week a year for vacation. He takes, x-mas, ny' day, labor day, mermorial day and t-day weekend off.

My dads business has been his life for the past 25 years. My mother practically raised me and my siblings. Never really played catch with my dad or anything. He did take me hunting twice though.

My father is my greatest motivator. I do not want to be like him. I do not want to be a slave to my business. I want to be able to see my kids grow up.

My fathers business is always struggling. Never really grows. My dad blames this on everything, but the proablem is him. He puts money in and gets nothing back on his investment.

I do not know what point i am trying to make with this post, i just thought it fit in with this thread!

Matt

mahlere

ruskent,

you make a great point. To your father, his business is worth everything in the world. It's worth his family, his freedom and any dollar amount you could think of. If he were to sell it, he would want millions.

To anyone else, his business isn't worth anything. Why would someone want to literally purchase a job. Most guys end up owning jobs when they go into business, but to outright purchase 1?

So, I think you make a great point.

Tom M

I dont know what anyones point is here. I myself grew up a third generation contractor. My grand dad made money in his days retired well ( beside illness ) my dad took over made a decent living for a while and always had time for his kids but struggled as cash business and personal handshakes became credit cards and immigrants. I ALWAYS LOVED THE WORK growing up. It was a mans job, out of office work, physical and freedom for family. Like many of these feeds point out, to much caring or pride is bad for a "business" and to survive you need to pull the plug from time to time. When I started I told myself If the work was good I will make money and business will be there. If you werent going to do the job right or with pride dont do it at all. The business came for sure but then I found pricing never moved up. There is competion using prices from ten years ago. --
The questions----- Am I not making money because I dont charge enough? Its not like anyone will tell you that. You learn to charge what your own business needs no matter what. But what do you do when estimate after estimate come back because competition is doing things with cheaper day labor. So now what, if you cant beat them join them hire day labors. Did anyone notice Home Depot THE LAST 10YEARS OR SO? How many people pull apart your estimates to do it themselves or have family help to save money on at least part of the bid. The concept of franchising a skilled act is a joke. Inspiring though. Always think there is something else you could be doing than spinning wheels. In the end you need regular account from people not just a regular refferal to make a run at a valuable business worth selling. Oh yeah money helps to --if you got high overhead and responsibilities how often can you take gambles on the Ralph Kramden get rich ideas.