Selling or Buying a Small Business/Buying a Business

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Question
I'm looking at buying a small furniture store for sale, owner is older and wants to retire.  2014 $157,000 gross sales, $15,000 to owner after all expenses.  No 2015 numbers yet, but owner and broker say it's about the same as 2014, maybe a little more.I have experience in mattress sales, and a little furniture (mostly beds).  Asking $77,000, including approx. 20K in inventory--basically just the showroom floor models. I can increase sales by bringing in mattresses, which he does not sell, but I don't see paying him for something I'm doing.  The store location is excellent,it's a good spot for high end sales.

Answer
Hello, and thank you for your question.

You didnt say where you or the business are located, and there is some variance in values according to geography, so I will have to generalize.

First, have you confirmed that the profit to the owner is only $15,000?  In other words, have all personal, non-recurring, and "book" expenses like depreciation been added back into the profit to produce an adjusted net profit?  Let's go on the basis that they have, and the profit is $15,000. The price of a business relates most closely to the profit, not the gross sales. Based on a profit of $15,000, I would say a price should be closer, and makes more financial sense, to around $25,000 plus inventory. This would total around $45,000. However, the way lenders look at it is, a person cannot survive on $15,000 income annually, so if money was borrowed to buy this business, after debt service there would be little or no income at all. Consequently, it is not likely any lender would lend on it. In that sense, it could be seen as "unmarketable" at virtually any price.

If you feel strongly that you could increase the business, and the profit, it may be worth a bit of a premium to you, but normally you should not pay for what you do with the business. If the sales and profit numbers are accurate, I personally would not even list this business for sale.

I recommend that if you move forward on it, to offer about half, total, what is asked. I believe based on what you told me, the business is overpriced.

Best to you,

William Bruno
Senior Broker/Intermediary

Selling or Buying a Small Business

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william bruno

Expertise

Virtually anything regarding buying or selling a business or company

Experience

28 years as a licensed broker/intermediary

Organizations
Association of Professional Merger & Acquisition Advisors

Education/Credentials
BA University of Pittsburgh

Past/Present Clients
I have been involved in 304 successful sale transactions in my career

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