Kinda stumbled on this topic looking for other info, thought I would chime in
If for some reason I get back into that type of business, ....
Don't forget the non-competition clauses
Don't want to hear the guy say he wants out of it all, just to find out you financed him to start over & do it better, and be your competitor and/or steal your business/clients/etc.
Best I could say would be to get a good lawyer & accountant to look it all over. A few years back, we entertained selling our machine shop to one of our bigger customers. They figured it might be easier to just absorb us than to try to do it all themselves from scratch. Didn't work out, they tried it from scratch, and spent 4x the money & don't have 1/3 the ability.
I even considered selling off HRparts (briefly) a while back, when it seemed I didn't have the time or resources to take it where it seemed to want to go (BIGtime) and had attractive offer from family shop to return working there. Kinda figured someone with the resources could make it grow WAY beyond what I ever had in mind when I started it all. But, with not much showing on the books, and most of the value was in the potential & growing customer base & name/product recognition, hard for anyone to pay a decent figure for it. Also thought of biz partners too, but never heard any good stories from that situation either.
As far as values go, if it doesn't make profits and/or doesn't work out, you need to be able to liquidate assets & payoff debts & come out even or ahead. That's bare min what it should be worth IMO, assuming auction prices & NOT insurance or replacement costs. FYI, auction prices are getting pretty low on stuff too, so never assume you will get fair market value on stuff if you have to sell it. Just went to auction last weekend, someone bought a fancy eletrical switching box (no one had any idea what it was) for basically scrap, paid $30, and the owner paid $12,500 for it!
I got 2 truckloads of stuff, benches etc, for just over $200, paid to stay late
On the other end, if the owner is helping out (might get xx months help at low price) and it has potential & seems easy to handle (people & equipment in place), then that's where you can start using a multiplier on earnings etc. Keep in mind, employees can quit or start competing or just be headaches. Lots of times the new owners just inherit all the hassles & headaches. When was last raises for them all, are they all happy & plan to stay, what kind of tenure/seniority???
Also got to figure you will make more profit without taking much risk, or better off leaving money in bank/stocks/bonds/etc. Don't want to go crazy or worked to death trying to make it work either. Got to be realistic on what YOU will need to put into it all (besides just the money).
As far as buying the name/reputation & wondering if people will stay with the company or follow the person, it could go either way. Many people associate me with HRparts, but if it's really self-supporting and someone took it over & didn't make it too public, then most would never find out. Once they did, it shouldn't be a problem if it was run trouble free for last xx months/etc by new owners. Also could get old owner to step in & be spokesperson/etc if needed, for those that it would bother. Might find out from main customers if it would be an issue, but that could get hairy too. Not sure he would want the info out pre-maturely either. Myself, I would have wanted to stay involved to make sure it kept going, or wouldn't have been interested. Hate to see all the hard work & effort go down the drain cause the new guy screwed it up or sold it off
Might also consider an up-front amount & xx% of the invoicing/profits as payment too, or stuff in trade/etc. Not sure what else might be available there. The more the previous owner stays involved (willingly), it would seem he would be confident it should work out. If he wants the money & run, would make me a little more worrysome. Hope something there helped!
PS- Did he ever try to sell it before?
Any new competition in the area scaring him to sell?
Any BIG changes in operation/staff/sales/etc recently?
Might have a/your bank appraise it, they usually run on the conservative side of things.
How involved was the owner?
Can you replace him, or have to hire someone?
