Company worth?

I am new here but have already found this place a great resource. I am looking at buying a well established roofing company, not a huge operation but has a good reputation, has been in business 45 years and looks to be doing a consistent gross of 1/2 a million+ a year. The business has real estate that has great visibility but needs some TLC, and the equipment that is going with the sale is all pretty dated and will need to be replaced within the first few years. We have experience in the roofing/construction industry (sales, installation, building, general contractor, etc) but what I am curious about is what some of you out there would feel a business such as this would be worth in your opinions? I have some numbers floating around in my mind but it would be nice to get some outside feedback. Thanks and look forward to hopefully pitching in a hard around here.

$500K Gross Profit I am assuming?

Gross sales 500K I am looking at this as opportunity to get into something that has some good growth potential, hopefully at a decent deal.

sales means nothing.

profit is the only number you need to look at.

“worth” approx 3 times what they profit in the average year. thats generally the given rule.

if they sell $500k a year (which isnt much) im betting that there is about $100k pure profit., maybe a little less… basically because its obviously a very small company (one guy working out of his house, and a couple of crew guys). so in “reality” its a $250-300k business. but i wouldnt give that for it.

whats he asking? have you seen his books? the REAL numbers?

I started my company this year with about 30k in capital and some hard work. We will do close to that my first year and I have built my company from scratch. Unless there is some serious infrastructure, I wouldn’t pay a whole lot more than what the real estate is worth. My 2 cents anyway.

Did over 500k the first year. Nearly doubled it the second and now the doubled has been halved.

No one had interest in buying that.

Hard to price something without knowing the numbers.

Often the current owner is the “company”. How will that work?

45 years and a gross of only 500k. Not good

It is worth the market value of the real property, no more.

I really appreciate all of the info, a lot of this is along the lines that I had been thinking, glad to know I was not to far off base. I had been thinking the 3X profit as well and think that I can get it for less than that and with the value of the real estate it makes good business sense and this will alow me to also diversify into the roofing/construction as well which we have been heading towards anyway. Thanks for all the help, I feel we have great growth potentail and I have a good team of guys so we will see if we can make a deal happen, and if so then I will likely be in touch more in the future.

What is it exactly that you believe you’re buying aside from the physical assets? This isn’t a business where you’re getting a lot of residual business. Arguably, it’s just the opposite. That is, you’ll likely inherit more liability issues for warranty than you will gain from reputation.

If you’re in a small town rural type area, the reputation might be helpful but won’t last long as soon as people realize the owner who established that reputation is no longer part of the deal. If you’re in a larger metro type area, in these days of the internet and so many other types of advertising media, I can’t imagine that reputation is worth much. The reputation must not be worth much if the business only generated $500,000 in revenue per year. That’s only 50 new roofs at $10,000 per.

I’d guess the business is worth what the real estate is worth, a minor amount for the tools and a token for the established reputation. I’d check what warranty liabilities he has and also see what warranty costs have been over the past 5 years, then factor that into the equation.

This is a good thread. Value is very subjective.
Definetly look at the REAL numbers. Real estate and physicals are good- but I agree. If company is 45 years old and only pulling $500k/year- they’re asking for blue sky. Lots of room to negotiate here.

There’s different ‘rules of thumb’ for valuation of a business. When it’s all said and done- it’s like real estate. What are they asking, what are you willing to invest. I wouldn’t go for the 500k price with this long of time in business.

A specialty line of business is a company that does business valuation. They go in and usually work with a buyer and/or seller (I’d get your own) to give you an objective look at the company.

How many customers (active) do they have?

When we sold the carpet cleaning business, I kept a very active and clean database of about 2k customers a year. (We did more than that over the years- but this is the number I kept active because I wanted to work with them.) Upon selling, I not only had a very loyal database, but also a whole system for marketing it. My buyer chose to not take my marketing (which was the backbone of the business. 90% of our business was repeat business and WOM referrals.) Anyway- after 4 years of their ownership of my company (built w/blood, sweat and tears LOL!) they didn’t market - and that active database dropped to less than 400! OUCH!

From a sellers end- I knew I had tangibles, and a real system. I had a blue sky price we asked- but when it was all said and done, the negotiated price is what we sold for.

Do your homework, understand your reason for buying- how will you build upon it to gain your ROI fast (there’s a good way to do that and a poor way to do the change of ownership)- and then decide how much are you willing to risk in the investment.

Hope this helps a bit. Having been there, done that, I could share more. If you want to chat from sellers perspective, PM me.