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> right now the business has a profit, and therefore a valuation, closer to zero You’re thinking of this like an engineer rather than a business person. 1. Wh

by csa 3y ago

> right now the business has a profit, and therefore a valuation, closer to zero You’re thinking of this like an engineer rather than a business person. 1. When selling a business like this, the $236k would be called SDI or SDE (seller discretionary income/earnings). 2. The buyer determines what, if any, of that SDE will need to go to paying someone to do what the seller does. These duties could be assumed by the buyer, they could be assumed by existing people the buyer employees, the tasks could be reduced or eliminated, etc. 3. Based on 2, the buyer will typically adjust the earnings multiple that they are willing to buy at. 4. For complex businesses that need someone doing one or more specific roles, the listing agency for the business, if good, will encourage the seller to fill certain roles to improve the overall salability of the business and multiple of earnings that it will be sold at. 5. Without really looking into the business, I’m almost certain that it can be sold for much closer to $1m (or more!) than to your suggestion of (edit) closer to $0.

gnicholas 3y ago
GP does not suggest a valuation of zero. GP says that the profit and valuation is closer to zero. It is not crystal clear if this means "closer to zero than it is to $236k" or "closer to zero than $236k is" (i.e., less than $236k). The second is undoubtedly true. The first may also be true, but would depend on the cost at which the labor can be outsourced reliably, and what oversight would need to be done of these outsourced activities.
- csa 3y ago
  Fair enough. I changed my comment to “closer to $0”. I still think that even talking about or towards $0 is bizarre. Saying something like “less than $236k” would have been much more meaningful if op meant either thing you said.
- refulgentis 3y ago
  The other poster is right, if you told someone who knows about business valuations about this conversation they'd be confused and bemused. Easiest place to start is valuations arent capped at one year of profit, or last years profit...the silly mistake is the one year thing, the more advanced mistake is looking at profit instead of cash flow.
danielmarkbruce 3y ago
He's thinking about it like a business person who is looking at buying a business. It's worth close to zero. In it's current state this business is not an asset, it's a organization doing stuff. Breaking it out into SDE + adjustment is what the comment already does, albeit without using that terminology. One cannot hire a person who can do all the things this owner does. The person is a smart former google engineer. These people don't grow on trees. It would take a few people to do a bad approximation of what he does. The adjustment to SDE is going to be 100's of k and you get to 0 cash thrown off.
- csa 3y ago
  > It's worth close to zero. Serious question… have you bought a business before? It’s what I do. This business is not worth close to zero, and the stuff that the current owner does (even if he’s some miracle worker, which xooglers aren’t guaranteed to be) can be handled any number of ways that cost less than $236k by some buyer. This may not mean you or the person that I replied to, but you two most likely aren’t a part (and certainly not a significant part) of the market of buyers for businesses like this. I can’t tell if you’re circle jerking the owner, xooglers, or the (limiting) engineering way of thinking about businesses.
  - danielmarkbruce 3y ago
    Yes. Lots of them. Who is the buyer? The logical buyer of this hardware business doing $1m per year and can backfill all the things this guy does at some low enough number that this business generates cash. And then, enough cash that it's worthwhile to go through diligence and paper up a deal and take on the risk that there isn't skeletons in the closet.
    - csa 3y ago
      > Who is the buyer? Realistically, the best buyer would be someone who has deep connections in a market that the current owner hasn’t penetrated that could 5x the volume almost instantly. They would hem and haw about whatever small multiple the seller is asking for, and then laugh all the way to the bank after close. I’ve seen this happen many, many times. > And then, enough cash that it's worthwhile to go through diligence and paper up a deal and take on the risk that there isn't skeletons in the closet For a business of this relatively small size, an agency would likely be used, and they would do all of this scutwork, and their fee is paid by the seller. Which agency or agencies have you used (if any)?
Nemi 3y ago
If you are valuing a business on SDE the multiple is usually 2.4-3. So this business as it is today would be worth more like 566-708. The beauty of building a business is that as the bottom line goes up your business is worth more, but it ALSO fetches a higher multiple. So a business with a bottom line of $1M will get 5-7 times earnings (note: not SDE), whereas a small business gets a lower multiple based on SDE.

by csa 3y ago

gnicholas 3y ago

GP does not suggest a valuation of zero. GP says that the profit and valuation is closer to zero. It is not crystal clear if this means "closer to zero than it is to $236k" or "closer to zero than $236k is" (i.e., less than $236k). The second is undoubtedly true. The first may also be true, but would depend on the cost at which the labor can be outsourced reliably, and what oversight would need to be done of these outsourced activities.

csa 3y ago
Fair enough. I changed my comment to “closer to $0”. I still think that even talking about or towards $0 is bizarre. Saying something like “less than $236k” would have been much more meaningful if op meant either thing you said.
refulgentis 3y ago
The other poster is right, if you told someone who knows about business valuations about this conversation they'd be confused and bemused. Easiest place to start is valuations arent capped at one year of profit, or last years profit...the silly mistake is the one year thing, the more advanced mistake is looking at profit instead of cash flow.

danielmarkbruce 3y ago

He's thinking about it like a business person who is looking at buying a business. It's worth close to zero. In it's current state this business is not an asset, it's a organization doing stuff. Breaking it out into SDE + adjustment is what the comment already does, albeit without using that terminology. One cannot hire a person who can do all the things this owner does. The person is a smart former google engineer. These people don't grow on trees. It would take a few people to do a bad approximation of what he does. The adjustment to SDE is going to be 100's of k and you get to 0 cash thrown off.

csa 3y ago
> It's worth close to zero. Serious question… have you bought a business before? It’s what I do. This business is not worth close to zero, and the stuff that the current owner does (even if he’s some miracle worker, which xooglers aren’t guaranteed to be) can be handled any number of ways that cost less than $236k by some buyer. This may not mean you or the person that I replied to, but you two most likely aren’t a part (and certainly not a significant part) of the market of buyers for businesses like this. I can’t tell if you’re circle jerking the owner, xooglers, or the (limiting) engineering way of thinking about businesses.
- danielmarkbruce 3y ago
  Yes. Lots of them. Who is the buyer? The logical buyer of this hardware business doing $1m per year and can backfill all the things this guy does at some low enough number that this business generates cash. And then, enough cash that it's worthwhile to go through diligence and paper up a deal and take on the risk that there isn't skeletons in the closet.
  - csa 3y ago
    > Who is the buyer? Realistically, the best buyer would be someone who has deep connections in a market that the current owner hasn’t penetrated that could 5x the volume almost instantly. They would hem and haw about whatever small multiple the seller is asking for, and then laugh all the way to the bank after close. I’ve seen this happen many, many times. > And then, enough cash that it's worthwhile to go through diligence and paper up a deal and take on the risk that there isn't skeletons in the closet For a business of this relatively small size, an agency would likely be used, and they would do all of this scutwork, and their fee is paid by the seller. Which agency or agencies have you used (if any)?

Nemi 3y ago

If you are valuing a business on SDE the multiple is usually 2.4-3. So this business as it is today would be worth more like 566-708. The beauty of building a business is that as the bottom line goes up your business is worth more, but it ALSO fetches a higher multiple. So a business with a bottom line of $1M will get 5-7 times earnings (note: not SDE), whereas a small business gets a lower multiple based on SDE.