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How much for that frame shop?

Less

SGF, Supreme Grumble Framer
This question is for the business geeks out there.

Is there a standard formula for placing a value on a framing business that is for sale?

Is it assets plus three to five years profits?

This must get pretty tricky, since many smaller shop have built owner-client relationships that will no longer be there after a sale.

Does this mean framing businesses that don't build their customer base on the owner-client relationships will have more value due to the fact they will be Less likely to loose customers?

Whether an owners stays on, and/or a long-term saleman stays with the business, must play a role in a service businesses value.
 
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Elaine

SGF, Supreme Grumble Framer
Less,

There are standard methods to do business valuations and they would apply to a frameshop or another type of shop. There are some good books out there that walk you through the methods. I have looked at and valued a couple of different small frameshops that were for sale and these I approached and valued from a couple of the methods to see how they compared. My conclusion... Why buy something that I can start up next door for a lot less money BUT, that depends on the business you are looking at and how well they have developed their business - in the cases I looked at, the businesses were poorly run and had lost a lot of customers and the equipment was fully depreciated.

I have found since I opend my storefront, that there really isn't that much customer loyalty. The shop that was next door closed - where did her customers go? To the shop next door! When they try to value "good will" how much good will is there??? and what is it worth??? I'm not saying there isn't value to owner/client relationships, because I think there is; what I'm saying about the owner/client relationship of a businees that is for sale, is that YOU won't know what that relationship is or IF there is a good one. In my town, the past shops really shot themselves in the foot and a lot of business moved out of the town because of POOR relationships and bad customer service - I'm glad I didn't buy that shop and pay anything for "Good Will" - where I would I be now!!

I've read about the owner staying on, and that seems to have its good points and its bad points, but would be something that you would have to evaluate on a case by case basis. In the case of the shops I did valuations on, it would not have been a good thing - the owners were poor business people and had lost a lot of customers because of their practices.

Not sure if this has answered your question, but it is based on my experience of doing valuations on two frameshops in the last 5 years. I decided to start from scratch - bought new equipment, rented a storefront, and started building my own reputation, etc. I'm not saying it is easier, but I didn't need all of the bad karma from the existing businesses. As it is, a lot of people have assumed that I took over the other gallery, and I have heard more horror stories than I ever need to hear. I take something away from every one... How not to treat the customers!
:D

Elaine
 

Cliff Wilson

SGF, Supreme Grumble Framer
There are lots of valuation techniques for buying/selling businesses. I opened my frame shop from scratch about two months ago, but looked at some purchase options before doing so. As a "rule of thumb" here in New England, Frame Shops were being priced at about 40 to 45% of annual gross revenue. This seemed to be independent of profit/loss or any other considerations. Longevity, location and profitability were being used by the brokers to "push" one over another. I don't know if this metric (% of revenue) was the driving force used in the valuation or if it was a consistent by-product. I felt that I could "do better" for less on my own. I suspect that is not always the case. I talked to two frmaers in the surrounding area who both purchased their businesses and were thrilled. (In both cases they bought from sole proprieters wanting to get out of the "business aspects" and paid more in the order of "Asset Value." They did not use brokers.)

Cliff
 
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