Thread: What is your business worth?

I just got finished doing an inspection in the pouring rain, having to climb up on a flat roof for a commercial inspection, wind blowing like in a horizontal direction, temp in the lower 40's and I got to thinking -- If I were to sell this business what is it worth??? MMM?

I'm now sitting at my computer and instead of doing the report, I'm pondering how to value my business (if I were to sell it?).
I'm thinking I would have to factor in the following:

1. Whatever the value of my depreciated assets are - Computer, test equipment, maybe the truck?? What-ever!

2. Business - (biggest value) reputation, contacts, referals, INCOME STREAM.

3. Training, Software, licensing. - Help with training, licensing. and reporting library of information. (Not sure what that's worth)

So - I can figure out #1 - assets - no problem, but what is the training and business income really worth??

If anyone has a recommendation or understands the value of our profession, please help with these decisions!!

Is the business worth 1 year - 2 year revenue?? Is the traiing worth $20-50K?

Would love to hear different opinions or past experiences???

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Your biggest problem would being able to demonstrate your valuation of:
"2. Business - (biggest value) reputation, contacts, referals, INCOME STREAM."
Especially the ability to transfer "reputation" to someone else.

There are several out there trying to sell franchise operations. Take a look at them with a skeptical eye for their real value and you may get a feeling as to how your business may be valued. Look at things as a buyer....

If you're a one man operation your "business" has little to no value from a buyer's standpoint. Think about it. Most of your clients hire you because of you. If you sold your business and no longer performed the inspections what reason would there be the clients to hire your old company?

Originally Posted by Ken Rowe

If you're a one man operation your "business" has little to no value from a buyer's standpoint. Think about it. Most of your clients hire you because of you. If you sold your business and no longer performed the inspections what reason would there be the clients to hire your old company?

I agree with Ken. I figure my business has no actual value to anyone else, apart from my tools and what other few hardware items I own. For a one man shop, there's just not much reason for someone else to pay much of anything for it.

Originally Posted by Jim Robinson

I agree with Ken. I figure my business has no actual value to anyone else, apart from my tools and what other few hardware items I own. For a one man shop, there's just not much reason for someone else to pay much of anything for it.

Maybe. But, let's just say that one has been in business for 20 years, has a client database of 10,000 satisfied home buyers, a pristine Angie's List and BBB rating, and contracts to spend 6 months to one year mentoring the inspection business buyer and easing him or her into the business . . . Put another way, you are suggesting that there is no value in the name, website, database and reputation of a well-established sole proprietor business? I disagree.

Originally Posted by Ken Rowe

If you're a one man operation your "business" has little to no value from a buyer's standpoint. Think about it. Most of your clients hire you because of you. If you sold your business and no longer performed the inspections what reason would there be the clients to hire your old company?

I don't agree with this statement. I think you are short selling yourself to think that after twenty years you didn't grow the business, contacts, reputation etc. Your telephone number is out there!! Like a restaurant - you have a name and reputation. Restaurants are sold every day and the chefs get replaced or fired and you don't even know it. (in most cases ) Most of my clients hire me not because they know me, but because someone referred me and gave them my "COMPANY NAME & TELEPHONE number. That's a very valuable piece of my business. From a Purchaser's standpoint all they want is the telephone to ring. Once it rings you throw out the hook on your own.

The business has a past record. It is easy to prove the last two years with tax returns - no problem. I believe anyone wanting to purchase the business will have expectations to exceed what you have done. Let's face it, We all think we can do better than the other guy. If we didn't we would never go into a competitive business.

Also, how long did it take to establish your business with your contacts, reputation, marketing database etc., It took most of us (3-5 years) - look at your numbers in those early years. Numbers don't lie.

Then there's the value of training. In our state you have to apprentice for 125 inspections and pass an examine. I would offer this training to any perspective buyer. The real estate market is now a sellers market. Have you seen the WSJ today. http://blogs.wsj.com/developments/20...pments+Blog%29 How nice is that! (great time to sell)

This business is full of "seasoned inspectors" who are hugging their trees and wouldn't offer to train someone for fear of business loss. There are a lot of people who want to become home inspectors but can't find anyone to train them.

I'm not trying to convince myself, because I know the value that I made of my business and I know that I can be replaced by someone who can do a job as good or better than me. We are all replaceable.

I'm trying to figure out the economics of this. Does anyone have past experience in computing this value. My though is at least 1 - 2 years revenue. Any business sellers out there?

Check out: http://www.bizbuysell.com/franchise-...me-inspection/

Consider that there is a minimum up-front investment in any of a number of really cheesy HI franchises of $20K - $50K. For this you get the "privilege" of being forced to have an office in a commercial building (= rent), buy the franchise's marketing materials (= ruining your professional image), and send the franchiser a lot of your hard-earned money each year.

So then, along with the given worth of reputation, phone number, established place in the local market, website ranking, database of happy customers, et al., you also have to offer the ability to home office, create your own marketing materials, and keep the money you work for. Purchasing an established one-man shop is certainly a much better decision.

The successful sales of Home Inspection Businesses I have witnessed in the past are those that have not a large client data base (they refer you, not the copany) but a large Realtor referral following.

I have passed my business off to folks in the past while in hospital, vacation etc and when the folks called due to a referral they asked for me. At least half called later (or the referring party) and said they were sorry I was out of town because they passed on a referral. They wanted you due to my buildup etc. Once they found out it was someone else they moved on to their own choice as quite literally the only value the person had they were talking to just new me.

Anyway. Your business is worth a tiny portion of whatever figure you come up with. The new buyer is not you.....End of referrals.

Ken, it's a good question, and I think about this myself now and then. There are a number of factors that will impact the value of one's business including financials, sales, assets, brand awareness etc. However, the biggest thing that will impact one's ability to sell a business is whether it can operate without you present and still be profitable.

This I think is the biggest challenge for most inspectors and why I would actually tend to agree with Ken Rowe. Sure, you have a phone number, maybe a company name and past clients but are those referrals you receive from past clients and others reliant upon you as the operator.

Personally, I think this presents a pretty difficult challenge in order to sell a business to someone that has any good level of business acumen. Ideally, come time you will have a brand and company that is well recognized within the communities you service which can operate without you present and can still be profitable; if that time comes and that is the case then most businesses can sell for approximately 1.5-2.5 times their annual gross sales.

A few years ago, a good friend of mine was moving out of state. He approached me to buy him out. We worked out a deal, and without going into a lot of details, we had his phone number forwarded to ours. When someone called and said they thought they were calling his company, we just told them that we had merged.

We only forwarded the phones until the new phone books came out, a little over a year for all four books to expire. In all of that time, we only had two people that did not schedule because they couldn't get him.

We have had different employees over the years, and would get calls from someone asking for "so and so", but he was no longer with us. We would usually say that he wasn't available, but we could send "whatshisname" and he will do as good a job. Not once did someone decide to call someone else because they couldn't get so and so.

I was one of those who bought into an existing home inspection business, a franchise at that. Have mixed feelings on the experience. On one hand, I paid way too much. But, I did have immediate income and was up and running from day one. Course, that was in the hey-day of real estate when any idiot could keep busy. But after a couple of years and I had established my reputation, it was a waste and was still paying for the purchase. Of course, by then, I had proven myself to the good realtors, and pissed off all the bad realtors that just wanted a rubber stamp inspection.

- Some amount for hardware, software, etc. = physical assets.
However, why should I buy your old worn out tools, or should I buy new tools with guarantees? (I speak with experience on that one).

- if you have a good web site or newsletter, or other on-going marketing tool, that could be worth something.

- You might be able to sell a client list for some amount (marketing tools). A buyer might get lucky with a 15 to 20% response rate on any new contacts from someone else's list.

- A good established bookkeeping system is worth something (if you have one).

- Are you a good teacher or trainer? You could offer training for an additional amount (figure what you would charge by the hour, and how many hours you are willing to offer). Your experience and wisdom would be a valuable asset to pass along if you are a good coach.

Otherwise, anything else is called Goodwill. Price that at whatever you figure someone is willing or foolish enough to pay for. Personally as a buyer that has made two previous mistakes when buying a business, I would be extremely hesitant to pay anything for good will for a one-man shop.

Unless - you have multiple inspectors working for you, and they would be carrying on the business name. You could sell that business for a handsome sum if your books look good. That is the one advantage of a national franchise. With national branding and marketing, there is some name recognition (doesn't mean the inspector is any good, just that he has paid a lot of money for a business name). I can say a lot about franchises, but that is off topic.

But hey, don't let me dissuade you from trying to sell your business. Get a good lawyer to write up the contracts, make sure you get tail insurance for your E&O - IF you can find someone to offer it (you can still be sued years later). Clean up your bookkeeping. I'm sure someone out there is tired of working for someone else, and thinks that home inspecting would be fun and easy.

Jack made a good suggestion however - find someone that you can "Merge with", and it would appear to be more of a seamless transition. Then you would work part time, eventually phasing your self out, while at the same time being able to offer on-going training to the new guy. I knew someone that that, and it seemed to work ok.

Originally Posted by Ken Rowe

If you're a one man operation your "business" has little to no value from a buyer's standpoint. Think about it. Most of your clients hire you because of you. If you sold your business and no longer performed the inspections what reason would there be the clients to hire your old company?

Well heres my story. Apx a year ago I purchased an inspectors phone # , that was moving.
It took apx 6 months to get my investment back
To date most of his agents still refer me. I get 2 or three calls a month from his prior customers or customer referrals asking for him.
My reply.. This is Dan I am taking care of his customers, if they have any doughts, and start asking who I am and what is my experience, I suggest they check me out on my web-site, to date everyone has hired me.

I have had a few customers order an inspection with out knowing I wasn't him until I got to the job, at that point they stated I looked different, I explained who I was , none of them canceled.

Originally Posted by Dan Harris

..........

I have had a few customers order an inspection with out knowing I wasn't him until I got to the job, at that point they stated I looked different, I explained who I was , none of them canceled.

Funny chit!

Great topic and great points by everyone. Bottom line is it's worth what you can get someone to pay you. You'll get the most by selling to the employees or working with the prospective buyer for some period of time to make a smooth transition. Just selling cold turkey one day and walking out the door I can't imagine you'll get and smart person to give you much.

The most valuable thing I have that can stay with the business is a phone number and web address. I'm also lucky enough to have some GREAT employees right now, too.

I think about it sometimes but have at least another 15-20 years to think about it (2 kids still in diapers ) One of these days I'm sure it's a topic I'll be very interested in. Probably just about the time the next housing bust hits

Originally Posted by Dan Harris

Well heres my story. Apx a year ago I purchased an inspectors phone # , that was moving.
It took apx 6 months to get my investment back
To date most of his agents still refer me. I get 2 or three calls a month from his prior customers or customer referrals asking for him.
My reply.. This is Dan I am taking care of his customers, if they have any doughts, and start asking who I am and what is my experience, I suggest they check me out on my web-site, to date everyone has hired me.

I have had a few customers order an inspection with out knowing I wasn't him until I got to the job, at that point they stated I looked different, I explained who I was , none of them canceled.

Buying the phone # is an interesting idea. What I generally see is someone selling there real estate agent list and/or past client list for referrals. If you can successfully pass your referrals to the buyer of your business, then that is where the value comes from. But I think we have a hard business to value. I think whatever you can sell it for is what it is worth........hmmmm........where have we heard that before?

Originally Posted by Nick Ostrowski

Funny chit!

The last customer had a new home inspection by the other guy, he ordered a new home insp for his daughter and met me at her home.
While doing the inspection he stated problems with the home and his builder that he had that I didn't recall, after a while we decided I didn't do his inspection... His reply, I thought you looked different..
Since then he's referred me to two others.

Overall I found if a customer wants a certain person, when given the choice of me or the person that's no longer available, they still need the same service, they will go with person on the phone.

Originally Posted by Ken Rowe

If you're a one man operation your "business" has little to no value from a buyer's standpoint. Think about it. Most of your clients hire you because of you. If you sold your business and no longer performed the inspections what reason would there be the clients to hire your old company?

I agree with Ken ... from personal experience when I retired.

I a good business, longevity (almost 20 years - 17 years), an excellent reputation, good client referral base, and good contractor referral base of doing quality control inspections and consultations for them.

I found that my business had no 'market value' as *I* was the 'market value', not "the business". A new inspector starting out would not have made it in the market I was in - so no potential buyers were new inspectors; a seasoned and knowledgeable inspector is already set in their ways and in their market, why risk it all to relocate - so no potential buyer in the seasoned and knowledgeable inspectors; seasoned and knowledgeable inspectors wanting to retire to sunny South Florida would not be interested in doing the work I was doing - so no potential 'retirees moving to South Florida' inspectors either.

In the end, I referred my business to a couple of seasoned inspectors down in South Florida and it was up to them do make it work - for a couple it did work, for others it did not work. I believe it came down to "style", as in 'if their style of inspection was close enough to my style of inspection', they got referral calls (i.e., it worked out for them), but if their 'style of inspection was not close to my style of inspection', they slowly stopped getting calls from my past clients (i.e., it did not work out for them).

As a past manager for a national inspection firm we purchased other home inspection companies. Multi-inspector firms may be offered hundreds of thousands of dollars depending of their book of business. The most I ever seen offered to a one man operation was $10,000 and they had to agree to stay with the company at least 2 years.

When I previously stated one man operations have "little to no value" I could have been clearer. Sure you might find someone looking to start a business willing to give you something, but you're not going to retire on it.

When I left the national company I retained 98% of my referrals. So, in my experience, the clients want a specific inspector and not just anyone on the list. In fact, after I left the national company sent out 50% off coupons to my previous referring agents. The agents still referred me.