business questions

L

Leafguy

New member
2 Q's for you guys-

1. What profit margin are you guys looking for on bigger projects. Say 5000.00 and up. Projects for towns or municipalities where your in a bidding competion for.

2. How do you evaluate a business name(goodwill). I'm looking at buying a company and want to figure out the price I should be paying for the name or not. There's no real client list but it is a good established company.

Thanks
 
I dont do any gov work but I would suspect if you had a good residential/commercial base and a good name it would help balance things like, winter slow time. Maybe 8to 12% Be careful what you are getting into, I would suggest a consultant and do your homework. Check BBB, Dunn and brad. the local bank, for credability....make sense? Good luck, welcome to the buzz.
 
How is it a "good established company" if it doesn't have a real client list?

Goodwill is a difficult thing to evaluate and really requires an accountant that specializes in business valuation. Goodwill is usually tied to the owner and how much the "name" relies on them personally. I would want an owner of a service business to hang around for 2 years while the transference of goodwill occurs. Client's knowing that you are taking over with the approval of the original owner is very important to reducing the natural loss of clients that happens when a business is sold.
 
Thanks for the feed back. 8-12% was my thoughts as well.

As far as the goodwill thing I've work for this company in the past and have a good relationship with the owner. I probabaly have worked on the bulk of his jobs. At the time I was doing so much for the company that many people assumed I owned it so I think It would be a easy transfer of goodwill(if that makes sense). An Accountant is something I'm looking at but just trying to gather more industry insite. This is not a large company so you only have the odd residential job that comes back year after year. I figure there's about 20000-25000 dollars that would be coming back year after year. I figure the gross for the company averages between 175-250. The winter work really varyies this number.Some years it's got to 325 Thanks again for you input.
 
Profit!? What is profit?
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IMO

I would agree with Shovel on the 8% to 12% margin. Thats realistic on a Gov job but I too would stear clear of them if you can stay busy without it. Your profit margins will be much higher on residential work.

I think what you mean by established client list is no ongoing contracts. He must have records of previus clients that you could call on.

I would want to see a P & L that clearly shows revenue for the last three years and I would not pay over 20% of of total annual sales ( money that hit the bank) plus equipment value. Anything higher and you are buying a job. JMO.
 
I'd want a complete list of all clients that have used the service and to ascertain how many are loyal return clients.

There will be some sort of record. Where is the work coming from?
 
First, don't buy a company without having an experienced accountant review the books.

Second, this is one of those times you should hire the right lawyer.

Third, since I was trained as an accountant I will attempt to shed some light on what good will is and is not. Please do not confuse what I am about to say as competent accounting advise!
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Goodwill is one of those intangible assets that doesn't seem to be well explained.

In short, goodwill is an accounting asset that is used when you sell a share of your business to someone in exchange for less money than the share is worth because you believe their reputation will more than offset the difference in price.

The company you buy may have goodwill on the books and those are included in the asset value of the company but those would be in relation to shares they sold to others for less than their cash value.

Basically the way a business is valued and sold is on the book value of all the assets plus a percentage of projected sales over the next few years.

This is where the reputation of the company you are buying gets factored into the price. The percentage of sales is negotiated based upon past sales history, client base, outstanding contracts and plain old prognostication.

Now, If you are selling shares of your company to the owners of the other company in exchange for the assets of their company and the shares are worth more than the assets they bring That is when you would record the difference as goodwill.

This is probably clear as mud...but I tried!
 
Great advice guys. I'm sure I'll have more questions as this process goes on. The appointment with the accountant is set.
 
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