I found a business for sale for around $20k. The owner hasn’t done much to market it, and the profits have dropped over the past couple of years—$35k two years ago, $9k in 2023, and $8k in 2024. The inventory is about $1k and is included in the sale. I just graduated college and this could be a good way to learn about business in the real world. But the $20k price seems high given the current state of the business. I was thinking of offering $15k. What do you think?
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Typically, I would value a small business like this at about 1x the annual net profit, plus the value of the inventory. I would say it’s worth about $10k max, but you can offer $15k if you want to be polite.
@Ollie
I think the owner might be considering the potential growth of the business, which could be possible with a good marketing strategy. They don’t have an online presence at all. I talked to the broker and they said the owner is open to negotiating, but they’re not in a rush to sell. I could offer $10k and see how they respond.
@Tan
If the business could grow that easily, the owner would have already done it. Or if the return on investment was that big, they would’ve hired someone to build an online presence. I wish you the best of luck, but keep in mind that building a business—whether starting from scratch or buying—can be tough.
@Ollie
For sure, I’m looking at these businesses for sale as the owner trying to get rid of a problem. I’m not going to make any moves unless it makes sense to invest time and money into it.
The price is like 15 months’ worth of profit. What is the business selling? Maybe that’s why the profits are flat.
Fin said:
The price is like 15 months’ worth of profit. What is the business selling? Maybe that’s why the profits are flat.
It’s a service business—cleaning and installing items. I just got a well-paying job, so this would be a side hustle for me at first. My main concern isn’t so much the price, but I’m worried about how much damage has been done to the business’s reputation from the owner’s neglect. Does that make sense?
Yes.
If I were you, I’d let the owner know that I’m not paying a high price for a business with declining profits and very little goodwill. You could even lowball him at first by just offering to buy the inventory. That way, you can show that you think the rest of the business can be fixed for less than what he’s asking. Does that make sense?
Don’t buy it. You could just shadow someone for free and get the same experience.
Flint said:
Don’t buy it. You could just shadow someone for free and get the same experience.
Are you suggesting finding a mentor? How do I do that?
Flint said:
Don’t buy it. You could just shadow someone for free and get the same experience.
Are you suggesting finding a mentor? How do I do that?
It seems like a small business to be paying $20k for. Couldn’t you just start a similar business from scratch and reach $20k in a few months? Do you have a client list? Will they continue to use the service? Are these recurring services where you could expect the same profit this year?
@Joss
The $20k is the net profit. They have a client list, but I’m not sure if those clients are still interested in working with the company or if they’ve moved on. I could start my own similar business, but I’m not sure where to begin. I’d be paying for the brand, inventory, and some guidance (the owner would help for six months).