$350K asking price - Exit strategy?

[pieslave]

Working on our exit strategy. We would like to eventually sell the biz for $350K. What should we be netting for it to be an attractive and reasonable offer? Would like to aggressively get to the magic number to be able to sell a profitable biz for the next owner/slave.

Background:
DelCo, 4Yrs in business, low Lease remaining 5yrs, Debt free, POS, one other indy in town, 3PH, 1Domino, Pop 45K w/in 8mi radius, not getting rich, but making enough, works 2-3 days/week.

Any input welcome. Thanks

~pieslave

 

[Patriot_sPizza]

Many would say…3 or 4 times positive cash flow is a good asking price…now you need 2 figure out that #…what are you claiming on sales & income taxes? A smart buyer will want 2 see them…do you pay yourself a salary too? What are your true gross sales? Are you grossing 600K/yr? Netting 15% Its a numbers game…

 

[pieslave]

Thanks for the input Patriot!
If our sales hold up, it looks like we are on track except the 15% net is a little bit of a stretch. I do get salary & hubby gets occassional draws. It sure is a fun and rewarding business but I am ready to move on to another adventure.

~pieSlave

 

[bodegahwy]

I do business brokerage and commercial property sales and leasing for a living (In addition to owning a pizza store for the last 11 years). I can tell you that running comps on completed transactions all around the US for this category of business opportunity sales turns up VERY FEW EXAMPLES of sales north of 3X cash flow and not very many higher than 2.5X in the last two years.

To achieve 350K selling price in today’s market, I would say you need to show 130-150K+ discretionary cash flow AND steady growth. You are going to need to show that growth and profit for about 3 years, so window-dressing a single year’s results is not going to do. When times are better and financing is easier, perhaps 120K cash flow would justify that asking price.

I would expect that you will need to offer seller financing in most instances as well.

 

[bodegahwy]

Just took the time to run comps on sales of Pizza stores with sales betyween 300K and 1.0M completed in the last two years. I eliminated sales of businesses where the real estate was owned and those where the businesses were not profitable. Here are the cold facts:

Average selling price to discretionary cash flow was 1.90X
When I limited the comps to those with 6 figure profitability the ratio rose to 1.99X
When I limited the comps to those with sales above 500K the ratio rosd to 2.54X

In both limited selections the limitation cut the list about in half.

This indicates that both profitability and sales are factors influencing price and that sales is slightly more important.

Interstingly, the highest multiples went on sales where the profitability looked realistic. There are number of transactions where the discretionary cash flow is reported north of 20%, in some cases as high as 30% indicating to me that the numbers were very well “polished” indeed. The multiples there were below 1X which shows that buyers see through that kind of cr@p pretty well.

I will restate and revise my opinion above, for profitable businesses with fairly stated profits (the 15% quoted by another poster above is a good target number), the range of multiples is somewhat better and actually averages 2.78X, but when you take all transactions into account, less than 2X is reality.

To return to the original poster’s question, if your reported sales and profitability were 825K and 125K respectively, you could expect to get 350K. That is not to say that there are no examples of higher values, but that is what the averages actually show for the last two years.

 

[bodegahwy]

This is the thread I referred to in my other post.