I hate Valentine's Day. Stupid commercialised crap
This is all highly speculative at the moment, but there's a possibility that I might be able to buy or buy into a business - a shop in Oxford that the current owner wants to get out of. She's selling up because she wants to concentrate on teaching the Alexander Technique, not because she's going bust or anything. The shop is right up my street, and I'm certain that some of the ideas I've got would be good for it.
So the question is - does anyone here have any good advice on how one goes about valuing a business? I haven't the first clue - though I can more or less read a balance sheet and profit/loss account I don't know how that translates into what you'd expect to pay for a business. And how does the finance work? Can you get a mortgage to buy a shop? Presumably valuing the stock is easy enough, but what about the value of goodwill and suchlike? Any thoughts??
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I'd go and see a business advisor at your bank. They're all over this sort of thing (business accounts must be highly lucrative for them as they've usually got far more money in than any personal account).
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I hate Valentine's Day. Stupid commercialised crap
quote:Originally posted by Darryn.R:
quote:Originally posted by Octavia: The shop is right up my street
Wow, that really is local...
What does the shop do ?
I guess a good start would be working out the turnover, the value of whatever stock is held and what reasonable salary could be drawn from the business.
A few years back I was going to buy a record shop here in Amsterdam, thankfully I didn't as I'd be flat broke now..
Is the business registered? What's the company name?
It's called Port Meadow Designs - yes, they're registered, so I could get hold of the accounts for the last few years but I think the owner will hand them over anyway. It sells a variety of stuff but I think the biggest turnover is knitting supplies, which is partly why I'm keen. There's been a massive upsurge in knitting and crafts generally and there's nowhere else in Oxford to buy this stuff. They're missing lots of tricks but chief among them is not having an online store.
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quote:Originally posted by Octavia: There's been a massive upsurge in knitting and crafts generally and there's nowhere else in Oxford to buy this stuff. They're missing lots of tricks but chief among them is not having an online store.
Paypal is total win these days. If you get an online store set up and a paypal business account then you can purchase special delivery, 24 hour and recorded delivery labels and print them off. I drop them off at the post room. I have like, my own totally sweet ebay business where I monitor it at work and send mail out via the postroom. Some dudes eyes nearly popped out of his head like a cartoon the other day when he bought a router at 2pm and had it delivered at 9pm the next morning. It was SWEET.
The unhelpful answer is it depends on the type of business and what you plan to do with it.
As a rule of thumb, if it's an unquoted small company then mebbe 5 times post tax profit but that's a guesstimate. The fortunes of small businesses can change rapidly and so any valuation is volatile.
It's also worth seeing what it would cost you to start up the business from scratch (an entry level valuation) which will give you an idea of (a) likelihood of competition and (b) a base level of value. Obviously this doesn't take goodwill etc into account but is a bare bones calculation.
In any case, I'd recommend paying an accountant to look over the books, even if you're only half serious about taking it on to help you work out what the business is worth to you.
The current owner may have capitalised items that could be treated as cost and there may be other ways you can "restate" items to get to a more "accurate" value.
There are a number of firms that can carry out a small business valuation for you, but I have no idea how much this costs.
I'd think seriously about going to the bank until you think you know what it's worth. Otherwise you'll be like "can you lend me some money to buy something that I don't know how much it's worth"..which may not be the impression you want to create.
Finally, and it's just my 2p - this online shop malarky, why would people use your online shop and not one based elsewhere in the UK, even if they live in Oxford?
I hate Valentine's Day. Stupid commercialised crap
YAY! TheNifferTM! (it's been so long I've forgotten how to do the trademark uppercase thing).
All good advice. From what she said at our first meeting I've got the impression that profits are very small indeed - she has no real idea of management accounting and couldn't give me anything but a vague idea of her overheads - it appears that she and her staff are able to take about a total of £2,500 per month in salaries, and that seems to be it. She's sending me her figures though so I can look for myself and also get an accountant/small business adviser involved.
You're right about the online shop, of course, but at the moment there's no internet presence at all and the knitting community tends to be quite eager about supporting small shops, especially if the customer service is good, so there's definitely a missed opportunity.
Well it's a good point well made, but it seems to only apply to a select few people who have found their online knitting supply utopia. Those people are never going to be part of your demographic in the first place. Like sort of suggesting not to open a burger bar because vegetarians don't eat meat.
There are dozens of ways to capatilise on an online shop if it doesn't already exist. Oxford is surrounded by dozens of smaller towns like Bicester, Banbury, Didcot etc and is the dominant (only?) city in the entire county. If you have a niche in a place like that you've already got peoples attention simply by existing, so casual passers by might be drawn in. While I don't expect people from the Abu Dhabi to buy online, the way a good website is set up can encourage people to gravitate themselves around the shop. A good web site will advertise local stitch n bitches, fairs and events, knitting patterns as downloadble, printable PDFS, forums for knittheadz and the obvious contact details for the business. It serves as a permanent business card for anyone looking for supplies in the area. Increasingly, OAPs have computers at home and we know those guys LOVE knitting, but hate travelling 10 miles to get their goods. I just think it's a massive area for a successful business these days that to not bother with your own website is giving yourself half the chance to succeed.
You know, it's a real shame Octavia doesn't know anyone with some decent skills in marketing to help out here. It's got legs.
Also! Pay someone like i-cue to design a mobile campaign for you. Mobile phone advertising is going to be huge and you need to get in on the ground floor. The cross over between people who internet shop on their phone, and who buy knitting supplies online is probably pretty huge. Plus, it gives you a chance to sell to affluent techies, with a high level of disposable income. Get a free pattern for a woolly mobile phone sleeve with every ball of Mirasol Peruvian Yarn. That kind of thing.
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quote:Originally posted by Thorn Davis: Also! Pay someone like i-cue to design a mobile campaign for you. Mobile phone advertising is going to be huge and you need to get in on the ground floor. The cross over between people who internet shop on their phone, and who buy knitting supplies online is probably pretty huge. Plus, it gives you a chance to sell to affluent techies, with a high level of disposable income. Get a free pattern for a woolly mobile phone sleeve with every ball of Mirasol Peruvian Yarn. That kind of thing.
This made me laugh because it's actually got some marketable appeal. I can actually imagine someone buying a wooly sock for their iphone while Octavia helps them bookmark her website.
quote:Originally posted by New Way Of Decay: it seems to only apply to a select few people who have found their online knitting supply utopia. Those people are never going to be part of your demographic in the first place. Like sort of suggesting not to open a burger bar because vegetarians don't eat meat.
But isn't that the point? Either you're looking to create a new offer to fill a gap in the market or you're looking to create a superior offer that will attract customers away from elsewhere.
As I see it, a consumer's choice is largely driven by a combination of their perception of value, convenience, customer service and choice plus to a greater or lesser degree brand loyalty. The importance of each factor varies from person to person but can generally be broken down into broad demographics.
In order to make your shop effective don't you need to identify which of the above are the most important to the demographic to whom you're trying to appeal?
I'd assumed that geography wasn't relevant to online shopping, but that's probably because my on-line shopping choices are usually driven by value considerations with convenience and choice a close second. I hadn't considered your example of local information as something that would be particularly relevant or keep me coming back. But I can see how it could be for something like a knitting shop.
So I guess what I was really trying to say is that if one's going to pitch the online shop as a significant component of the business plan to a bank or anyone else then one will have to explain why your online shop will be successful amongst the competition based on the demographic of customers and back that up with some market research. That's all.
I wouldn't think that pitching the online shop as a primary trading source would be a good move, but using it as a source of cheap added value by piggybacking it on the bricks and mortar business is a reasonable way to raise exposure and add revenue. Lets face it a web shop run from a real shop will cost next to nothing to maintain and administer if you only accept paypal...
If you could then source some locally produced yarns, hand spun as it were from rare breed sheep or goats or maybe specialize in stranger knitting yarns (Dog wool for example'or Llama wool - Maybe see if you could get a deal with Woburn safari park) you'd have a niche market all, ahem... 'sewn up'
-------------------- my own brother a god dam shit sucking vampire!!! you wait till mum finds out buddy!
If you do go for it and set up online I can probably guarantee you the first few customers, my mum, aunt and sister are all into knitting, crocheting and the like big time
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Let me give you an example of a local restaurant that is possibly THE best sushi restaurant I've been to in terms of authenticity. I heard about it by word of mouth. They have a website, but it's simply, dogshit. Unsearchable if you put in 'sushi townname' into google. In order to get to the restaurant, you have to already have been there. I searched on the street I was told it was on and still sometime on repeat searches, have to type in the precise website address to find it. Terrible. Totally getting the internet wrong.
A website to accompany a business these days is vital. I have a website and a myspace (admittedly as unkempt as the average rockers haircut) because it's an easy way of keeping touch with people. Got too much Nepali Mango Moon Recycled Sari Silk? Send out a blanket mailing list offering 30% off.
So you know I don't know what I'm rabbiting on about because I toally see your point and that's cool and being older on TMO isn't as heated and excited as it use to be but hey, we're all talking about knitting so let's fucking rock.
quote:Originally posted by New Way Of Decay: This is why you shouldn't lurk, niffer.
Because now I can't even quote straight? Totally agree.
I agree that a website is essential, it's a question of whether what that website does is what it needs to do and whether its size and complexity are appropriate for the business.
If Octavia's website is as comprehensive as you've suggested it could be then the costs including the amount of time she (or someone else) puts into maintaining it and processing orders versus the amount of cash it brings in is important if what she's interested in is increasing profitability.
If it turned out that you need to spend 5 hours and £100 on the online sales to turn the same profit as 1 hour and £15 attending and talking at a local stitch and bitch and selling stuff at the end, then as nice as the website is to have, it makes better business sense to focus on the visits as they carry a higher profit margin.
The online shop may be the bestest thing ever, but unless you've got something to back it up, in my view a bank manager will give limited value to it as a way of increasing profitability.
That's not an issue if the business is making enough to wash its face and meet its debt bill. But the quickest way to get a bank on side is to show cost savings.
I feel like we've hijacked this a bit to talk about online shops, so here's a few other bits on putting together your own cashflow for the business:
check whether there are cost increases around the corner e.g. the next rent review, service charge reconciliation. Take these into account when determining value and in projected cashflow.
if the business is run through a company, get a credit report on that company and the main suppliers.
ask what the credit terms of suppliers and whether they will continue to extend credit to a new owner. If the business is using insurance to get credit then check there's no right to renegotiate on a change of control.
quote:So you know I don't know what I'm rabbiting on about because I totally see your point and that's cool and being older on TMO isn't as heated and excited as it use to be but hey, we're all talking about knitting so let's fucking rock.
Not so hot on the rocking these days.. However, I have a joke, will that do?
Q. What do the population of Iran and English weather have in common? . . . . . . . . . . . . . . . A: they're both mainly Shi'ite and a little bit Sunni.
That's all I've got folks, after all this time. I can't tell you how sorry I am.
quote:Originally posted by Niffer: If it turned out that you need to spend 5 hours and £100 on the online sales to turn the same profit as 1 hour and £15 attending and talking at a local stitch and bitch and selling stuff at the end, then as nice as the website is to have, it makes better business sense to focus on the visits as they carry a higher profit margin.
Aye, I'd probably not include the online stuff as part of the initial business plan, but just include the costs of hosting in as a seperate plan for expansion. You can only really speculate on it's worth when being exposed to something that exists already so it would really muddy up the most important element. RL sales.