Valuing an Existing Business

Is the selling price fair and reasonable? If the seller hasn’t had their business appraised by a reputable commercial business opportunity appraiser their asking price is probably what they would like to get; it’s as simple as that. It may be worth more, or less. Don’t expect most grooming business sellers to show you the results of a formal appraisal. However, you can still order one on your own with the agreement of the seller.

Appraisers generally require copies of the last 3 tax returns for the business. That’s where many business owners halt the appraisal process and don’t disclose. Some may show you bookkeeping data. That is never the same thing. Bookkeeping data is not the same as tax returns filed under penalty of perjury. Is it then any wonder why appraisers won’t value a business without its tax returns?
 

Sometimes there are alarming leaps in high growth areas. Beware the seller telling you what the landlord will do. Always talk directly with the landlord before you purchase a business in a commercial location under a rent or lease basis.

Grooming businesses that have successfully operated for many years develop "goodwill" in their community, and this “intangible” can be appraised and purchased. We took part in a business sale where the logo and goodwill was appraised by three certified commercial appraisers at over $80,000. You know that business was owned by one smart groomer.

If you are not going to require an appraisal, or you simply cannot get one from the seller, remain skeptical without plenty of evidence. Follow our instructions to determine how many clients you really are getting with the purchase. It may take hours spent onsite to go through the records, just do it. Value the used equipment, furniture, fixtures, sign and other assets included with the sale. Does the business have much goodwill and recognition in the community? Ask around if you must.

Most important, we strongly recommend you calculate a profit/loss projection for the business. The most popular way is to use Pet Grooming Business Plan Helper & Sampler by Grooming Business in a Box®. You can use its income and expense projection worksheets to fill in actual bookkeeping data provided by the seller. You can then input what you think the income and expenses will be under your management. Now you will know with far more confidence if you can make the profit adequate to recoup the purchase of the business.

Now you are buying a business like a pro and perhaps saving yourself plenty of money. You can also use your project as a negotiating devise for the final purchase price. On the other hand, we suggest sellers prepare a business plan for potential buyers. You just may find a buyer more motivated when you supply a business plan. Many sellers tell us they give buyers a copy of our book From Problems to Profits to give them confidence they can run the business.

Realize that some of the clientele may be lost when the previous owner departs. Some sellers will stay on as a consultant for a specified time and support the transition. This can be especially important if you are purchasing your first business. We’ve even seen sellers stay on and train the new owner how to groom for 12 to 16 weeks. The buyer is taking some risk should the seller depart early, but it has been done successfully.

Oh yes, there have been stories where an owner sold a business, and a year later decided to re-enter the industry and opened up a new grooming business near the one they sold! Yikes! Will they take back some of the clientele? Talk to your attorney about non-competition clauses in the contract of sale. Never buy a business without a contract of sale reviewed by your attorney. No attorney? Now is the time to find a general or contract attorney.

There still more to learn about valuing a grooming business. Click the Next bone now.