Selling a CNC Shop
Does a one-man woodworking business have any sale value besides its physical assets (the used tools)? November 26, 2007
Question
I am a woodworker at heart and have been running my own CNC shop part-time over the past few years. I have had significant growth over the past year, but I want to sell, and in order to come out somewhat whole, I need to get a little over $200k for the business (approximately $100k in assets). When I first purchased the company, it had severe customer concentration issues and I moved the business closer to my house and began with a brand new and significantly more diverse customer base about a year ago. I already have another full time job, and as the business grows (1 employee and myself), my family/employer is pressuring me to sell the business. I believe the current revenues are still shy of achieving the price that I need, but within 6 months the net revenues should justify the price, likely even higher.
My difficulty is that I have some financial flexibility and I can offer rental discounts, owner financing, partnership opportunities, etc. but I have yet to find an effective medium to procure reliable woodworking entrepreneurs that may be interested in the payment flexibilities that I can offer. Any suggestions, or anyone that knows a competent woodworker that is an entrepreneur as well, please let me know.
Forum Responses
(Business and Management Forum)
From contributor T:
Sounds like the business is heading in the right direction - why not dump the family job? As for selling the business, you are the business, everything else is just used tools, unless there is real estate involved.
From contributor B:
Contributor T is right - without you, there isn't a business. What you have is used tools and blue sky. A business to sell is one that will operate without you. A savvy minded woodworker could set up shop across the street and purchase his own 100K worth of tools and save paying for air.
From the original questioner:
Your point is well taken. This company is different than a custom cabinet shop in that the business is primarily made of repeat business. Additionally, I am simply a manufacturer. The additional monies that I need for the company comes from an established and business-generating web presence, good name in the industry, and ongoing sales. There is value for a competent person who lacks $100,000 to purchase equipment, as I can transition them into the business. Putting this aside, any ideas for how to find buyers?
From contributor J:
I think you could find buyers easily enough, but the problem is going to be the price, which you have told us is $100,000, plus the goodwill which apparently is worth another $100,000. Convincing a buyer of that is going to be difficult. The $100,000 for the machinery... is that what you paid, or is it the resale value?
From contributor G:
You might talk to a business broker. You will need to prove cash flow over a three year period. Sales price is 2 to 2.5 times provable cash flow. I bought a 20 year old custom woodworking business five years ago, grew it 30%, and have it paid off in a few months. I was a hobbyist woodworker, but was a business executive. With the right person and a good transition plan, these businesses can be sold for way over equipment value. The equipment here could be replaced for less than $100,000 and I paid over $500,000 and have earned over $200,000 a year from the start. Good luck and spend some time concentrating on solid business principles that would make your sale a win-win for you and the buyer.
From contributor J:
Provable profit, yes, maybe, but not cash flow, unless that means something different than what I understand of cash flow. And of course, that value has to be based on the profit that remains after the cost of replacing the owner with a manager has been deducted.
From contributor G:
It is really utilizing both profit and cash flow. For example, I pay the previous owner $6000 a month, and if you take that plus a hundred other expenses that are for the owner's (my) benefit that disappear when I exit plus my salary, it will indicate positive cash flow for the value of the business. In 90% of the cases, the people looking to buy a business through a broker are looking to buy a job. They will replace the owner similar to what we did. My business makes very little net profit, but it is worth a bunch of money. Hey, to each their own. You can all sell your businesses for the used value of the equipment if you like. I am living proof that there are at least a few fools out there willing to risk good money for a chance to be their own boss.
From contributor L:
In my book a business that makes very little net profit is worth very little beyond the used tools. Fact remains that a small business has most of its profit potential in its owner.
From contributor T:
I agree with contributor L. If you sell the business to an inexperienced person, you will have to stay on to train them, and there is a good chance that won't be any easier than finding good employees. If that person has experience, why would he buy overpriced equipment? I hope you prove most of us wrong and get what you want.
From contributor E:
Be careful, one thing I noticed over the last 35 years is that cabinetmakers are artisans first and businessmen second, and more times than not, the two don't ever meet. I have seen people get burnt doing what you are considering. If the business is doing well, why not do as one post suggests and quit your day job?
From contributor F:
I believe that contributor G has the best advice as to the worth of your business. All had great comments - and all of them are true, at times. The difference is that a broker will do exactly what contributor B said - find you someone that wants a job. Prove that you are making money for yourself, and you may have a sale. My business has made little or no "profit" in 7 years, yet has helped me raise two kids and pay for 2 mortgages and several trucks/cars, braces, vacations, etc. According to my accountant it will continue to make very little profit... Understand?
Could I sell my business? Probably not, as I am a consultancy and therefore the business really is me. I have very little equipment and a very special niche that I have carved out. I have another business I am in the process of building with three partners that will have equipment, real estate, etc. that we may someday sell - we are setting it up that way from the start.
The point is that no one here is wrong in what they write - it's their experience that is speaking. That said, contributor G is the type of buyer you are looking for - a professional business person and a hobbyist woodworker! This is the person who can see the worth of it to themselves and buy what you are selling.
