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On this topic of selling areas or territories let me ask; How much do you think your area or territory is worth? This is just out of curiosity more than anything.
Mike Nowlin
I was told that the sale of your area is worth one times your annual gross revenue. Of course there are a lot of things to think about before you would sell. I recently read a good article in the April Cleaning Specialist magazine on strategies to sell your business. It’s worth a look for all of us in this business.
I too have heard that the selling price is your gross revenue for 1 year, but that is only the base price. You also have to take into consideration vans, buildings, etc. that are paid for and equate those in as well.
I’ve also heard of total gross annual income and I’ve heard this … A. annual income B. bottom line of schedule C times 2. Add together and divide by 2 and then add C. true retail value of total equipment, van, real etsate if any. This gives you your true value. So find out which is better for you and go for it. None of this counts for total population and/or disired area, but it’s a place to start. Or you can ask your friendly lawyer with his hand out, and he’ll tell you the same thing with a bill. (I have enough friends like that thank you.)
I believe the value of your business is more than just a years gross sales reciepts. The value should also consider the amount of increase you’ve had over the past few years (goes to future revenue), physical assets and demand. Supply and demand is the x factor in selling our business. If you have a protected area with a unique product like ours, the value of our business is worth more than just recipts because there is no competition for our exclusive area franchises.
Taking all this into consideration still leaves you with one question to answer. How much can you sell it for? Your business is worth as much as you can get for it. Don’t limit yourself to reciepts.
I agree that there are many variables when calculating market value; but, in every type of business there is an industry common multiplier used in business valuation. Some types of businesses sell for different multipliers of gross sales that is – and often this is common knowledge among savvy business brokers who may be shopping for their clients. For instance in our area of the south central region, it is common for franchise restaurants to sell for 2.5 X annual profits-approx. Sometimes, that figure is cross-referenced with a multiplier of gross annual sales – in this case 40%. An experienced buyer will look at both, so your paperwork should relect good in both areas. In our category of franchised carpet cleaners, annual gross sales is a good indicator and accepted as a good benchmark. But, annual profits should reflect an appropriate multiplier as well! Can anyone tell me what that should be for our industry?? I.e., if my gross sales are 200k, and I think I should sell for that amount, then my net profits should also come close to a standard multiplier. If my net profits were 75k then I would hope the acceptable multiplier was about 2.6. Anyone have a clue??
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