Author Topic: How to sell a machine shop?  (Read 1011 times)

Financial.Velociraptor

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How to sell a machine shop?
« on: January 11, 2020, 01:03:38 PM »
Crossposting from Entrepeneurship board - https://forum.mrmoneymustache.com/entrepreneurship/?action=post

My elderly Uncle has come down with cancer and wants to sell his machine shop business.  He makes machines that make HVAC ducting among other things.  He has a UL for that machine.  He also does some stainless steel work, miscellaneous fabrication, and CNC turret lathe custom work, plus he has a good welder on staff that does some custom work.  Business has three current employees but is under utilized with my Uncle unavailable to drive sales and only narrowly making payroll.  The least skilled hand might be laid off if business continues to be slow.

He figures the business is worth about 300k to 350k if he was willing to hold out for the right buyer over a 2 to 3 year period.  But he wants to offer someone a steal so long as they close fast - time has become his most precious commodity and means more than getting the best price.  He might take as little as 200k.  The business could also theoretically be split up into three separate business lines and sold off a la carte, which probably yields the most cash but is the most trouble.

Anyone here ever sell a machine shop?  Anyone here want to buy one in San Leon TX for below its value?  There 8,000 sq. ft. of multi-use space in a low tax district (about 2,700/yr total).  Gross revenue is lumpy between about 250k a year to up to 700k a year when he sells more HVAC machines. 

He has asked me to help sell the business as he and the wife are tied to the hospital for several weeks.  I intend to contact a few competitors and major customers to see if there is interest.  But to just locate people out of the general public is beyond the scope of my experience.  Is there a publication that lists such businesses?  Can a commercial real estate agent help?

Any ideas appreciated.

-Lizard King-

ender

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Re: How to sell a machine shop?
« Reply #1 on: January 11, 2020, 01:11:20 PM »
It sounds like most of the business value is the uncle himself (and not the "business"), if him being gone means it's basically not even cashflowing enough to make payroll.

In other words, people will consider the "turnkey" profit  and capital value.  It sounds like the turnkey profit is $0 or below if they don't cashflow at all without your uncle.

What was he pulling out as profits while running? Revenue hardly matters, what matters is actual profit. If your uncle only was clearing $50k on a profit basis on $750k revenue, the business isn't worth as much as if he was pulling $200k out of the business at that revenue.

You might look at what the actual equipment is worth to figure out what it's worth too.


Fishindude

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Re: How to sell a machine shop?
« Reply #2 on: January 11, 2020, 01:18:04 PM »
I sold a contracting company to several employees. 
If any of the employees are capable, that would be my first choice.   After that, I'd probably approach some competitors or similar business in the area that could take on this work to compliment what they already do.

Regarding value, most people tend to think their business is worth more than it really is.   The value should be based on:
a. Any real estate that is part of the deal.
b. Tools and equipment at fair market value (probably about 1/3 of purchase price)
c. Any cash left in the business.
d. The profit potential of any sold work on the books.
Good name and that kind of stuff really aren't worth much to an outsider unless the owner is staying on for a while to help transition ownership.

Financial.Velociraptor

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Re: How to sell a machine shop?
« Reply #3 on: January 11, 2020, 06:39:16 PM »
Thanks.

The UL number on the HVAC machines business has value.  The equipment has value and the land and shop are paid for.  I imagine the customer list has to be worth at least 20k as you can sell those customers 100k machines that have only a few thousand in materials a couple days labor?  I'm going to stick with starting with contacting the competitors and the customers.

socaso

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Re: How to sell a machine shop?
« Reply #4 on: January 13, 2020, 03:16:01 PM »
You should reach out to a business broker. That is their entire job, connecting businesses for sale to people looking to buy. I think you only pay commission when the business sells. Since your uncle in concerned about time it would be in your interest to have someone who sells businesses for a living working on it.

fixie

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Re: How to sell a machine shop?
« Reply #5 on: January 17, 2020, 12:44:51 PM »
Could he set up a worker co-op to transition employees to ownership?  They could take out loans to become part owners.  There are non-profit groups I have heard of that help businesses transition to co-op in the farming sector.  That is what I am considering later down the road...
Wishing your uncle well,
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Gone Fishing

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Re: How to sell a machine shop?
« Reply #6 on: January 18, 2020, 04:34:10 AM »
You should reach out to a business broker. That is their entire job, connecting businesses for sale to people looking to buy. I think you only pay commission when the business sells. Since your uncle in concerned about time it would be in your interest to have someone who sells businesses for a living working on it.

+1

In my working days, I'd have lunch with one 2-3 times a year just to see what was out there.  I never bit on anything, but it was fun shopping.