I own a company that is a distributor of plastic packaging materials (heat-shrink labels and safety seals). I am the only employee. Everything is drop shipped from each of my manufacturers directly to my customers, so I never touch any of the product. I am being a little over-simplistic, but I basically get invoiced from my manufacturer and then mark it up and invoice my customers. I started this company in 2002 and have always worked from an office at home, so I have no real overhead. Other than some travel expenses and some UPS costs to send samples, I have no non-cost of good sold expenses to speak of.

My question: Mitsubishi Chemical is one of my manufacturers (main one, actually) and has always told me to contact them first if I ever want to sell out. What is a usual & customary multiple of my annual gross profit to sell a business such as mine? I am guessing 3x or 4x current annual gross profit?

This post was edited on 11/18/20 at 11:43 pm

2 ...

Report Post

Posted by topdollarbill

Shenandoah, LA

Member since Mar 2013

187 posts

Posted on 11/18/20 at 11:47 pm to auwaterfowler

EBITDA x multiple

Do some research and find a multiple that is typical to your industry

Margins can drive the multiple

1 ...

Report Post

Posted by brokelikeajoke

Member since Jan 2019

231 posts

Posted on 11/19/20 at 8:21 am to auwaterfowler

For a stable business that is out of the growth lifecycle 3-4x is a reasonable ballpark.

I dont think you have a "business" though. You have a job.

A sellable business must be something that the owner can walk away from and work/profits continue.

I think you would be selling the manufacturers a book of business. More difficult to value.

1 ...

Report Post

Posted by yellowhammer2098

New Orleans, LA

Member since Mar 2013

3850 posts

Posted on 11/19/20 at 8:42 am to topdollarbill

quote:
EBITDA x multiple

Agree with both of the responses so far.

To expand on this, the difficult part is going to be finding a "true" EBITDA. That is going to take determining a "market" salary for yourself at the very least but probably need to adjust for some other things as well (reasonable office expense, tech expenses) that you don't account for because they are hidden costs (work from home, probably use a computer you already had, etc.) Then you apply the multiple to that number. The big one is going to be adjusting for a reasonable salary for yourself.

Ex: You bring in $350,000 in profit but don't pay yourself a salary (or don't pay yourself a fair salary). So you think 4X values the business at $1,400,000. In reality, the market pay for people to run the business may be $150,000. So you actually apply the 4X to $200,000 (300k-150k) and the business is worth $800,000.

1 ...

Report Post

Posted by auwaterfowler

Alabama

Member since Jan 2020

1937 posts

Posted on 11/19/20 at 8:46 am to brokelikeajoke

You are exactly correct, and that is why I’m struggling to determine a firm value. There are no assets to speak of, other than the book of business. This is quite valuable to the Mitsubishi Chemical subsidiary, as I am a relatively large customer of theirs and they would not want me selling to someone else and ultimately losing the business they currently have with my company. Further, they are positioned to be able to supply all the other items that I currently buy from other manufacturers. So, I feel I can expect a premium from them, but what that premium is, I really have no clue. Just not a lot of history out there that is parallel to my situation.

0 ...

Report Post

Posted by auwaterfowler

Alabama

Member since Jan 2020

1937 posts

Posted on 11/19/20 at 8:49 am to yellowhammer2098

Pretty scary how almost dead on you are with your example. And to expound, in my situation, the Mitsubishi company absolutely would not incur any additional expenses to add and service my customers. The way they are set up, no one would be paid a commission on these additional sales (no one is paid now on what they currently sell to me). Now, I’m sure bonuses would be paid, but they are now anyway. So in my mind, the whole fair salary component isn’t fair to the seller (me) to be fully applied. Am I just completely off base?

This post was edited on 11/19/20 at 8:56 am

1 ...

Report Post

Posted by yankfand

Baton Rouge, Louisiana

Member since Dec 2010

333 posts

Posted on 11/19/20 at 11:08 am to auwaterfowler

quote:
Am I just completely off base?

To be honest, I think you are going to be in a really tough position because, while it has worked out for you, it usually doesn't work out long term for a manufacturer to drop ship to a distributors customer. The manufacturer gets greedy and knows there is additional profit to be made by selling direct, and they make it happen somehow. It seems to me like your selling the "company" may be just the opportunity for them to do so. They've been drop shipping to them the whole time, know the end users usage rates, and as you said will incur little expense to service them. I think anyone who would be looking to buy the business would see this and be VERY hesitant to pull the trigger.

2 ...

Report Post

Posted by Im4datigers

Northern Virginia

Member since Oct 2003

4465 posts

Posted on 11/19/20 at 11:23 am to yankfand

LINK /

we have to get them for SBA lending when we're financing business acquisition. If you want to sell, pay the $1500-$3000 to get a true business evaluation. This is a decent company and will give you a free quote.

0 ...

Report Post

Posted by auwaterfowler

Alabama

Member since Jan 2020

1937 posts

Posted on 11/19/20 at 11:43 am to yankfand

One of the greatest benefits of dealing with a Mitsubishi company is that they are absolutely the most honorable folks I’ve ever dealt with. In my 18 years of working with them so far, there has never been even the slightest hint of impropriety. One of the many reasons they are my primary supplier.

Page 1