Coffee Roasting Business valuation

[Macowboy]

I have been approached by a retail/wholesale coffee roaster who wishes to sell their business. The owners are moving to a different part of the country due to the husband getting a new job. It is a small operation with total sales of $35,000 per year. They have offered all the equipment, inventory, and customers but neither of us know how to put a fair price on the business. Does anyone know how to value a business like this? Is it worth it to buy an established business of should we start off fresh. Thanks.

 

[Musicphan]

3x earnings is what most people estimate value at... Cash Flow, SDE - Determining The Worth Of A Small Business | BizBen | BizBen.com

 

[Mr.Peaberry]

Excellent article Musicphan. Except for outright "fictitious" data, "Seller's Discretionary Earnings" is the easy part...however the multiple of SDE is affected by many variables. Some of these variables, in my opinion, can not only make a huge difference in the selling price, but can potentially become the difference between maintaining the seller's proven success or failure of the business.

MaCowboy...does your team, including inherited workers, have the same or better skill set as the seller? How much of the seller's business is relationship sales? Will all clients transition over to the new ownership, or look at the transition as an excuse to shop around for a new supplier? This happens a lot in some businesses, such as in the insurance business. If the business is critically dependent upon a few key clients, then I would seek to obtain some sort of commitment from those clients. Use a worst case scenario...if key clients leave, what is left? Is there enough of a business to carry on and rebuild if that were to happen, or would you be shutting your doors. Successful businesses are most effective at minimizing risk, you shouldn't willingly step into a high risk situation if you are paying a premium to a seller...better to just start from scratch. If you can set a price contingent on retaining the current customer base, then try that approach. Hope this adds some to what the article mentions.

Best of luck in your endeavors MaCowboy

Peaberry

 

[NHcoffee]

I purchased a small coffee roaster 12 years ago. We worked on a number that was relevant to pounds they had sold in the previous year. I paid a portion of the price in advance and the balance over the next 12 months based on pounds sold during that 12 month period. If customers went elsewhere or volume went down (same thing) I paid less over time. I believe the original number was to be $3.00 / pound based on the previous year. I paid $1.00 / pound of the previous year sales up front and then $2.00 / pound over the next 12 months.

In my situation, the business was strong and remained; basically I paid the full price. But if an account left and I lost 5,000 pounds, I would have saved $10,000. It makes the seller want to make sure everything works out and keeps them involved for a seamless transition.

Another key point is that I paid for 2/3 of the business out of earnings throughout the year.

I am not sure how this compares to a $35k business as my purchase was about $250k but it gives you food for thought.

Good luck!

 

[John P]

As a general rule, it's earnings, not sales that matter when evaluating a business. At $35K in sales, the value of the "business" is ZERO by any real metric. Generally anything generating less than $100K has no value, and then it's based on gross and net profits. The equipment has a value, and that would be it.
There is not enough of an established customer base for that to be of value.

What is the owner paying themselves? It's certainly less than $35K. So you are buying a part time job. Good luck with that. Better off buying a roaster and starting from the ground up.

 

[Countrycoop]

What equipment are they selling

What equipment are they selling? I am looking for a complete roasting operation to purchase. Is there any green beans also or just equipment and were is the operation located?