About selling a "one-man-show" business 4

[Robbiee]

Hello,
Can a firm with one engineer and one CAD person be sold?
I was thinking, since getting closer to the end, let's see what others say.

 

[phamENG]

Can it? Sure. But good luck finding a buyer for it. There's value in any hard assets you have - computers, furniture, maybe an incredible lease rate on an office space that's locked in for several years. There's value in your accounts receivable so long as they haven't aged too much. There's value in standing contracts. And that's it. You have no enterprise value. Your business is based 100% on your relationship with your clients. When you're gone, no amount of money will buy those relationships. Some of your most loyal clients might go with the new owner, but many will take this opportunity to shop around and see who else is out there.

So unless you're willing to stay on for 1 to 2 years to ensure continuity with your client list and help the new owner establish the same kind of relationship you had, there's not really a way to do it. And, after all this time working alone, do you really want to spend the last 2 years of your career with a partner or, more likely, a boss?

 

[Robbiee]

Thanks! phamENG.
I don't see working with a partner or a boss for a couple of year that big a deal, especially that we know that I am staying for them.
In fact, I think I would like to stick around for some time after just to gradually adjust everything.

 

[phamENG]

In that case, are there any really bright mid to senior level engineers out there that you think could do what you do? Maybe bring them on and groom them to take the reigns. Develop an arrangement where you transition over the course of X years, and then you continue to receive a declining share of the profits for Y years. It doesn't require significant capital from them up front (most structural engineers don't have that sort of cash, after all), but you still get paid (albeit not a nice big lump sum).

Of course, you'd have to be up front with them about the liability they'd be exposing themselves to by taking over for you rather than starting their own show. But to walk into a full and successful portfolio of clients may be worth it to him/her.

 

[Sparweb]

In 2012 my boss held a meeting with his 3 employees, including me, and announced his intent to retire in 12 months. We were invited to buy in. It sounded great at first.
The cracks started showing when we tried to arranged more details.
[ul]
[li]He didn't set a price for buy-in. He only said "make me an offer".[/li]
[li]He did not offer either of us support to complete our professional credentials (which we would need in order to be principals of the company).[/li]
[li]He shopped it around to a number of other potential outside buyers.[/li]
[li]He wouldn't open the books to an accountant to evaluate it.[/li]
[/ul]

After crashing into these brick walls, and meeting the potential outside buyer, I resigned. I didn't have a fair seat at the table. Even continuing as an employee would be difficult. Seen in hindsight, I dodged a bullet.

Bobbiee,
Don't lose sight of either the value and burden that your employee represents in your company. They are a free agent, and if they aren't happy with your transition, they will leave. If any of your company's supposed value is based on their activity and/or skills, their departure will put you in an awkward position. Whatever valuation you come up with may indirectly include the employee's work, since many of the accounts receivable exist because two, not one, person worked on those projects. Current monthly operating costs obviously include their salary, but might not include training. But they will if you have to hire another person.

You need to do a lot of cold-hearted calculations.
Is your employee effective? Did they support enough revenue to justify their salary in the last 12 months?
Is your employee a candidate to succeed you? If not, you have to start from scratch.
Will your employee be a hindrance to the transition? If so, then you may need to ease them out of your company before the actual transition, for their benefit and yours.

I expect that to do this transition well, you have to work a lot harder than you normally do. Firstly, you have to keep the business running as usual, to justify its value. Secondly, you need to bring the candidate up to speed so that they can hold the reins. Thirdly, you have to juggle all of the accountants, lawyers, bankers, and other business of doing the actual transition.

Good luck!

 

[LittleInch]

So are you the engineer?

Is there enough work for two for a few months or not?

In most similar posts people say the value of a firm like this is zero.

At best it's probably worth one years profit. Or look at other firms and "sell" your order book.


Remember - More details = better answers
Also: If you get a response it's polite to respond to it.

 

[Robbiee]

Thanks! all for the responses.
@sparweb:
Your storey happened to me almost exactly before I started on my own. But, as I said, my "firm" is only me as an engineer. My employee can't replace me.
@ Littelnch: I don't look for work. It comes to me from few repeated client. I kept it this way, because, from the start, I wanted it to be a job for me but working for my self. I think I could've scaled it up, but I thought at an age past 50 was a little too late.
I too thought the value is zero, but just wanted to see what others think.

 

[Enable]

The operating value from consulting firms of this sort is rather low to non-existent for external purchasers. The most prudent approach for the owner (in terms of maximizing NPV) typically is one of succession. Whereby someone takes the reigns over a period of time (buying in year by year) and you retain a stub that pays you in perpetuity or for however long the operation remains afloat. 5-10% stub is common and can provide a great retirement if you already have a decent nest egg.

 

[CWB1]

Anything can be sold to a fool, but most folks want a return on investment. You can contact a business valuation firm but its unlikely that your firm has much value, and is likely worth more liquidated (sell the individual assets separately) rather than sold combined together.

Value is the sum of the tangible and intangible assets minus liabilities. Given your firm's size, I'd guess:
Tangibles: Maybe real estate, office furniture, PCs, test equipment, maybe a company car.
Intangibles: Probably none. Your company's brand is you, without you there's no brand value to pass along bc customers wont trust your replacement as they do you.
Liabilities: Debt, long-term lease, etc.

 

[LittleInch]

" Getting closer to the end"??

Unless you have ideas about just spending your days fishing (or whatever), does the have to be an end? Or transition to some sort of review engineer or Technical Authority to your clients and just do less hours?

I'm a one man business and on paper make a lot of money but that because I take profits as dividends not a big salary. But it's value is me, not anything else. No me, no value bar a laptop. So unless you really have something to sell more than you that someone else could reasonably carry on and make money, the value is zero IMHO.

Remember - More details = better answers
Also: If you get a response it's polite to respond to it.

 

[glass99]

My one man shop accountant recently retired and sold his book of business to a larger firm. He mainly did tax prep. The value of the sale is that you have a bunch of small customers that don't necessarily have the bandwidth to find a new accountant that you can hand to a relatively junior member of your staff of your big firm. This kind of transaction is apparently common in similar consumer facing professional services like dentists or financial advisors.
-> If you have a nice roster of repeat clients with straightforward work, I believe your one man business does have value.

 

[phamENG]

glass99 - I think a big differentiator here is the dependable and periodic nature of those businesses. An accountant reviews books at certain periods and does taxes once a year (and quarterly payments, etc.). The dentist sees patients twice a year, maybe more if there are issues. The financial advisor has your money and actively manages it, largely without the account holder having to think about it. On top of that, those industries aren't hurt that badly by economic swings. You're filing taxes whether you have record profits or record losses. And while you may skip the veneers, you're still getting your teeth cleaned and cavities filled. The financial advisor may get hit depending on their compensation model.

Our industry is a lot different. A well run shop can look similar from the outside with consistent business coming in, but ultimately the base customer (the owner) is doing one off projects or is doing a lot of similar projects voluntarily. The person going to the dentist is doing it for their health, the person going to the accountant is fulfilling a legal requirement. A similar compulsion doesn't really exist in our realm. That reduces the dependability of any business.

Regarding financial advisors specifically: my uncle just sold his book and I believe the price was based on the clients that agreed to stay on with the new guy. Anyone who chose to go elsewhere, their account wasn't included in the calculation. So I could see a parallel where you turn over your firm and the payment is a portion of profits from existing clients (be it the firm or the individual if they move firms). That would reward the new owner for expanding the business and compensate the outgoing owner for the relationships that he/she developed and are continuing to pay off.

 

[glass99]

@phamENG: yes you are right that most structural engineering practice does not have that "book of business" thing going on like accountants do, but it could. Some engineers are effectively in house to a small subcontractors or to an architecture office and have relatively stable income streams as a result. They tend to be relationship businesses too, so a successful transition would entail making a marriage.

 

[Sparweb]

You don't have to believe your client list has value, you just have to convince the buyer that it does.

 

[StrucPatholgst]

The only barrier to entry in the one-man-show engineering business is a PE license and the engineer's experience. I've had two guys try to sell me their companies so they could retire. It's a ridiculous proposition. I don't need your furniture, your desktops, your plotter lease, your office lease. Your customer list is worthless, because once you stop being able to provide service to them, they're going to call at least five firms in the area to get help, and I'm going to be one of them anyway. Plus I'm already busy. So I'm supposed to hire help, take on more work, and still have to pay you something? LOL, no.

 

[LOTE]

I think your best bet is to bring on another engineer as a partner, train them up, then agree that you will continue to receive a % of profits on the projects you brought in even after you retire.

I would try to separate out things like equipment, furniture, real estate, etc. to where you own those things separately and lease them to the business. You can continue to lease them to your partner after you retire as another source of income. And if the partner decides they don't want that stuff, you have assets you can sell off.

 

[JStructsteel]

Do you know any other one man shops that could take on the work, and pay you a royalty for a length of time if the client stays with them?

 

[glass99]

@StructPathologist @JStrucsteel: It would only rarely make sense for a one man shop to buy the book of business of another one man shop unless you were really desperate for work. I imagine the way it making sense would be if a larger firm could hire a relative junior to take over the one man shop's business and layer in all the bigger firm support structures, including senior engineer oversight and billing etc. This is what my accountant did. My new big firm younger accountant is actually better than my old one man shop guy.

 

[RFreund]

(looks around) I might be crazy enough to do it...

 

[NorthCivil]

I've sat on both ends of this

I was offered to buy my old bosses company for 1x annual revenue, 2x annual profit. Declined the offer and subsequently went out on my own.

Running a one man show now. found a "purple squirrel", the perfect successor, had him for a year before i had to let him go. There is more to engineering than knowing your stuff and being a good engineer (communication, understanding relationships, being polite, presenting well to clients you are trying to charge $200/hour).

Back on my own as a one man show. looking for someone similar to myself to partner with, to eventually pass on the reigns. there is maybe 1 or 2 candidates in the whole city, and i know my market well. How much can i try to charge somebody for my business, when the buyers pool is so small?

If i'm totally honest, it would benefit me to just sell my business for $1. Then all liabilities are passed on to the new owner, and i dont need to pay for wind-down insurance over several years.