What is my business worth? Need advice on selling

Evaluating the Worth of My College Apparel Business: Seeking Guidance for a Sale

Hello everyone,

Two years ago, I embarked on an exciting journey by launching a college apparel brand, and I’m thrilled to share that it has experienced remarkable growth. As I look ahead to 2024, here are some key financial highlights from the past year:

  • Net Sales: $384,000
  • Gross Profit Margin: 62%
  • Net Profit: $136,000
  • Net Profit Margin: 34%

In addition to these figures, there are several important aspects of my business worth noting:

  • We hold licenses for around 60 colleges.
  • Approximately 41% of our revenue is generated through B2B sales, while the remainder comes from direct-to-consumer (D2C) channels.
  • Current inventory stands at around $226,000.
  • Accounts receivable is about $60,000, due this coming February.
  • Total debt amounts to roughly $100,000.

Earlier this year, I opted against a $150,000 offer, believing the future looked promising, and I was right. However, after reflecting on my ability to juggle this venture with my full-time job, I’m now contemplating a sale. There’s also interest from a larger company in our niche, but I find myself uncertain about what a fair valuation or asking price would be.

I’d greatly appreciate your insights on a couple of points:

  1. What would be a fair asking price considering these financial figures?
  2. What strategies should I employ to ensure I maximize the value of the sale?

I welcome any advice from those who have been through the process or have insights to share about navigating business sales. Thank you in advance for your help!

1 Comment

  1. bdadmin

    Reply

    When considering the sale of your business, particularly one as promising as your college apparel brand, it’s crucial to understand not only how to determine its value but also how to position it effectively for sale. Here’s a breakdown of how to approach this process based on your impressive performance metrics.

    1. Determining a Fair Valuation

    To establish a reasonable asking price, you can utilize a few common valuation methods:

    • Earnings Multiple Method: Given your net profit of $136k and a net profit margin of 34%, businesses in the retail sector often sell for a multiple of their earnings before interest, taxes, depreciation, and amortization (EBITDA). A realistic multiple can range from 2.5 to 5 times EBITDA, depending on the market conditions and the specific attributes of your business. Given your margins and growth trajectory, you could consider a multiple of around 3 to 4. This provides a potential asking price between $408k and $544k (using your estimated EBITDA which typically aligns closely with net profit in small businesses).

    • Asset-Based Valuation: This involves evaluating your assets, including inventory ($226k), accounts receivable ($60k), and accounting for your debt ($100k). The net asset value would be ($226k + $60k – $100k) = $186k. While this method is useful for businesses with tangible assets, your brand’s intangibles and profitability can command a higher price.

    • Market Comparables: Look for recent sales of similar companies in the collegiate apparel space. If you can find businesses with comparable sales figures and margins, these can help you gauge where your brand fits within the market.

    Given your current numbers, aiming for an asking price between the $400k to $600k range could make sense, especially with prudent negotiation.

    2. Maximize Value in Your Sale

    Here are some effective strategies to enhance your sale process:

    • Document Everything: Prepare detailed financial statements, tax returns, and forecasts. Highlight your customer demographics, growth potential, and specific college licenses you hold, as these elements add substantial value.

    • Create a Growth Plan: Develop a clear narrative about future growth opportunities. This might include expanding your B2B business, developing new products, or entering new markets. Outline specific strategies to illustrate potential for scaling.

    • Strengthen Your Brand Value: Ensure your online presence and all branding is polished. Showcase customer testimonials and loyalty metrics, which can be very appealing to buyers looking for an established brand presence.

    • Consider Using a Broker: If the process feels overwhelming, hiring a business broker specialized in retail can be beneficial. They have the experience to negotiate on your behalf and can widen the pool of potential buyers.

    • Negotiate Terms: Beyond price, think about the terms of the sale. Possible earnouts or retainers can ensure you receive fair compensation based even on future performance, which could appease buyers who are cautious about your brand’s projected growth.

    In summary, your business’s worth is multifaceted. Understanding the nuances of valuation methods, and focusing on detailed documentation and growth potential will maximize your sale. With interest already from a larger company, you have a unique opportunity to negotiate from a position of power.

    Good luck with your sale! This could be an exciting new chapter for you and your brand.

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