Question: How to evaluate a pottery studio business

Does anybody know how to evaluate a small pottery studio business?

My wife has a studio that we want to sell before we move out of the state.
She is the sole proprietor and I help her do the accounting, handyman tasks,
web pages, clean, and assist in teaching classes. She has been in business
for over 6 years and profitable for the last three. This years revenue will
gross about $30K, with a net profit about $12,000. She rents about 2500
square feet, has six wheels, two kilns and the assortment of pottery
equipment and glazes. The revenue comes from teaching classes, selling pots,
and membership fees. Membership allows potters to use the studio for a
monthly fee. The business is still growing and has the capacity to double
before she out grows the space or equipment. The street value of the
equipment is about $6,000. The difficult part is the soft items. Soft items
like the value of the business name, the current membership enrollment, the
student enrollment, and the reputation of the studio in the area (which is
very good). I guess this stuff is generally called 'good will'.

One friend recommended using two methods. One is to take 1.5 times the
gross revenue. Another method is to take 3 times the net income. According
to these methods, the studio would be worth $36,000 to $45,000. Any
suggestions or ideas would be greatly appreciated.

Thanks,
husband of potter

i never agree with those "rules of thumb" statements of 1.5 times or 3 times
such-and-such unless someone can explain WHY this key number is "1.5" or "3" or
whatever.

you reflect alot of effort to get $12,000 in income. i assume the $30,000
gross is reduced to $12,000 by raw expenses. that wouldn't entice me to buy
the business for too much to only make $12,000. if i can buy the equipment for
$6000 as you mention, why buy a site for 1.5 to 3 times the $12,000? much less
1.5 times the $30,000. if i had that kind of cash i'd start up my own without
buying yours.

i'd expect someone might more readily buy if they took over the business with
say $6000 down (buys the equipment) and provide a percent fee like a franchise
fee of say 15% the 1st year reducing to zero in maybe 5 years. you decide the
percent and reduction each year. the idea is a buyer likely thinks they can
take your business over and do better then you. this style aproach would get
you cash back from the equipment and cash the following years while doing
nothing much ~ now ~ to get it.

you would get back money to buy new capital for the new site you move to, and
minimal extra cash each year to assist in expenses. your history knowledge
should help in getting a second business started in this new location.

check out franchise contracts at the various junk food stores & websites. they
may provide the kind of info you're after. your classic McDonalds franchise
sells for several million because they net many more million each year. the
franchise fee is usually less then the net sales. otherwise the buyers would
simply start their own stores.

see ya

steve




Subject: Question: How to evaluate a pottery studio business
From: "Joe Friday"
Date: 9/12/2004 2:08 AM Pacific Daylight Time
Message-id: QlU0d.28783$MQ5.8792@attbi_s52

Does anybody know how to evaluate a small pottery studio business?

My wife has a studio that we want to sell before we move out of the state.
She is the sole proprietor and I help her do the accounting, handyman tasks,
web pages, clean, and assist in teaching classes. She has been in business
for over 6 years and profitable for the last three. This years revenue will
gross about $30K, with a net profit about $12,000. She rents about 2500
square feet, has six wheels, two kilns and the assortment of pottery
equipment and glazes. The revenue comes from teaching classes, selling pots,
and membership fees. Membership allows potters to use the studio for a
monthly fee. The business is still growing and has the capacity to double
before she out grows the space or equipment. The street value of the
equipment is about $6,000. The difficult part is the soft items. Soft items
like the value of the business name, the current membership enrollment, the
student enrollment, and the reputation of the studio in the area (which is
very good). I guess this stuff is generally called 'good will'.

One friend recommended using two methods. One is to take 1.5 times the
gross revenue. Another method is to take 3 times the net income. According
to these methods, the studio would be worth $36,000 to $45,000. Any
suggestions or ideas would be greatly appreciated.

Thanks,
husband of potter










steve graber