When you’re selling the business to your family or employees, you might want to take a different tact because they don’t always have the money to pay up front what the business is worth. Instead, work out a 10-year buyout at 10% of the gross revenues and hold the note on the business until you’re paid through the tenth year. I did a similar deal with my employees for my rep agency. Aſter three years, they decided that they were making more money than what was projected, so they negotiated a cash buyout — OK by me as long as I got my money. Also, I owned the building the agency was in, and I was their landlord. Aſter finishing up with them, I offered to sell the building to them. When they turned it down, I sold it to an investment group. When I sold my lock company, I owned all four of the buildings, and the buyers only bought the business. I’ll honestly state that I made more money off the real estate than the sale of the companies (I acquired the real estate through my com- panies as part of growing the business and retained it personally). Here’s a scenario that has come up often: The employees have managed the shop for the past year because the locksmith died. What we’re leſt with is a purchase of accounts, inventory and equipment. When you’re taking your inventory, count everything and write down the part numbers so you can look it up when you’re pricing the inventory. Don’t get into discounting anything yet. Once you have your inventory cost, then you can use discounting as a negotiating tactic. So, let’s throw a reasonable number on our inventory of $125K, plus or minus. Our next area of concern is equipment; on your financials, we would call this your main assets. All of your assets are priced at replacement cost only. This is very important because if you lose the WWW.ALOA.ORG “When you’re taking your inventory, count everything and write down the part numbers so you can look it up when you’re pricing the inventory.” piece of equipment, what would be the cost to replace it? You must think along these lines to make sure you price your equipment correctly. Start in one room and work your way through all of the rooms and the trucks. Don’t forget work benches, keyboards, desks, file cabinets, shelving and every key machine you have. An average-sized locksmith shop has 20 key machines, welders, grinders, drill presses and mill- ing machines. List every piece of equip- ment separately and give serial and model numbers. The size of the benches and work tables are important for pricing. Sam’s Club sells work benches and work tables, and your cost there is $200 for a work table and $300 for a work bench with drawers. It doesn’t matter that you made them yourself. Remember: replace- ment cost! The trucks are priced at fair market value. I don’t like trucks as an asset be- cause they lose their value too quickly. What I would do is purchase the trucks personally and lease them back to the company for three years. That way, I get the depreciation and the company gets a lease write-off. Aſter three years, I sell the vehicle to the company at the current market value, and the company writes it off for another one to three years. Take your time and log everything, and no item is too small to list. Once you have compiled all of your assets, you’re go- ing to come up with a number of around $150K, plus or minus. Now, let’s look at the numbers. You’ll notice that I didn’t include accounts re- ceivable. Why? Because most buyers don’t want the receivables, and if they do take them, they will only accept receivables that are below 45 days. It’s better for you to just keep these and collect the money yourself. Item One: 25% of Sales Item Two: Inventory Item Three: Assets Total Selling Price $250K $125K $150K $525K Now you start to negotiate based on an all-cash purchase. There are a lot of vari- ables that we aren’t taking into account, such as how profitable you are. That is ar- gumentative, and you shouldn’t go down that road. You should let the buyer think that there is a gold mine here and it just takes the right management. In all real- ity, this company should net out and sell for $250K cash or $525K over no more than 10 years. Please feel free to contact me at any time with questions about your business, and try to attend my management class that deals entirely with employees — or my new class “How to Sell or Buy a Locksmith Company.” Contact me at [email protected]. om Resciniti Demont, HC, CAI, CFDI, CFL, CMIL, ML, CMST, ICML, IFDI, SFDI, ARL, President, In- ernational Association of vestigative Locksmiths, oa.org NOVEMBER 2017 KEYNOTES 17
