Hello All, Several weeks ago a fellow jeweler and friend passed away
suddenly. His family has approached me to determine the value of his
tools and inventory. They hope to sell the store to one of several
interested parties but feel there must also be some value put on his
customer base and the store name. He was a second generation jeweler
and his store’s name was therefore established. With forty years of
history and ten years in the same location he had an "old school"
store with a steady stream of customers bringing in repairs and
watch batteries to be replaced but not a huge amount of retail
sales.
I have no idea how to put a real dollar value on this man’s name and
customer base. If anyone can help me it would be appreciated.
Hi John, Sorry to hear about the loss of your friend, and another
jeweler.
A fair way to establish a value for the name and business might be
the annual revenue multiplied by a certain factor. What factor is a
good question, but I think the basis would have to be past
performance. Maybe three times annual revenue for a newer business,
and five, or more times for an established, second generation
business like you describe.
Food for thought?
Dave
Dave Sebaste
Sebaste Studio and
Carolina Artisans’ Gallery
Charlotte, NC (USA) dave@sebaste.com
There is an entry in balance sheets called “goodwill” which an
accountant could explain more clearly. I suspect that it is a
multiple of the annual gross of a business. But this is only a
recollection from many years ago.
Hi Karen - As to the accounting definition of Goodwill on a company’s
balance sheet - it is the excess of purchase price over the value of
assets purchased. In other works, it represents the amount paid for
a company over the appraised value of its assets. It is taken as in
indicator of the intangible value of the business - AKA, goodwill.
And most importantly, it can only arise as the result of a purchase -
it cant be just put on there by a business’ owner based on their
’opinion.
John, The intangible value of the business, also known as “good
will,” is a factor based on the annual revenue of the business. I
would suggest that a good accountant, or business broker, could
provide more as to what multiplier would be used to
determine the value of this particular business.
If the business has been a one-man trade shop, a lot of that
business may be lost when the “key man” leaves. A retail store that
runs like a franchise could easily assume new ownership with few
changes. If it is a one-man shop but the business owns a proprietary
formula or fills a niche that no other business can fill, or has an
extremely desirable location that goes with the business, the loss
of the “key man” can more easily be overcome.
In the case of your friend’s store, the new owner would have to be
experienced in jewelry repair, or be willing to hire someone who
was. He or she would also have to look at the potential that the
store had for growth. They would also have to determine just how
loyal the old customers were to the individual who did their
repairs, as opposed to the reputation of the store. None of this is
simple.
I am sorry to hear of the loss of your friend. His family may place
an emotional value on the store as well. I sincerely hope that
everything works out for the best, and doesn’t become a feud between
heirs and lawyers, as seems to happen far too often.
Karen - my 2 cents worth on issues of the Goodwill of a business. I
see these issues in court where parties are disputing the value of a
business such as married couples in a divorce, business partners
where one wants out and one wants to continue the business, families
where one person wants to keep operating the family business
previously owned by a now deceased family member and other family
members simply want to be paid their share of the “value” of the
business, etc. As Ivy, in Oakland stated, Goodwill is always
analysed in connection with a sale - but in Court the “sale” is
often an involuntary sale resulting from the severing of legal ties.
The way it is done here is that “experts” - normally accountants or
business evaluators render opinions of what a reasonable buyer would
pay and a reasonable seller would accept upon the sale of the
property. That is, what the actual parties the the lawsuits would
pay or accept becomes irrelevant. We deal with the “reasonable
person” standard to reach a value when the parties are unable to do
it themselves. The things considered by those experts are the
value of the land, the other assets and the goodwill. There are a
number of ways to evaluate goodwill but I think Doug Zaruba outlined
virtually all of them. The one thing I would add is that the
reasonable buyer is supposed to know everything a reasonable buyer
would know - both the good and bad about the business - i.e, would
have conducted a thorough investigation into the business, and the
resaonable seller is presumed to have disclosed everything any
reasonable seller or the law would require. Goodwill in these
circumstances is normally the value a reasonable buyer would pay for
the business over the value of the assets because of the value of
the anticipated revenues to be generated by the “name” or reputation
or respect of the business itself. Hope this helps. Sheridan Reed
I learned some years ago when I sold a business that I thought had
some value to it’s name that you get nothing for goodwill anymore. I
was turning $450,000 per year and had a well known business in San
Diego. The agent who listed my business nearly laughed me out of the
room when I asked about “goodwill”. They apparently don’t count that
these days. I’m sure that goodwill would come into play and be of
great value if you were buying a REAL company like say…Enron or
Worldcom…they are big companies with really important names.
Most likely you will get the value of the equipment and business
fixtures and that’s about it. That’s been my experience anyway and
I’ve sold 3 business.
I'm sure that goodwill would come into play and be of great value
if you were buying a REAL company like say....Enron or
Worldcom...they are big companies with really important names.
Would a buyer be interested in a business that is close to some
large chain jewelry stores? Is his business competitive? Does he
offer specialized services that could sustain the business in that
location? Sometimes through no one’s fault, it becomes economically
unfeasible for a small business to exist in a particular
neighborhood. In that case, goodwill ceases to have meaning when
the business is put up for sale. Dee
