Business value for community magazine

emv

Hi

I'm interested in buying a community magazine which is 2 years old. It is a franchise & the original setup costs (and costs if the business is unsold & closes) were £250 + £125 a month, now just £25 a month ongoing fee. Profits seem to be about £4k per year and there are no business assets. There is a network of distribution points, contacts for printing etc. & booked advertising of £2k for the next 2 issues of the magazine. The owner doesn't pay himself a wage so the profit excludes wage costs.

What would seem a fair valuation, given the above? I know this is a really big "how long is a piece of string" question! In theory, turnover for the magazine could be £40k per annum according to the parent company but turnover has been only £12k pa so far.

This is a home-based business and I would be buying the name & the reputation - it's a free magazine.

Any help greatly appreciated!

Emmavix

richt71

Without seeing all the precise figures a rough guide is 6 to 10 times the yearly profit.
Obviously I'd advise getting an accountant who has knowledge of business audits.

emv

So does this mean that as a new owner, I'd expect to wait for 7 years+ until I saw any return on my investment? Also, if I don't pay myself any wages, then I'd also be working for that period without any pay which seems like a lot?!

motorguy

richt71 wrote: »

Without seeing all the precise figures a rough guide is 6 to 10 times the yearly profit.
Obviously I'd advise getting an accountant who has knowledge of business audits.

You'd have a heart like a lion to pay £24000 for it. :eek:

I'd say if the owner is getting out after just two years, they dont see a rosy future.

Pennywise

richt71 wrote: »

Without seeing all the precise figures a rough guide is 6 to 10 times the yearly profit.
Obviously I'd advise getting an accountant who has knowledge of business audits.

Privately owned small businesses aren't valued at anywhere near 6-10 times yearly profit. More like 2-3 time profit. And remember that "profit" is AFTER allowing for a realistic owners wage. So if the current owner spends more than £4,000 worth of his time each year, the business is effectively making no profits, so is really worthless.

Slinky

Not worth much if anything at all IMO. If he's making £4K a year after 2 years, it's either a very poorly run business, he's a poor salesman or the format is badly wrong.

I run a couple of community magazines from which I earn many multiples of this sum per year.

Is the name and reputation actually worth anything at all? You'd be better starting from scratch.

If you are really insistent on wanting to buy it, I wouldn't pay more than £1K for it.

emv

The business is being sold due to illness & the reputation is good among parents (target audience). There is a good distribution network & many many free listings (this is one of the key requirements of the franchise that listings are free but adverts are not).

The same magazine recently sold in another area for £3,800 with approx 25% fewer adverts.

Slinky

Free listings - it's incredibly easy to give things away free. It's sales you have to make your living from.

Don't be fooled into paying more than it's worth just to 'justify' to yourself that you are buying into a business which has some value.

Your franchisor is telling you this should be turning over £40K. You are looking at an example of something turning over £12K and comparing it with another turning over only £9K. Is anybody really making any money from this franchise? Not even the franchisor is making much at £25 a month - they don't exactly value their input either do they!

I wouldn't pay £3.8K for a business turning over £9K a year. Turnover is not profit. £9K would cover my print bills for less than 4 months. You say he has £2K of advertising booked for the next 2 months - what is his monthly print bill?

If you have that sort of money to invest I can point you in a far better direction where you will be completely independent and not tied to any franchise (and no, I'm not selling anything).

motorguy

emv wrote: »

The business is being sold due to illness & the reputation is good among parents (target audience). There is a good distribution network & many many free listings (this is one of the key requirements of the franchise that listings are free but adverts are not).

The same magazine recently sold in another area for £3,800 with approx 25% fewer adverts.

Maybe hes sick of not making much money? :rolleyes:

I would be very wary here. I think you're being sold a pup, probably requiring a lot of effort for very obviously very little return. :eek:

emv

Just for info - this is a 3 times per year publication & print bill is about £1200. The franchisor has set this up as a community business & the franchise fee is now at its lowest because it's been running for 2 years. I would be interested in any other options for my investment, though!

Slinky

Have PMd you emv

Don't be fooled by the idea that community magazines from home are part time work, they are if you don't want to make much money, but there is good money to be made if you treat it as a full time business.