A question has been asked by a client. The question is, what are the multiples for selling a computer repair store?
To paraphrase a quote myself from a previous BLOG, the answer is completely different if we are talking pre 2009 (aka “The GREAT RECESSION”) or ObamaCare New World Order.
This needed to be said because I happen to know the person asking the question SOLD his computer repair store prior to 2009. And has recently acquired another in 2015.
Sometimes I am blessed with “ a real live one”!
So if there is anyone who wants to know the Multiples of a Computer Repair Store, here’s some discussion on the subject and I must caution you, if you add Sales and Software or other IT services, it changes the matrix. Not the same formula!
To begin, the MOST Valuable asset for Valuation purposes may very well be the website of the computer repair shop if it has “legs”.
By “legs” I don’t mean the ladies hosiery that used to be sold in a plastic egg, the commercials on TV of which annoyed us in the ‘80’s and ‘90’s before Netflix and Streaming made watching commercials optional.
I mean, longevity, ranking and other such qualities. Anyone can hang a shingle and throw up a web site for computer repairs. Having a website that has ‘Legs”, now that is a valuable distortion, er I mean distinction! A good example of a website with legs is this Cary Computer Repair Store.
Some computer repair shops may have a back room full of junk, value, Zero. Others may have a back room that looks like Zero and the value of the Junk is thousands of dollars. This is another aspect in determining value. We are about to get to Multiples, stay with me.
The other factors, customer count, repeat customers, good reputation, good employees… these count for MUCH! But they can be summed up by simply looking at the financials.
The cash flow tells “ The Rest of the Story”.
Pre-2009, take the cash flow, recast it and add nothing back for unreported income. If there is no record or reporting, it doesn’t count. Next, take the cash flow and Multiply time 1.25 and add FF&E.
It was that simple. Appraising the FF&E is a simple Asset Appraisal. Next just add the value of the Furniture, Fixtures and Equipment (FF&E and add to 1.25 X the Seller’s Discretionary Cash Flow).
Generally this was not a very exciting number to the Owner.
Why?
That is because, if an entrepreneurial person starts from scratch, then opens the doors, and personally operated a computer repair shop, such a skilled and entrepreneurial person likely would also do a lot of other things on the side. Related things. Those side things worked well because they played off the retail shop.. but were not on the books.
All that side money probably tripled the money an owner might show on his or her tax return. But it helped not a whit in establishing the Multiples (Price) to sell your computer repair shop before 2009 or in 2015. Best case scenario, you sold it, closed the books on the company and continue to do the side stuff, like websites and SEO marketing.
Post 2009? Ah, Now that is more challenging!
If you have a lot of value in the back room, and can demonstrate it, add THAT to all of the above. Today I would value the back room. Not ten years ago, but I would now. It may be a gold mine of ebay-able stuff that you know how to extract, describe and sell for way more than nickels and dimes—because you know the computer business!
I would still use the 1.25 Multiple. And add these to the FF&E appraisal matrix within the final Valuation Report.