I am currently in negotiation with the owner of the small outdoor bootcamp I work for to purchase part of the business. I am looking to buy out the client list of the morning classes for which I teach. The owner has giving me a breakdown of what she thinks the classes are worth and is valuing the classes much higher than I would have thought. Revenue aside, she includes my current salary as the “owner comp add back” in the total discretionary earnings number since I am already teaching the classes and as the future owner the money will be going to me. I am having trouble grasping this as I still need to pay myself a salary and it seems like paying her for my income doesn’t make sense. Has anyone gone through anything similar or can provide some advice?
It’s all in the negotiation.
She is trying to value the business to you based on its worth TO YOU. So, she’s assuming that you are teaching all of the classes and will keep all of the revenue.
But, what the classes might be worth to YOU is different than what the classes are worth TO HER. If she’s making $100 in gross receipts per class but is paying you $40 per class, the class is only worth $60 an hour to her.
Somewhere in the middle of that is a fair sales price. Does she want to get out of the business? Then you might be able to get it for closer to what it’s worth to her for the rest of your outdoor season (does it end in the fall?). Or are you the one approaching her because you want to grow it or change it? In that case, since she’s already got a successful business, you might have to pay closer to what the business is worth to you, over a longer time horizon.
Another thing to factor into the value is how stable this revenue is. Are these a few dozen long term clients, or is it a list of a lot of people who only come sporadically on a pay-as-you-come basis? This is a fair topic for negotiation.
It’s common for a first offer from a seller to be a ridiculously high offer.
Since you know who comes to your bootcamp and how much they pay in order to be there, you could probably figure out your own calculation of how much the class is worth.