# Purchasing an Existing Screen Printing Business



## catldavis (Mar 31, 2012)

Hello all,

I have the opportunity to purchase an established screen printing shop in a small town. The shop was established 20+ years ago but has changed hands a couple times over the past year and a half (long story). The current owner owns a business a town away and everything is run through that location so it's almost impossible to determine income/expenses for the location that is for sale. So have three questions:

1) The site has an electric, eight station auto press that was purchased new in '13. Is there a publication that can tell me the value of this press (along with the matching dryer)? If not, what's the best way to determine value of equipment?

2) Is there an industry valuation multiplier (i.e. 2X gross/net, etc)? If not, how do you normally value a screen printing business?

3) Is there a standard percentage for cost of goods sold (COGS) and labor rate? In other words, if you sell a shirt for $XX you can normally count on 30% of that amount being COGS and 10% being labor rate. 

Any help would be greatly appreciated!


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## PatWibble (Mar 7, 2014)

Sounds to me, that if the business has changed hands a couple of times and is run by the owner from another town, all you are buying is some used equipment from someone who will become a competitor.


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## catldavis (Mar 31, 2012)

There's some truth to that. However, he's 45 minutes away and will sign a non-compete agreement (I know, not full proof, but better than not having one).


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## numbercruncher (Feb 20, 2009)

This sounds not quite right - before worrrying about the accounting (which is important-especially cash flow) might want to contact the prior owners and get some background...if possible might want to find some customers and get their input. Is there any staff in place, or prior employees - you might want to speak with them.


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## CanarianDrifter (Sep 12, 2012)

Bring in an appraisal to put a value on the equipment. It seems to me that the owner will keep all the existing customer since he's been printing on his other "45 minutes away" shop. I will not be surprise if he takes the phone number with him. He will probably say he will sign a non compete agreement with the customers you bring new which is tough to do since no-one owns customers. Unless he sells you an ongoing company, with the inventory, customers, equipment and all you need to keep the company intact it will only be as the other poster said selling you excess equipment.

CD


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## binki (Jul 16, 2006)

A premium valuation is 2.5 X net plus FFE plus inventory.


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## catldavis (Mar 31, 2012)

It was the same owner for 22 years. He sold it to a guy who bought it sight unseen (not unusual for Florida) who was from the inner city of a large city up north. He came down to a small, southern town and was in shock. This guy that currently owns it bought it for a steal from that guy. The current owner is doing we'll enough at his old location (which is closer to larger cities) that he is just tired of making the drive. 

I would get the phone number, stock, furniture and equipment and all customers that are from this location. 

Of course the current owner could go after the customers. But of course so could any seller of any business. Even if he doesn't, there are businesses and guys in their garages trying to take them right now. You just have to try and get a fix on what type of person you're dealing with to see if he's honest (plus a non-compete) and work hard to keep current customers and grow the business.


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## catldavis (Mar 31, 2012)

I don't know of any seller that would allow you to come in and speak to his/her employees or provide a list of customers. When a business is sold employees become extremely nervous and you run the risk of key employees leaving prior to getting the business sold. It has been my experience that most owners try to avoid that at all cost.


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## TEAMGRAPHIX (Jan 15, 2009)

You have to be very careful when using existing customers to determine a value for a business. Unless the business has long term contracts(very unusual) there is no guarantee that customers today will be customers tomorrow. Most small business 's develop a personal relationship with customers the new owner faces the task of assuming they can continue this relationship. If you really want to value the customers I would suggest you have as part of the sale contract the the present owner take you personally to each customer introduce you as the new owner and give them his blessing for continuing the relationship. This allows you to determine if the previous owner is sincere cutting ties to existing customers. If he balks at this it sends a message as to his true intentions and the value of the business is only the vale of equipment.


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## catldavis (Mar 31, 2012)

When you value a business you have to use current customers as a base? I'm not sure what you're saying there. No business seller is going to sell you the equipment and then just give you a residual income because he can't guarantee the customers will stick with the new owner. As I started before, in theory every customer is at risk. Now, I understand the concept that you wouldn't provide a multiple of net (like binki rightfully stated above) and in some instances you would even provide a less than 100% offer of net (say 50% for example) to offset customer retention rate, but no owner smarter than a third grader would offer (or accept) a deal where he sells you $60k in equipment and then walks away from a business that made $150k/yr because he can't prove the customer quality or guarantee retention. The business has customer risk, but it's offset in the percentage of net you offer.


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## Screen Medics (Feb 23, 2015)

As a buyer of a screen printing business you are in the drivers seat. Ask anything you like. Small screen printing business (under$2 million) are difficult to sell and the pool of potential buyers is small. I bought a combination screen printing and embroidery business in 2003 including equipment which included a contract to print for the worlds largest athletic shoe and apparel company.

My questionable questioning turned up a second set of under the counter books. Seldom can these sales be documented so I didn't pay for those phantom sales saving us thousands of dollars. If the revenue doesn't show up on the books it does not exist.

A CPA specializing in acquisitions is important to confirm the books have not been cooked.

If everything looks great consider negotiating an earn out payment schedule that covers any funny stuff like the selling trying to steal your paid for customers. An earn out names a maximum dollar amount you will owe if everything goes great. If things don't work our so well and sales fall short of claims then you pay less. This is not an uncommon purchase method.

Unless you are practically a lawyer have one draft your documents to make sure they will stand up in court if that becomes necessary. One of my acquisitions did just that and my contract caused the seller to lose his unfounded claim.

There is so much more to this that I cannot begin to cover it here. However, many of your answers can be found online if you want to do the research.

Screen Medics


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## catldavis (Mar 31, 2012)

Good points Screen Medics. This really a small deal in a small town. However, money is money and I don't like wasting it (if at all possible). 

I guess my thoughts were to treat it like a vehicle purchase. Someone has a car for sale and they're asking xxxxx for it. I usually try and determine what the true price is before I take it to a mechanic or check on insurance prices. In my mind, if rthe seller and I can't come to an agreement on price, then everything else is moot. 

You are correct about the internet. I found a great site that provides industry averages for labor costs, COGS, overhead, etc. Now I just need to figure out the value of the equipment.


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## ViperSteve (Dec 2, 2021)

catldavis said:


> Good points Screen Medics. This really a small deal in a small town. However, money is money and I don't like wasting it (if at all possible).
> 
> I guess my thoughts were to treat it like a vehicle purchase. Someone has a car for sale and they're asking xxxxx for it. I usually try and determine what the true price is before I take it to a mechanic or check on insurance prices. In my mind, if rthe seller and I can't come to an agreement on price, then everything else is moot.
> 
> You are correct about the internet. I found a great site that provides industry averages for labor costs, COGS, overhead, etc. Now I just need to figure out the value of the equipment.


What website did you find for labor, cogs, overhead, etc?

What multiple does screen print companies sell at these days?

Thanks for info


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## bandjay (11 mo ago)

For me purchasing a laid-out printing business, you are basically purchasing a proven operation. 👌 Most, if not all of the major business details will have already been worked out for you. Your primary task will be to keep the business chugging along as expected and beneficially. The disadvantage of purchasing a current business is the buy cost and the monetary dangers implied assuming that the business should start to falter or fail. Moreover, if the business has unhappy employees, outdated equipment, etc., you will inherit these problems as well. In any case, I actually put it all on the line as an expected $100,000 per year around here.🤑 You can for the most part print something like 180 shirts each hour and in light of the fact that the Trooper is a programmed shirt printer, you can print 180 - 6 shading shirts in 60 minutes. 72 shirts would cost about $2.00 each when you buy in dozens.


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