Mike Andes explains how to value multi-location service businesses: owner-operated shops get lower multiples, but investor buyers use profit multiples that improve with scale. A $50,000 annual distribution at a 20% desired return means a $250,000 purchase price. Industry multiples run roughly 3x at $1M revenue, 5x at $10M.
Questions this video answers
$250,000 (in addition to asset value).
About 3x profits at ~$1M, about 5x at ~$10M, rarely more than 5–7x in this industry.
Approximately $2.5 million plus asset value (total roughly $4–5 million including assets).
Monthly owner distributions; W-2 would be required if entities were S-Corps.
No one outside of Augusta Nation may be present Wednesday night or Thursday until 3pm; only GMs or owners may attend those sessions.
Chapters
Hey everyone, hope you're doing super well. Go ahead and get things kicked off. Happy Saturday. Happy weekend. I'm going to drop this in the comments.
And then throw this on to the Facebook.
There's a few questions that came in on the form, so I wanted to answer those since yesterday we did not get a mastermind. All right, let's see here.
Okay, present File, Share, window, Chrome, tab. Here we go. All right, first question comes from Thomas. See here. Once we have our location running on systems and GMs, how do we determine the selling price or value of each location? Annual profit, annual revenue, profits. Other personal goal is to have a net worth of say $5 million. How would we know when we have met our goal? Using investment locations. Yeah. So valuations, when you start thinking about multiple locations and businesses that are not owned or operated look very different. Right. So the typical owner operator business in this industry literally is worth the assets plus some sort of multiple of the number of recurring customers or contracts. That's it. When you start talking about having a business that runs without the business owner, then you start thinking in terms of okay, well, what's the return? So for example, if I, if I can spend, you know, assets plus something on top of that. So for example, if I can take $50,000 a year in distributions and I want a 20% return on my money, that means I could definitely, I could pay $250,000.
In, in addition to the asset value in order to get 20% return on my money. Again, this the reason you start thinking that way is because if the business runs completely independent of the operator and the owner, then it can be sold to an investor so your multiples meet. That's the only way you really achieve a multiple honestly is if it can be sold without the owner's involvement. So it's just delusional, honestly, for small business owners to think that they have a valuable asset when they are still running the day to day operations of the business. There's just literally no value unless you're running such a massive operation that if someone was to take a salary, they'd still be very, very, very lucrative so that they could basically give that salary to someone else and then run it. So having multiple locations, having the system in place is helpful. As those number of locations grow and the revenue becomes bigger, that's when the multiple gets bigger because you just have you open up the net for the amount of people interested in buying. Like honestly, if you go from a million dollar business, you're looking at like local investors that are willing to buy you or local business owners. When you go to 10 million, you start talking about national and potentially capital funds that are looking for businesses. And then when you go to 100 million you're usually talking about venture capital or private equity or the public market. Right. So 10 million in my mind is where you probably go from like a. 3 times, 3 times profits plus assets. You'd probably go to like if you went to 10 million, probably like five times. But you're not going to get more than five, six times, maybe seven times in this industry. Right. So let's say you, you build up to a bunch of locations, you're pulling in half a million dollars of profit. I think you could sell that business for two and a half million plus asset value, which if you're pulling that much revenue in you, you probably have another million or 2 million in assets. So you'd probably be selling for like 4 or 5 million. So that's to answer your question, I think you'd be needing to pull in at least $500,000 in profits plus your assets. And it depends, like if you have multiple locations, a GM, a structure in place with GMs and a regional, that's much more valuable to an investor. So.
Cool. The monthly income we withdraw from your locations, is that W to income or monthly owner distributions? Just monthly owner distributions is what I pull from. I don't do a W to income from them because I don't have to yet because they're not S corps. If I ever switch them to S Corp, I have to take a salary and then yes, I would have to do some W2 income but for now I'm just doing owner distributions on a monthly basis.
I have a friend who's interested in our Augusta brand but is still on the fence about even having his own company. That's not good. He has become very comfortable where he is at their landscape maintenance. As their landscape maintenance assistant manager. My team members have other plans so I have invited him this year. Oh to conference I'm guessing. Okay. I know he, he. We like to keep certain things unavailable public. So should I. Should you rather. So would you rather I not bring him to the Augusta only before. Yeah. If you're not in Augusta, you can't come to the Thursday party. I'm pretty going to be pretty hard on that one. I'm hoping you will finally see the light and advantage of becoming a business owner, take advantage of this opportunity and join our winning team. I just want to make sure I not crossing any lines of the franchise agreements. Yeah. So no one, no one outside of Augusta Nation can be there Wednesday night or Thursday until 3pm okay. And so unless they are GM or they are an owner, they are not coming inside. There's certain things we got to go over, and there's just certain things that we don't want or need the public to know about yet. And there's certain parts I'm going to talk about at the conference on Friday, but I need to. I'm going to go deeper with everyone on Thursday to understand the back end, why we're doing certain things. And that part I don't want to be in the public, so.
All right. And that's all we got. Wanted to try to keep it short. Happy Saturday for everyone. To everyone that came out for training this week. We went Tuesday through Friday. It was great.
And just a great, great group of people. And I think most of them are going to actually coming back in a few weeks for conference. So looking forward to seeing everybody and it's going to be awesome. So take care, have a great weekend, and we'll see you Monday.
