Buying/Selling an established photography business

[hmiles619]

How much is an established photography business worth? I know that this varies on a case by case basis, but I also know that a photography business is different than say for instance a retail business. I'd be interested to hear your thoughts on pricing, buying, or selling a profitable business.

[hmiles619]

no thoughts?

[picasso]

You need to look at the books. How much profit was made?
Was this profit consistent over the last 5 years?
Has the profit been climbing?
How long has the business been established?
Does the business come with the equipment and props?
Will the existing owner stay on to help get you going?
How many customers are you getting? Is there a customer list? Are they returning customers?
What is the potential market the studio is currently in? Is there room for growth?
What is your competition?
Why is the owner selling?

All the above plus take any inventory/equipment/computers/fixtures and what its worth then the last 3-5 years of adjusted net income and add it together. This will get you close but then of course you have to allow for the fact the owner probably things it worth more than it really is etc... etc... Your best bet is to have your CPA take a look at the books.

Here is an article that might be helpful. http://www.score.org/valuing_small_business.html

[bondarnes]

Since photography is such a personal interaction type of venture you need to understand that most of the clients use this studio because of a personal relationship with the owner. I have seen dozens of studios sold by a very personable photographer to an engineer or computer programmer with few people skills. Most are out of business within two years. Many only last less than a year.

The average studio is only worth the "Fire sale" price of equipment plus a little "Blue Sky" for an ongoing business. How do I know? I have bought the left-overs of a half dozen studios over the last 35 years. Many times the original owner sold for a reasonable price, but made the mistake of carrying the note and ends up with a defunct business and only a down payment and a few monthly payments.

[boxofrocks]

To add to what Don said, almost any purchase of a business needs to be based on pro-forma statements (ask your CPA). Those are tangible numbers which show you the P&L of the business over the past several years.

Of course, the intangible is exactly what Don referenced above--the relationship the prior owner had with the clients. That is often more important. But don't discount the importance of those pro-formas.

[CobyPhoto]

I can tell you what Don said is ABSOLUTELY 100% true, as I have purchased an existing studio.

Pro-forma numbers, financials for at least 5 years and a very hard look at the surrounding area, competition etc. and your plans for the studio in the first 5 years all play an important part in the decision.

There are simply too many things that I can list to try and do it here. It took me close to 4 months of research to decide the decision was sound and that I could re-direct the business in a manner that I want.

You need to look at the books. How much profit was made?

When looking at a small business' books, it is often time very difficult to determine JUST how much profit made. You want to see the owner's reported earnings on his 1040 (if sole proprietor) or his corporate filing if incorporated. You really have to KNOW accounting here in order to determine the real CASH profit of a company.

Was this profit consistent over the last 5 years?

Consistency is one thing, but the overall trend of the profit is what you need to look at and find the reason for the decline or increase.

Has the profit been climbing?

See Above

How long has the business been established?

Very important on several levels. If the studio has been in existence for a considerable time, 10+ years, your purchase is going to include $$ for that time, as the customer base for that business is valuable. The ability to make a smooth transition from one owner to another is however, another issue totally. As Don points out, often times, it is the photographer that the clients patronize and not the business!

Does the business come with the equipment and props?

Be very careful what you pay for here! Often times the equipment and props will be outdated and of NO use to the new owner! Same with equipment. Most often times, it will need updating within the first year of operations and that is costly.

Will the existing owner stay on to help get you going?

VERY key to the suscessful transition of client base! Many will not be interested in doing this, as they are ready to get out! One other thing not mentioned along this line...get a Non-Compete agreement with the previous owner!!! You do not want him jumping back in the business shortly after you purchase his place: clients will just go to his new business and you are out of luck!

How many customers are you getting? Is there a customer list? Are they returning customers?

More important than the list is WHAT the studio was doing with the list! Did the studio market themselves to the list regularly? If it is just a list...it really isn't worth much more than a list of past clients. Regular marketing effort to an established list is very valuable!

What is the potential market the studio is currently in? Is there room for growth?
What is your competition?

Wow, here is where you need to have a FIRM understanding of business and direction of your new studio IF you make the purchase. There are so many factors that play into this that i can't even start to list them. I spent a good 50% of my time researching this alone. Get help if you are not sure what you need to know here.

Why is the owner selling?

Even Rats abandon a sinking ship! VERY good question. Never trust what you are told by the previous owner. Make this determination based on all the above information and then some. Most often times, the real reason would not aide the owner in selling his business nor help him in getting the asking price.

Bottom line, this is a huge investment, do your homework, seek the advice of a professional - CPA, Lawyer to reveiw contracts on purchase etc. unless you have done this sort of thing before. (Even then, I would still seek out professional's advice!)

CJ

[picasso]

Also it depends on the "Type" of studio you are wanting it to be. I agree w/what Don said "That photography is a relationship business" but, there are studios that are not this way that do well. Portrait innovations being one that comes to mind. They run people in and out and I suspect they do well as a chain but its not the type of studio I would want and its not the type of studio I think Don is speaking of. It may or may not be what you want.

[CobyPhoto]

Originally Posted by picasso

Also it depends on the "Type" of studio you are wanting it to be. I agree w/what Don said "That photography is a relationship business" but, there are studios that are not this way that do well. Portrait innovations being one that comes to mind. They run people in and out and I suspect they do well as a chain but its not the type of studio I would want and its not the type of studio I think Don is speaking of. It may or may not be what you want.

True, but the issues of purchasing a Franchise like the one you named, just brings up even larger issues. Of course, I don't consider Protrait Innovations a "studio!" They are just an upscale Wal-Mart Studio with another name that turns out photos quick and cheap. They advertise with a Loss-Leader to get you in and then up sell you, as you are already there and have the time and effort invested. Largest print they do is 10x13" and they shoot all JPEG. If you want something larger, they sell you the file (for like 150.00) and then you have to get it printed somewhere. Most often times, there are issues with 16x20" prints from the file!

CJ

[picasso]

Originally Posted by CobyPhoto

True, but the issues of purchasing a Franchise like the one you named, just brings up even larger issues. Of course, I don't consider Protrait Innovations a "studio!" They are just an upscale Wal-Mart Studio with another name that turns out photos quick and cheap. They advertise with a Loss-Leader to get you in and then up sell you, as you are already there and have the time and effort invested. Largest print they do is 10x13" and they shoot all JPEG. If you want something larger, they sell you the file (for like 150.00) and then you have to get it printed somewhere. Most often times, there are issues with 16x20" prints from the file!

CJ

Yeah, I am not advocating them but you know so people want that kind of gig. Not me though. I don't think there are many on here that would. At least not publicly