THE BUSINESS Check out this hot title: a video distributor whose niche--groceries, convenience stores, and motels--nets more profits during this owner's 10 days of work each month than many businesses do full-time. This trade is called "racking." The owner sticks to small towns in Colorado, Utah, Arizona, and New Mexico to avoid competition from larger or lower-priced distributors, and he charges a hefty 70% commission for renting his 25,000-tape collection to mom-and-pop retailers. Assets include $500,000 worth of tapes and about 70 clients locked in with one- to five-year contracts. The owner needs cash to develop a parcel of land that he owns.
PRICE $650,000 (owner financing with 30% down)
OUTLOOK The multibillion-dollar video business looks strong, and so does this racker's growth prospects, especially if the new owner works a few more days a month to expand the client list and territory. Sales could also be boosted by offering more video games and software. Then load the tapes and games into your mobile library (a '96 Chevy van) and visit your customers.
PRICE RATIONALE Start from this premise: distributors typically sell for about 1.5 to 2 times their recast earnings. If a new buyer could push the business's net profit to $300,000 or higher by working full-time, a good sale price might range from $450,000 to $600,000. Nervous about making that leap of faith? Consider this: Since rackers own large inventories of tapes, the right valuation method might approximate the one typically used for video retailers (which generally go for 1.5 to 2 times recast earnings plus the value of their inventory). That could push this company's value a good bit higher.
PROS A home-based business that's actually profitable, plus the chance to watch movies.
CONS What if all those Western hicks start nixing video flicks?
**before interest, taxes, depreciation, and owner's compensation
Inc. has no stake in the sale of the business featured.
The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to Robert Minor, Business World Brokers Inc., at 970-928-0842.