How can I tell if an upholstery business is profitable before I buy it?

An upholstery shop can look busy and still leave little for the owner. Most of the income is labour, so the question is how many productive hours the shop sells and who works them. The financial statements are a start, but the job records tell you more. Here is what to ask for and how to read it with your accountant.

Separate labour from materials

Ask how the shop charges: labour only, labour plus materials, or a flat quote. Some customers bring their own fabric, and others buy it through the shop. Materials sold by the shop may carry a markup, while labour-only jobs depend on hours. Ask to see a sample of recent invoices and the time spent on each. If the owner cannot tell you, the shop may not know its own margins.

Count the owner’s own hours

In many shops the owner is the best upholsterer and does the most complex work. If the books show a profit only because the owner takes a small draw, the picture changes once you hire someone to replace them. Ask your accountant to restate the statements with a market wage for that role, and see how much is left after that.

Look at the mix of customers

Commercial work from restaurants, offices and dealers can be steady but slow to pay, while residential work depends on referrals and the season. Ask which customers are repeat and whether any account is large enough that losing it would hurt. A shop that relies on a single designer or dealer may not keep that relationship after a sale.

Check what the shop is owed and holds

• Customer pieces in the shop at closing, and whether deposits were taken for them.
• Unpaid invoices from commercial customers.
• Fabric and foam stock, and whether any of it is already assigned to jobs.
• Equipment such as sewing machines and compressors, and its condition.

For a similar approach to reading a small shop’s books, see how to tell if a computer repair shop is profitable.