value of commercial customer list

[Jerry]

Im sure this has been brought up before but, I have a competitor that wants to buy him out. The equipment is ok, nothing to special about it. He cleans mostly commercial t&G, carpet, etc. very little residential. He was in business about 5-6 years and has steady commercial accounts. What is a good way to put a value on these accounts?
Thanks for the help?

 

[PrimaDonna]

Why is he selling? That answer (if he's honest about it) will say a lot.

Get a professional business valuation. Have a CPA go over his books and tax returns.

That's where I'd start.

 

[TomKing]

First don't go to a CPA most do not have a clue as to how to value a small service business.
They will give you 3 times gross or go to EBITA

Earnings before interest, taxes, and amortization (EBITA) refers to a company's earnings before the deduction of interest, taxes and amortization expenses. It is a financial indicator used widely as a measure of efficiency and profitability.
I have bought three small one employee companies.

Questions to ask
1. How much work is under contract
2. How much monthly work? This is regular accounts cleaned every month.
3. What is the gross revenue from accounts in the last 15 months?

Most one truck owners will not like what I am about to say about what to pay.

What to pay for
1. Equipment used value. I ask what can I sell it for in the next 60 days. Most have crap to sell.
2. Contract accounts. 40% of remainder of contract.
3. 3 months value on monthly accounts.
4. $500 to $1500 for customers on list serviced in last 18-24 months.

Simple might be this
Company earns $5000 month.
$15k plus value of used equipment.

I had a guy once who wanted to sell. He wanted $220k for a one truck operation. Upon examination of his quick books I discovered 70% of his business was from sub contacting to national firms.
I offered him $56k for his equipment and what little work he really owned.
He could not understand the fact that the contract work while I could do it it had no value those national companies could change the rules tomorrow and I had no ability to mitigate damages.

The sad fact is that many one truck companies have little to no value. Most owner just own a job not a company.

I know this sounds harsh. I as a buyer am not buying potential I am buying yesterday's financial reality.

Good luck I would be happy to talk live if I could help. 2 times I did great 1 time I lost.

 

[Cleanworks]

One thing that I have run into is small operator's who say they are getting out of the business but in reality just want to sell their used equipment, have cherry picked the customers and will take your money and buy new equipment and start again with a new name. Happened several times in the last 10 years out here. I bought my current business in 1990 from a husband and wife team who were just operating with 1 portable. I paid $5000.00 total for yp ads, equipment,customer list and got lucky that they were doing good work with equipment they had and customers were happy the results. Slowly added more equipment (tm etc) and still have a lot of the original customers. Like Tom King says, it's more of a job than a business still. Compare what he wants to the cost of buying new equipment and spending on advertising with a new name.

 

[Shane Deubell]

Also make sure you can do the production rate they are averaging. Some contractors are cutting serious corners to keep these bids.

If the owner cleans make sure to account for that labor.
I know we looked at one and when you added in the couples labor the jobs didnt have any profit left over.

 

[Spurlington]

Beer money !!

 

[mirf]

Although it is hard to enforce ask for a non complete agreement.

 

[Lee Stockwell]

I've had several who had accounts priced well below our rates. Ugh

 

[Jsjanitorial]

We just found out from our cpa that you Can depreciate the equipment over 5 years, but the "goodwill" you buy has to be over 15 years. So something to keep in mind.

 

[Lee Stockwell]

Good will evaporation is much quicker than that.

 

[KevinD]

Last biz I bought (2003) goodwill was 15 years.
Things may have changed since then or may be ways to get around the 15 years.

 

[rick imby]

If his rates are much below yours, you are not going to be motivated to develop those customers. After the "New Guy" comes in and then wants to raise the rates those contracts really become worthless.

Do you really want the business he has? Do your guys want to work nights? Do you? There is a reason you developed the customers you did.

Do you have an employee that can handle the work and is willing to be responsible for it?

 

[rick imby]

Or---if you are a Baaaad dude, ask to see his customer list.... and Prospect, prospect, prospect----did I really say that?

 

[Andy]

No. You typed it on the internet so that the whole world can make a hard copy.