A business opp has come my way.. thoughts?

[bigbob2112]

a local business is deciding to close their doors, and have offered me the opp to take on all their clients, they have gone to great lengths to document ins, outs, everything earnt to date, projected earnings, upcoming work etc for each client.

they have put this out to several local companies and want us all to put forward a bid, then i guess the best deal wins. is this normal? how do you even begin putting a figure together? anyone else been through this?

 

[ethical PR]

Are you buying the business or the client list?

 

[Bob]

What kind of business is it?
Do you have relevant experience?

 

[Clinton]

You need specialist advice.

I would say that as I provide consultancy services in this field.

But here's some advice for free:

1. You can't buy the shares of the company without taking on all their liabilities ... and there could be a lot more liabilities and risks than are apparent on the surface. You'd need to run a complete due diligence and that takes time, expertise and access.

2. If you're buying just an asset, or assets of the company, that's a lot easier. In this case it's just clients so you conduct DD on just that - client list and all the company's claims on related revenue / loyalty etc.

3. Value: You need to analyse the net cash flow (after costs to service those clients), how much you are likely to lose if customers jump ship etc. You forecast cashflow for the next few years and discount it to arrive at its present value. How much you discount depends on your cost of capital and various other factors.

If there's significant amount of money being invested you'd be wise to take specialist advice from people who know what they're talking about. That, I promise you, doesn't come cheap.

 

[Ashley_Price]

As others have said you need to look into this very carefully, do the due diligence, take professional advice, etc., etc., but at the end of the day the decision is yours and it might be that you can see how you could make it work, even though others tell you otherwise.

This is exactly what happened with me when I bought Pavilion. I had spoken to lots of people, and they all said not to touch it as it was running at a loss, had very few customers for the type of business it is, etc., etc.

Yet, I had one big advantage, I had already worked within the business for a number of months. This meant I got to see exactly how it was being run and where it was being run badly. The owner wasn't leaving enough time to do proper promotion and marketing, and she also had the pricing all wrong.

So, take on board what everyone says when making the decision, but at the end of the day it is down to you and you might just know better.

 

[bigbob2112]

I wont be taking on the company, just the clients. the company will inform all clients that i will be taking over all duties so they will fall under my company umbrella. its a way the company will prevent the clients being left out in the cold with no support.

 

[john1989]

Do you have a clawback agreement in place if any clients leave within the first 12 months?

 

[bigbob2112]

clients jumping ship or not requiring anymore work for some time are my worst case scenarios, i.e. not making back the money i spent acquiring them.

 

[David Griffiths]

Have they given full details of client names and addresses already? If that's the case, don't forget that all of the other businesses invited to bid will have the same information. Is there some kind of confidentiality clause that prevents them from using this? Even if there is there are probably ways to circumvent it

 

[Ashley_Price]

clients jumping ship or not requiring anymore work for some time are my worst case scenarios, i.e. not making back the money i spent acquiring them

I assume they are going to be given the choice to come over to you beforehand. Some people won't like being moved automatically - after all they are going to need to sign your terms or contract. This will then give you a more accurate idea of how many you are taking on.

When I sold my call answering service to @Emma Fryer, I recommended her service to my customers, but I couldn't just transfer them automatically. While many did change to her, some decided not to continue with a call answering service and some went elsewhere.

 

[Chris Ashdown]

why is the company not being sold as a going concern,?

If others have done their homework into the company and decided not to buy, maybe the company has been so run down or have such a bad name that all the client data is not worth much; as most customers just brought once and never again

The 80% 20% rule may also help you as most people would agree that 80% of a companies profit come from only 20% of its customers and this 80/20 rule applies to many other things, not really a rule but a very good benchmark. So working on that list 80% are very low value if any customers and the top 20% are likely to be strong minded and maybe look elsewhere themselves once they get a feeling the present company if closing down

 

[Clinton]

clients jumping ship or not requiring anymore work for some time are my worst case scenarios, i.e. not making back the money i spent acquiring them.

That's not usually a problem.

You simply construct the deal such that the seller shares some/all of the risk.