How to value a small business - client list only.

[cantata007]

Hi. I am after a little advisc as to how a cattery buiness may be valued.

I am looking to purchase the client list and "good will" from a cattery owner that has been operating for 25 years. the turnover is 10-15k and occupancy level are high, with many loyal customers. I am looking to set up a new cattery building at my home, which is a bout 5 miles from the current location (it a rural area) I have been offered the client list, good will and some equipmet (of not much value).

 

[simon field]

Hi, never mind the turnover, what's the net profit?

 

[Deleted member 138423]

Client lists are worth what you feel it's worth. The list has been built up of loyal clients to that cattery with that owner, not you or yours so could be worthless.

 

[BustersDogs]

I asked for 10% from any bookings for a year when I passed on my cat sitting list to a friend who had worked as a cat sitter for me.

Lots and lots of them didn't use her as they didn't like her manner, felt she ignored their wishes and she kept going on holiday at busy times so they felt she was unreliable and I got lots of complaints that I'd referred to her! Despite the year not being up I now refer clients who still ring me as they didn't save her details to a different cat sitter.

It's really just a list of names and not worth anything! I would do your marketting and promotion yourself and leave her list alone. If I'd charged for my list the poor girl would now be out of pocket, but I couldn't keep giving her number out when she'd upset so many people. When she worked for me she never got to meet clients. Not saying you will be the same, but unless you can get the phone number and business name, it's really not worth very much.

 

[S-Marketing]

I would charge between 1 and 2 K to get that amount of clients for a business like that, so it cant possibly be worth more than that.

To be honest, buying clients for a business like that is flawed anyway, so you shouldn't give much for it at all.

 

[zanygame]

It should be worth something for a client list like this. People with pets tend to be quite loyal to their cattery/kennels
Provided you give the same or better service then you should keep a lot of year on year business.

 

[Billmccallum]

People with pets tend to be quite loyal to their cattery/kennels

.

this is the key point, if the client is loyal they wont want to change, even if the current provider closes, they may well look elsewhere for a new provider.

 

[Jet Virtual]

Why don't you ask for the rock bottom price they are willing to sell you the list for. Then decide on how much a client is worth to you and do the math.

Best of luck,

Daniel

 

[cantata007]

Thank you for your replies, they are much appreciated. The cattery name and current website will be included in the sale, though phone number will not as it is their home land line.I have been running a successful pet care business in the area for the last 3 years, so I already have a good reputation in the area. I would be looking to run this cattery business alongside this
The idea of 1-2K mentioned by Stretchy is what is currently being discussed. I think there is value in this list, and business name so shall be looking into it further.

 

[zanygame]

Provided you give an equal or better service, I see no reason why the client list would look for another supplier.
Pet owners that have found a reliable cattery or kennels that (most importantly) care about their pets, will stay for years.

That is certainly my experience with our and friends dogs.

 

[sprouting]

It's difficult to advise what goodwill value there reall is without having all the relevant information being made available.

You say you already have a reputation in the area for your Pet Care business - that's a start and you are known. How useful would the client list actually be to you?

Once you decide how useful the list is taking account that you are already known in the area, then decide how much you want to pay? The contractual terms will also be important - no competing clause, transfer of leads/business to you, etc., etc.

To conclude, as highlighted by other posts - goodwill is a difficult way to purchase a business. It's only as good as the customer wants to transfer. Our experience, it becomes an opportunity to look about for alternative suppliers when the usual supplier disappears. Based on £12.5k of revenue (average of the two numbers), you should budget on less than 10% income transferring to you to take a conservative approach.

Apologies for not being so definitive with an answer but without a full business development plan, it's difficult to value.

 

[bizrep103]

take the last three years profits divide by three then times by four and then you have the lower end of an offer. Also factor in future residuals and long term goodwill and contracts if needed.

 

[S-Marketing]

take the last three years profits divide by three then times by four and then you have the lower end of an offer. Also factor in future residuals and long term goodwill and contracts if needed.

What's that, The idiots guide to valueing a business?

That's the daftest post i've read on here for a while.

 

[bizrep103]

I forgot to explain the logic of the calculation. My former accountant told me that as a very crude rule of thumb a business is valued by averaging the last three years profits and then multiplying that between 4-10 depending on the business.
Based on the equally basic information I had about the business I used the x4 estimate.
By no means would I recommend valuing a business on what a forum says but it gives you a bit of an idea of what you could charge.
Unless you are a tech business or have some kind of innovative patent in the pipeline I don't hunk there is too much wrong with the above logic. That said a business is only worth what someone is prepared to pay for it.

 

[BustersDogs]

take the last three years profits divide by three then times by four and then you have the lower end of an offer. Also factor in future residuals and long term goodwill and contracts if needed.

I used that to work out my business. It's nearly twice what my accountant told me it was worth about 2 months ago.

 

[Dominic Taylor]

I used that to work out my business. It's nearly twice what my accountant told me it was worth about 2 months ago.

You need to pay your accountant more!

 

[Spongebob]

It is impossible to 'value' a business such as this.

It is worth precisely what someone is willing and able to pay for it. What are you willing and able to pay for it?

Assuming you are the only prospective purchaser - that's what it's worth. If there are others interested then the price will be bid up until the market value is revealed.

No accountant can predict what this figure is likely to be.

 

[maxine]

Also consider how competitive the area is. Would these customers come to you anyway if there was little choice of alternative?

 

[CKG]

The problem is that the intangible goodwill sits with the old owners, with all the will in the world you can't extract that from them through a list of names.

Your in effect buying a database of pre qualified leads.

Fair value could be 1 years profit discounted appropriately to provide a margin of safety. 75% margin of safety would be a minimum starting point, in my opinion.

 

[Philip Hoyle]

An overlooked key fact here is that the business phone number isn't available for transfer (it's the vendor's home number).

A lot of the value of the business will be dependant upon the vendor telling callers that you've taken it over and recommended you to them.

Advertising, websites, mailshots, etc., will only go so far to telling potential customers that the business has moved. Long term customers will automatically phone the same number - even if they've heard or seen that the cattery has moved - it's a basic assumption that the phone number would stay the same.

What's to stop her taking your money and then not passing on future phone calls to you or telling callers that you're useless and giving a competitor's number or just losing interest and saying it's closed or moved away and not bothering to give your details?

For me, that's the crux of the matter. You need to negotiate some kind of deal where her payment is somehow linked to her guaranteeing to pass on your details to future callers. For accountancy practices, the agreed price is often agreed to be paid 1/2 or 1/3 up front and then the reminder dependant upon how many clients stay for 1/2/3 years - I think you may need to negotiate a similar deal here to lock her in to handing phone calls to your advantage.

You also need to work out how much profit "you" will make from her £15k of sales - i.e. what extra costs you will incur, how much extra time you'll have to spend, what financing costs do you incur to raise the money, what costs for mailshots and relocation?

And another angle to look at is what would happen if you didn't buy it? Would it simply close, in which case you'd get most of the business anyway (if there's no local competition) if you've got some advertising/marketing in place. Is there someone else locally who'd buy it and then become a maybe more active competitor against you?

 

[FirstClassVirtualOffice]

It may also be possible to transfer that number if you're in the same exchange area. Ask them to ask their phone line provider about it and what the cost would be. I'm sure they won't want all the calls anyway once they sell up.