Purchasing an existing company

[damo666]

Good Morning,

I started my new business 4 months ago and a local competitor is retiring, he has had his business for 5 years and run it as a one man band turnover is 49k profits of 19k and no assets, its a service business with some good clients, The issue i am having is that while it is quite profitable am i right in saying with no contracts, no assets the business valuation is based solely on the person running it and then if he leaves the company is almost worth nothing, I am trying to find a reason to buy it but need some advice on how to move forward or walk away

thanks

 

[ryedale]

We bought another web design/hosting business from a local firm 2 years ago as he was emigrating to Australia

Getting his clients to accept the change was quite hard with some of them although it helped that we already had 5 years trading experience behind us

It was a case of contacting them all, offering to go and see them personally and explaining how we worked and what we could do for them

I'd go through his client list very carefully - assess how much income potential they really have if they do stick with you

When I bought the business, he told me that he had around 120 good clients

In reality, by the time everything had settled, I found a lot of the people on his list had either ceased trading or had no plans for expansion/improvement

By the end, I gained about 55 useful clients from it which was still enough to make it worthwhile, just not as much as I had hoped.

Be careful also to check on the prices he has been charging people. The business I bought was seriously undercharging people and it's taken me a long delicate process to get them up to the same price that my own clients are paying

 

[damo666]

thats my thought chain if I can keep 50% of his client base it would be worth while, thanks

 

[Billmccallum]

the big question is how much does he want for it? if anything......it may be worth paying for the goodwill (client list, his business phone number, email address , web site (if there is one).

 

[Billmccallum]

plus... is it a ltd co. or sole trader

 

[Bob]

Maybe offer him a % of the turnover that you generate from his clients for say 3 years. Firstly this will encourage him to ensure that the clients stay and secondly may discourage him from changing his mind and setting up a new company

 

[damo666]

its a limited company and he is looking for 19,700 for the business

 

[Bob]

Does he want sell you the shares or is the company selling the "business"?

 

[damo666]

the company is selling the business and the company will then close

 

[MorrisChesterfield]

Hi,

Another way to think is,

how much would it cost to gain new customers? I.e more advertising etc, rather than buy the company ( customers ).

Hope that makes sense?

I once bought a service business and it would have worked out much much cheaper to simply start a fresh business than buy an existing one.

Ben.

 

[broadex]

Also dont forget the tax man.

If i were you i would also get your accountant involved as there are a lot of tax implications on purchase and sale of business. IF you dont have one, get someone from sites like "find-accountants.com" - it takes only one minute to post and specialised local accountants offer quotes.

 

[StevensOnln1]

@broadex Do you own or work for find-accountants.com as you've posted quite a few times this evening to recommend it. If you do, it would be far better if you up front about it and put it in your signature.

 

[broadex]

@stevens - no i dont work for them but its a helpful site - i subscribe to a number of company offering accountants leads like servicestarts, find-accountants.com and accounting-quotes etc. but i find its services much better. thanks

 

[theBagShoppe]

@ Stevens- You have good check on people offering services of a specific company. I really enjoyed this situation.

Anyways I will advise damo666 to buy the company and offer the owner a small share of profit from that business because it will really encourage him to help you to retain clients!! Also declare the real profits rather exaggerated figures!!