How much is a customer base worth??

[R2006]

Hi guy's

Got a quick question. I've had my company for 23 years now, I learned it from my father in-law who is now ready to retire and would like to sell his operation to me. He's been around for 45 years. We are tyring to put numbers together but we seem stuck on how to figure the value of his existing customer base. I would like to see him get fair compansation as he has been good to me over the years, and will need this money for retirement, but I dont have a clue as to how to figure this one out. We are going to see a small buis. lawer but was wondering if any of you had any idea's, or mabe questions i should ask when i get there.

thanks.

 

[peter d]

A customer base is worth $0.00.

 

[ITO]

A customer base is worth $0.00.

I agree................

 

[peter d]

So you might be wondering why a customer base is worth absolutely nothing in calculating the value of a business. For one, a customer base is here today, and gone tomorrow. Furthermore, unless they are under contract or some other written agreement, they are under no obligation to buy your services.

 

[wireguru]

yep..worth zero. forgetting the fact that its family for a minute, why pay for something you can just go take?

 

[mdshunk]

Any accountant who is also a business valuator will tell you that a customer list is worth exactly zero. I agree with the others.

 

[1793]

Hi guy's

Got a quick question. I...my father in-law who is now ready to retire and would like to sell his operation to me. He's been around for 45 years. ...lawer but was wondering if any of you had any idea's, or mabe questions i should ask when i get there.

thanks.

Is his business one man or is it a company? I ask because if his business is small, maybe only him, then his customer base may very well be because of him, without him there may not be any business.

 

[splinetto]

With no business schooling, accept for Accounting 101, in college, I would assume you would need to base the selling price of the business on the companies profits over the years...And in those profits the worth of the customer base will be included...I would venture a guess there might be some multiplier to figure it out and possibly subtrating liabilities to get the companies worth

 

[mdshunk]

Most businesses that are for sale are worth exactly as much as their assets. Unless there's systems in place making money for you every day while you do other things, the business itself isn't worth squat.

 

[splinetto]

Most businesses that are for sale are worth exactly as much as their assets. Unless there's systems in place making money for you every day while you do other things, the business itself isn't worth squat.

So if you were to make an offer on an exsting business whether its been around for 2 months or 40 years your offer woud be based soley on the co assets.....Wouldnt the name hold any value positive or negative.....

 

[mdshunk]

So if you were to make an offer on an exsting business whether its been around for 2 months or 40 years your offer woud be based soley on the co assets.....Wouldnt the name hold any value positive or negative.....

You betcha. Past profits are no guarantee of future profits by any stretch of the imagination. Doubly true if it was a one-man show or a small shop with an owner who worked with tools. The business described, with the information we have so far, is worth exactly as much as its assets are worth.

 

[nakulak]

a business is worth one thing, and one thing only: the amount that someone is willing to pay for it. A good test for the value of a business is to get the balance sheet for the business, along with the listed assets and past tax return, and go to the bank to find out if you can get a loan for the price you intend to pay. the banker will be very helpful in letting you know exactly how much the business is worth.

 

[mdshunk]

The only time a business is worth more than its assets is when you're also buying an in place "system". Doesn't matter if they have 50 employees to each bring in 1000 dollars worth of invoices every day. They could all go to work for someone else the day after you buy the place.

 

[brian john]

90% of my work is for 10% of my customers, I think a good customer base is priceless.

My wife recently bought a business, from day one she has been making money from the ex-owners customers.

 

[Sparky555]

There's not much information to go on here. The value is the assets with consideration for repeatable income & profits.

Other information needed:

How many employees? (Is this Joe's Electric & Joe is retiring?)

Does everyone earn a fair salary for their job? (No free wife accountant, or skip a paycheck when business is slow).

Have fair benefits been paid? (Health, retirement, etc. It's not a good sign when you say this sale is his retirement. Will you be looking to sell it for your retirement, or do you have normal annual contributions to your retirement).

Any maintenance contracts?

Annual net profits?

The customer base isn't worth anything IMO without repeating sales & profits. Is this a few thousand customers in an updated accurate database, or what?

 

[220/221]

If you want good electrical advice, talk to an electrician

If you want advice on selling your business, talk to a business broker.

In my recollection it used to be worth around 3X to 5X the annual earnings (net profit plus perks/benefits)

Now MAYBE it's 2X.

Things are not what they used to be a few years ago. You will be getting a deal.

 

[ivsenroute]

It is worth its physical assets only.

As far as customer base, ONLY if there are renewable contracts in place such as service agreements.

A pest control company has renewable contracts for service work and that type of business is worth approximately 75-125% of its annual revenue from renewable contracts.

 

[ohm]

If you want good electrical advice, talk to an electrician

If you want advice on selling your business, talk to a business broker.

In my recollection it used to be worth around 3X to 5X the annual earnings (net profit plus perks/benefits)

Now MAYBE it's 2X.

Things are not what they used to be a few years ago. You will be getting a deal.

Great answer! If the company has a good name and it's staying in the family and very little is changing, other than the owner..it has some value.

You might ask that your father-in-law be on some sort of retainer to help in the transition. It would also make him and your wife feel good.

 

[R2006]

Thanks everyone for the responses so far, a bit more information, small shop (owner and helper), no repeat contracts, just a good client list. We are planning for him to come to work for my Co. for a few years to help with a smooth transition. And we are planning to see our accountants to answer this question. I was just curious as to anything I might be missing, thanks again and keep the thoughts comming.

 

[jimmyglen]

I dont know how you could says its worth ZERO

maybe in the most technical aspect

but in the real world of you think you can keep his customers and make money then I would see some real value in that

getting customers (advertising etc) costs money so how is having customers not worth anything?

just my 2 cents anyway

Oh and if any of you guys want to see your company to me just for the price of the assets - let me know (esp. if you have large customer bases)