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A lot of people believe there are values in businesses they own but in reality there isnt. When businesses rely upon the services of a sole individual for a service in exchange for payment, when that sole individual changes, then in reality the old business ceases to exist and a new one replaces it. If they had employees that were doing the labor and she was taking a cut, then we're talking a different scenario because they are benefiting off the labor of someone else.
As for the website, big deal. A domain name is $10 a year and you can have a generic website built for $100 total.
If its a great domain name, then it holds more value but really, the value of the name and website itself, without knowing what it is, really holds little reason to pay for something with little value.
I agree with you for the most part. There is some value in the business in terms of she has best practices figured out, probably already has a bond and liability insurance so that's something that is turnkey as opposed to having to go out and price shop and search suppliers. Also the customer list has little value but does have some value.
I agree with the sentiment a business which relies on the service or personality of a single person is worth little to nothing when sold. I ran into this with my business when attempting to sell. A legit valuation in terms of cashflow and what not should have been about 2 mill, I got an offer for 200k which was probably overvalued bcause ofthe issues mentioned.
This business has some decent value if kept in her name and her running it, once sold it has probably 5% of that value.
I get that but the "lack of contracts" doesn't = no value was my point.
I think it does, even if the customers are under contract if customers cancel is the new owner really going to take customers to small claims court over such miniscule amounts of money? Probably not so the contracts aren't worth much either.
I think more value is into best practices and things like that and having a turnkey busines the customers are an added bonus but don't put much value into them.
My father is a colorful and charismatic business owner (property management) and a related commercial real estate developer. I truly believe his company would be a far riskier investment than my friend's. As a child I instinctively understood that I could never fill those shoes when the company future was discussed. It will die with my father. I feel very different about this, most probably because I know I can meet the expectations.
it absolutely does when the seller is the only source of income relies upon labor being exchanged for revenues.
A lack of contract for future labor that can be offset by having someone else do the labor holds value because it doesnt take up the buyers time, but thats not the scenario being posed here.
Whats to stop the OP from just taking over the customers now? Get your answer to that, and you have the answer to the value of the "good will"..
p.s. the answer is NOTHING
A. The contracts would be worthless as future income if the client simply cancels service, moves out of the area, the dog dies or whatever.
B. Buyers time or other persons labor is moot.....both need to be paid for work done.
C. Buyer could easily take the business, but if the previous owner objected then how successful would the takeover be vs. a glowing recommendation of the new buyer by the former owner? That is the value of the good will!
Just some background on my experience........
I own a small business (500K-1mm) in annual sales. It has been under my control for 25 years, it has been in existence since 1979. It was purchased in 1979 for about $35,000 despite the hard assets being worth about $5,000. It has had thousands of clients over the years.......NOT ONE was under any written contract back then or now! An argument could be made that we operate on an oral contract however.
A division was sold in 2001 for $300,000+ and not one client was guaranteed upon the sale and the division was sold for cash upfront, no time payments from the buyer to the seller. It was a wildly successful transition for 2 of the buyers, the 3rd buyer failed on his own accord unrelated to the purchase.
Written contracts scare buyers/clients when it comes to simple services, it makes them weary of a catch/clause that forces payment. Now buying real estate, financing cars, remodeling a home all are valid uses for a written contract.......dog walking is not.
Then again, I don't have a written contract with my CPA, my lawn guy, my pest control guy, my housekeeper or even my attorney despite paying thousands of dollars a year to each person.
A. The contracts would be worthless as future income if the client simply cancels service, moves out of the area, the dog dies or whatever.
Or the contract is with the seller personally because a new owner would invalidate any contracts which exist.. p.s. a dog dying wouldnt invalidate a contract unless the contract includes an out for the dog dying. A dog isnt signing the contract, the owner is. The dog owner dying would probably invalidate the contract since they are dead.
Quote:
Originally Posted by City Guy997S
B. Buyers time or other persons labor is moot.....both need to be paid for work done.
Not true at all.
An investment with 0 labor involvment, is worth far more than an investment with lots of labor involvement yielding the same revenues.
Quote:
Originally Posted by City Guy997S
C. Buyer could easily take the business, but if the previous owner objected then how successful would the takeover be vs. a glowing recommendation of the new buyer by the former owner? That is the value of the good will!
meaningless since the performance of services would determine the value of services.
Quote:
Originally Posted by City Guy997S
Just some background on my experience........
I own a small business (500K-1mm) in annual sales. It has been under my control for 25 years, it has been in existence since 1979. It was purchased in 1979 for about $35,000 despite the hard assets being worth about $5,000. It has had thousands of clients over the years.......NOT ONE was under any written contract back then or now! An argument could be made that we operate on an oral contract however.
A division was sold in 2001 for $300,000+ and not one client was guaranteed upon the sale and the division was sold for cash upfront, no time payments from the buyer to the seller. It was a wildly successful transition for 2 of the buyers, the 3rd buyer failed on his own accord unrelated to the purchase.
Written contracts scare buyers/clients when it comes to simple services, it makes them weary of a catch/clause that forces payment. Now buying real estate, financing cars, remodeling a home all are valid uses for a written contract.......dog walking is not.
Then again, I don't have a written contract with my CPA, my lawn guy, my pest control guy, my housekeeper or even my attorney despite paying thousands of dollars a year to each person.
We could sit here and compare resumes but none of that has a dam thing to do with the current scenario.
For the record, I've own bars, restaurants, a hotel, a huge development project in Florida, I currently own an investment company which leases to government facilities, an internet company and more. I've been a serial entrepreneur since 15 when I started buying rental properties (yes, before I could even legally sing a contract I signed them)..
Should we get out a ruler and compare things the old fashioned way?
Seriously, if your entrepreneurial experience exceeds even five figures you are probably no longer qualified to give applicable advice. Apples and oranges my friends. This is a part-time gig while the kiddies are in school, not the merger or sale of some multinational corporation. I will figure it out... or won't. .. feel free to let go of this thread and get back to business. (Pun intended) .
Should we get out a ruler and compare things the old fashioned way?
Seriously, if your entrepreneurial experience exceeds even five figures you are probably no longer qualified to give applicable advice. Apples and oranges my friends. This is a part-time gig while the kiddies are in school, not the merger or sale of some multinational corporation. I will figure it out... or won't. .. feel free to let go of this thread and get back to business. (Pun intended) .
Considering I started my first business when i was HOMELESS, I'm very well qualified to give advice. no one started lower on the ladder than I did.
The fact that its not some big deal doesnt mean it makes sense to overpay.. The dispute I have between CityGuy is a valid one, we both have valid issues to contribute and your answer rests somewhere in the middle.
Or the contract is with the seller personally because a new owner would invalidate any contracts which exist.. p.s. a dog dying wouldnt invalidate a contract unless the contract includes an out for the dog dying. A dog isnt signing the contract, the owner is. The dog owner dying would probably invalidate the contract since they are dead.
Not true at all.
An investment with 0 labor involvment, is worth far more than an investment with lots of labor involvement yielding the same revenues.
meaningless since the performance of services would determine the value of services.
We could sit here and compare resumes but none of that has a dam thing to do with the current scenario.
For the record, I've own bars, restaurants, a hotel, a huge development project in Florida, I currently own an investment company which leases to government facilities, an internet company and more. I've been a serial entrepreneur since 15 when I started buying rental properties (yes, before I could even legally sing a contract I signed them)..
Companies revenues exceed 8 figures a year..
1. Dog dies, job over. Can't walk what no longer exists! Think about that, could you bring that contract into court if the dog died? Would a business expect to continue services in this situation?
2. This is not an investment with 0 labor......
3. In your bars/restaurants/hotel......did the clients have contracts with you to patronize your establishments?
Should we get out a ruler and compare things the old fashioned way?
Seriously, if your entrepreneurial experience exceeds even five figures you are probably no longer qualified to give applicable advice. Apples and oranges my friends. This is a part-time gig while the kiddies are in school, not the merger or sale of some multinational corporation. I will figure it out... or won't. .. feel free to let go of this thread and get back to business. (Pun intended) .
That is kind of a nonsensical response, because a lot of the entrepreneurs started out as a zero-figure business.
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