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I have a friend who has successfully set up a dog walking business in my neighborhood. Right before I left for a long vacation (which I am halfway through), we worked out an arrangement where I would be her fill-in or assistant. A few days a go I got a message that her husband took a new job and they'll be relocating soon. I believe she us going to offer me the business. I really don't know a thing about it. I don't know what is a reasonable amount to pay for the client list and source code for the website. Is there a ratio of price of buying the business to potential earnings?
I'd pay her a percentage of sales for a period of time, say a year or two. That way, you're not paying a substantial amount for a business that might be driven by her own relationships, relationships that might dry up when she moves away.
I'm certainly not advising you to take advantage of your friend, but you're the one who holds all the cards here. She's better off continuing to derive income from her business rather than losing 100% of her income the minute the moving fan leaves the city limits.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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There used to be a "rule of thumb" that the goodwill, or customer list, was worth 2.5 times the annual profit after expenses.
That has gone by the wayside because no one trusts the profit data any more with so much unreported revenue, undocumented trading of products and services, and online sales. In the case of a service such as this it seems like
there is little overhead to worry about. The bottom line, though, is that a business is worth what someone else is willing to pay for it. About 30% of businesses offered for sale never get bought and end up just closing. If this person is anxious and in a hurry to sell you could benefit. I bought a business from a divorcing couple, who were both moving away. Since it was getting close to "walk away" time I only paid $27,000 though it had been listed at over $60k.
Aside from buying a consulting business this is probably the worst type of business to purchase from someone else. Any busines where the whole business hinges on the person and personality of the person operating the business is not something that transitions well or where you can feel comfortable offering alot of money.
Now granted these people probably need dog walkers so it's either go with someone like you who at least in a way has a referral or trust of the previous owner so you got something going for you there, they are probably more likely to stick with you a sorta trusted person vs finding a totally new company. That said many people probably hired the business because they liked your friend and how she did things. When it's no longer owned by your friend will people stick with you?
These types of businesses are hard to sell for this very reason. She may have a very successful business and a money making business however due to the risk associated with potentially half of your clientelle dropping you once it's no longer her running things.
Thing about it this way. If you wanted to go start your own dog walking business what would it cost you? Pretty much nothing, maybe a few leashes, bowls, treats but honestly most stuff is probably provided by your customers. There is really no cost with this business. The biggest cost is probably a bond or liability insurance which is not something you would buy from her anyway so pretty much all you are getting from her is customer lists. Not to say those are not valuable but there's no certainty any of her customers will stay on with you running it so for that reason you wouldn't want to offer that much. I would look at her client list, assume 75% are going to cancel. Then take the remaining 25% and give her a years worth of sales for that 25% of the business. PErsonally this is the most I would feel comfortable offering.
I'd pay her a percentage of sales for a period of time, say a year or two. That way, you're not paying a substantial amount for a business that might be driven by her own relationships, relationships that might dry up when she moves away.
I'm certainly not advising you to take advantage of your friend, but you're the one who holds all the cards here. She's better off continuing to derive income from her business rather than losing 100% of her income the minute the moving fan leaves the city limits.
Best advice given so far. I do not have a better solution, so I'll go with this one as well.
There used to be a "rule of thumb" that the goodwill, or customer list, was worth 2.5 times the annual profit after expenses.
That has gone by the wayside because no one trusts the profit data any more with so much unreported revenue, undocumented trading of products and services, and online sales. In the case of a service such as this it seems like
there is little overhead to worry about. The bottom line, though, is that a business is worth what someone else is willing to pay for it. About 30% of businesses offered for sale never get bought and end up just closing. If this person is anxious and in a hurry to sell you could benefit. I bought a business from a divorcing couple, who were both moving away. Since it was getting close to "walk away" time I only paid $27,000 though it had been listed at over $60k.
You bring up a good point, with this type of business there's a good chance your friend will wind up not finding a seller and walking away with nothing so don't offer too much.
Aside from buying a consulting business this is probably the worst type of business to purchase from someone else. Any busines where the whole business hinges on the person and personality of the person operating the business is not something that transitions well or where you can feel comfortable offering alot of money.
Now granted these people probably need dog walkers so it's either go with someone like you who at least in a way has a referral or trust of the previous owner so you got something going for you there, they are probably more likely to stick with you a sorta trusted person vs finding a totally new company. That said many people probably hired the business because they liked your friend and how she did things. When it's no longer owned by your friend will people stick with you?
These types of businesses are hard to sell for this very reason. She may have a very successful business and a money making business however due to the risk associated with potentially half of your clientelle dropping you once it's no longer her running things.
Thing about it this way. If you wanted to go start your own dog walking business what would it cost you? Pretty much nothing, maybe a few leashes, bowls, treats but honestly most stuff is probably provided by your customers. There is really no cost with this business. The biggest cost is probably a bond or liability insurance which is not something you would buy from her anyway so pretty much all you are getting from her is customer lists. Not to say those are not valuable but there's no certainty any of her customers will stay on with you running it so for that reason you wouldn't want to offer that much. I would look at her client list, assume 75% are going to cancel. Then take the remaining 25% and give her a years worth of sales for that 25% of the business. PErsonally this is the most I would feel comfortable offering.
Wonderful advice. I do have a wide reputation in the community as I run a facebook "gifting economy " specifically for the neighborhood. I would also shadow my friend for the remainder of the time she's here. Her husband will leave sooner. I will consider this more an see what she says too. I live in a relatively upscale community and I don't see many in my neighborhood jumping up to fill her place. We are a lot alike, which is why we were planning to work together.
I dont think I'd offer anything, but would extend a hand to take over the business..
Here is the thoughts
Are the customers on a contract? if not, there are no values in them, even if they continue to be customers, you need to extend labor, in exchange for payment. Its not like there is some inherant value in walking dogs.
And if they are contracted, who are they with? The sellers? The company? under what terms? What if they decide the new "buyer" isnt qualified to walk their dog or take their business elsewhere?
Ok, the website might hold some value, but that really depends on the domain name. For the most part, I doubt people paying a dog walker care if there is a website or not. Most clients are probably brought in by word of mouth or local advertising, and thus as the seller moves away, whats to come of the word of mouth?
I dont think I'd offer anything, but would extend a hand to take over the business..
Here is the thoughts
Are the customers on a contract? if not, there are no values in them, even if they continue to be customers, you need to extend labor, in exchange for payment. Its not like there is some inherant value in walking dogs.
And if they are contracted, who are they with? The sellers? The company? under what terms? What if they decide the new "buyer" isnt qualified to walk their dog or take their business elsewhere?
Ok, the website might hold some value, but that really depends on the domain name. For the most part, I doubt people paying a dog walker care if there is a website or not. Most clients are probably brought in by word of mouth or local advertising, and thus as the seller moves away, whats to come of the word of mouth?
Good questions. I can't wait to get home and have a conversation about it all. I don't think anyone is under contract. The value she brings is that we are in a particularly social neighborhood that puts emphasis on supporting local business and especially those of neighbors. I believe the website is important as it demonstrates authenticity and professionalism. At least in my neighborhood where every other resident is a FTE at Microsoft or Amazon. It carries far more value than it should to be honest (judging books by the cover, and not by the actual service provided). Word of mouth is often by three facebook groups, one of which keeps a frquently modified document of resident-owned service providers and their websites.
I dont think I'd offer anything, but would extend a hand to take over the business..
Here is the thoughts
Are the customers on a contract? if not, there are no values in them, even if they continue to be customers, you need to extend labor, in exchange for payment. Its not like there is some inherant value in walking dogs.
And if they are contracted, who are they with? The sellers? The company? under what terms? What if they decide the new "buyer" isnt qualified to walk their dog or take their business elsewhere?
Ok, the website might hold some value, but that really depends on the domain name. For the most part, I doubt people paying a dog walker care if there is a website or not. Most clients are probably brought in by word of mouth or local advertising, and thus as the seller moves away, whats to come of the word of mouth?
YOu bring up a good point. I would offer her a percentage of the business from her clients for the next year or even two years. If her clients stick with you she gets a cut, if not she gets nothing so your not paying for clients you may lose. She also doesn't get a percentage of any future clients you bring on that has nothing to do with her.
Ther are also services or companies who basically are dog walking websites but then contract it all out to independent contractors. Essentially this is what you would be paying your friend for but in your friends scenario your paying up front for non gurnateed business where as with these services they take a cut but gurntee you business. I would suggest having the same setup with your friend because you could just as easily setup your own dog walking service and signup with someone to give you clients
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