Selling Small Business

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boatdriver79
Posts: 5
Joined: Fri Jun 15, 2018 5:47 pm

Selling Small Business

Post by boatdriver79 » Thu Aug 09, 2018 6:57 pm

I have a small consulting business that I have had for about 10 years. Over this time we have amassed a sizable number of clients that we bill on a monthly basis. Business is good and growing. We net about 10K a month and have no real expenses (other than cell phone and internet). The service we provide only takes about 1 week a month to administer so its really a part time gig.

I would like to ease out of this business as I really don't need the money anymore and working that one week per month puts a big crimp in my travel plans.

My question is this... how do I value this business? It consists mostly of my clients and my ability to service them. I know that some businesses are valued by their gross sales but I am not sure if that applies to this. Any thoughts on what I should be looking at to ask?

Thanks!

WildBill
Posts: 394
Joined: Wed Jun 29, 2016 10:47 pm
Location: San Antonio, Texas

Re: Selling Small Business

Post by WildBill » Thu Aug 09, 2018 7:13 pm

Howdy

Not enough info. If you have a proprietary product or long term contracts in place you can estimate it as some multiple of revenue.

Otherwise the only prospective buyer would be one who could run it as you have, as the only value is in the services that you provide to the customers and their track record and confidence in you in providing these services.

In this case as most of the value of the business is in your head, and in your experience and credibility with the customers, the chances of revenue going to zero without you around are very high.

Good luck

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid

stan1
Posts: 6094
Joined: Mon Oct 08, 2007 4:35 pm

Re: Selling Small Business

Post by stan1 » Thu Aug 09, 2018 7:16 pm

Make a list of people you know who might buy it. If its netting (grossing?) $120K/year for 25% time work could you hire an employee?

megabad
Posts: 828
Joined: Fri Jun 01, 2018 4:00 pm

Re: Selling Small Business

Post by megabad » Thu Aug 09, 2018 7:17 pm

Well this is a bit of a non-answer, but I would say the first step in how to value it is to find a buyer and get an offer. The only transactions I've seen are from partner to partner (ie. one partner buys out another), but someone intimate with the business will likely give you the fairest offer. Otherwise, businesses that are not standardized (not franchised, not common trades, etc), will be notoriously difficult to "value" on paper.

Accounting elements like "goodwill" are difficult even for large marketable companies to determine. In general, most ordinary service business aren't officially valued very high. I would say standard for a small service business (accounting) rule of thumb is 1-2x earnings. But if you have a niche business, a very big name, or assets (ie. real estate, inventory), it can be many times that. If the business relies on you or your persona it could be worth very little without you. Sorry it just varies way too much.

JBTX
Posts: 4271
Joined: Wed Jul 26, 2017 12:46 pm

Re: Selling Small Business

Post by JBTX » Thu Aug 09, 2018 9:09 pm

I seriously doubt somebody will pay a lot for a small consulting business. It is totally dependent on a few consultants. Also $120k net for several consultants doesn't seem like much.

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