I READ your article on May 28, "What's the best way to value my business?" The three suggestions mentioned there don't apply to me and I'm still wondering how to value my business. I'm a bookkeeper and I have a buyer for my 13 existing clients. There's not enough money in it for me to get a business broker involved, so I'm wondering what price to put on the 13 clients? I actually won't be selling the business or transferring over my expenses as she already has an established bookkeeping business she will simply be taking on my clients.
THE best way to value your business is by using an earnings multiple.
Your 13 existing clients deliver an annual revenue stream for you, and let's say that those clients are earning you $50,000 a year.
The valuation rule of thumb for your bookkeeping business would be to take your average revenue over the past three to five years and to apply a multiple of between one and three times that average revenue. Now that's a pretty big spread and it means that your business can be valued from $50,000 to $150,000. So, you should consider these factors.
First, how long have you been in business? A well-established smaller business that has been trading for several years and shows consistent revenue may attract a higher multiple. A less established business or inconsistent earning profile would attract a lower multiple. So, ask yourself how you measure up.
Second, what is your relationship with your clients and what is the risk of them walking away once you do? If you have maintained a professional relationship and your clients are likely to be satisfied with the new bookkeeper, you're more likely to attract a higher multiple.
Finally, what kind of negotiator are you and how well can you persuade the buyer that your business is worth more? This is when business brokers come in handy they are experts at getting the best price. But if a broker is out of reach, the best advice I can give you is to sharpen your negotiation skills and have the documentation to prove your business' worth.
Finally, don't forget to talk to your accountant about the best way to structure the sale. They'll be able to advise you of small-business capital-gains concessions that may be available and, if you are near retirement, what role superannuation could play in minimising the tax on the sale of your business.
I OPERATE a small training business as a sole trader. I would like to find an IT-savvy business partner/investor who would handle the day-to-day operations while I conduct the training. How should I approach this quest?
I HAVE always had partners and I've found that playing to each person's strengths makes the business run smarter and keeps each partner from stepping on the others' toes.
Finding an investor or a partner who complements you and will enhance your business isn't as easy as doing a search on the internet or putting an ad on Gumtree. You could get lucky, but I'd suggest a more targeted approach.
Start with LinkedIn and other social media sites to find out who you know that might know a relevant applicant. The brilliance of social media is that it makes six degrees of separation easily navigable and it reveals links that otherwise may not be visible. LinkedIn is the best way to find professional connections, so give it a try.
Mark Bouris is executive chairman of wealth management company Yellow Brick Road. His advice here is intended as guidance only.
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