Business buyout value

[Ajays]

This is a very important question. I really need solid answers. I am interested in buying out my business partner. I need to know what is the value of our client base. We have no commercial clients and no contracts. We have approx. 60 residential clients that generate approx. $70,000/year before expenses and approx. $46,000/year after expenses. What is the value of this client base. Any help would be greatly appreciated.

[bob]

When I bought a bunch of commercial accounts, we agreed that 7 weeks worth of income was a fair price. Do a search on this topic.

[nelbuts]

If he is/ was your partner in every sense of the word (equal money, sweat equity, etc.) then fairly he deserves one half of the $46K. Now if he is a real Ahole then try as cheap as you can.

[hboyd_com]

No matter what kind of a partner his.... A-hole or not, he deserves 50% of the value of the business. What are assets of the business as well as the potential income. In cases like this it is usually a give and take process.... and get a no-compete agreement with him for as long as you can so that he doesn't take your customers.... at least not right away.

[Ajays]

The value of the assets is the easy part to figure out. I know the value of the assets, the business debt, ect... but what I need to know is the value of the client base. None of the clients are guaranteed or have contracts and I think I could rebuild the client base from 0 in less than a year.

Example: is it worth 15% of what it generates in a year? more?

In my opinion, the maximum value of the client base is 50% of what it generates after expenses in one year. Then that is divided in half because half the client base is mine.... which leaves a maximum buyout value of 25% of the yearly income or in this case $11,500

[roscioli]

Without contracts (and in some ways, with contracts) the value of a client is about $0. Not actually 0, but damn close to it, because there is no way of gauranteeing their continued income.
For fairness, why not try this? Add up your advertising expenses in the past, and give him some % of that (could be 100%, but i would try for less of course). In reality, each customer is only worth what it costs to replace them, which equals your advertising expense divided by the number of customers you gained from that advertising. In this case, you dont have to divide, because you are using the figure from all of your customers.

[Ajays]

In the past 4 years of business, only about $1000 has been spent on advertising. I really don't think that a % of that amount is a fair price for the client base.

Our client base is pretty strong with 90% of our clients using our service for at least 2 years.

[nelbuts]

Now what I mean is this. Did the partner put in the time, the money the effort? Or, did he let the other partner do all the work and collect his share. If the latter is true then he does not deserve 50% period. Legally he may have every right unless a written agreement states otherwise. However, if not then let your morals guide you in your decision.

[Ajays]

I am now the sole owner and operator of Ajays lawn care. I guess its time to change the name. I am also now working solo and its going to take some getting used to.

[Richard Martin]

So, what did you give your former partner?

[Fvstringpicker]

Two good ways I can think of in a partnership buyout that's fair.
First, let one partner set the price and the other partner decide whether to buy or sell. Second, set a % on each account that remains active for X number months. Use only the historical fees. Any price increases or other work is exempt for the algorithm.

[Ajays]

After doing an evaluation of the business,
1. the value of the business assets is equal to business debt so I assumed his share of the business debt for his share of the business assets.

2. My personal contributions to the business outweighed his contributions so I came up with a figure that he would have to pay me to be an exact 50% partner.

3. I figured our client base to be worth 3 months salary\

4. I gave him 3 months salary minus the amount that he would have to pay me to be a 50% partner plus assumed his part of the business debt for the assets.