Buying a Business - Need help making an informed decision

[KelliShaver]

Hi, folks. I have a couple of questions that I was hoping some of you here could help me out with. I recognize a lot of you from SP, but since I mostly lurk there, let me give a little background to start off with.

I own 1/4 of a family owned and operated local business that does computer service and repair, custom built computers, and we also do web design/development and hosting (which is the part that I handle). We don't have a lot of local web clients, we were a little late getting into that market, but we do have a handful of good ones locally and a handful in other places.

Our biggest local competitor stopped by our office today to tell us that he was selling his business, and to see if we were interested in purchasing it. I wasn't there, so one of my partners took his information and I'm going to call him back and talk to him about it.

This guy was in business doing web design/dev here for a couple of years before we were and has a fair number of local clients (more than we do). I'm not sure of the exact number. That said, the work he does is very sub-par (though, obviously, I doubt his clients realize this).

We would very much like to have these clients. Our business is only a year old and we have just now recovered our initial start-up investment and are getting to the point where we can start to become profitable. As with any new brick & mortar business in a small town, it is slow going. So, we don't have a lot of money to be buying out the competition.

I'm also not sure we need to. To my knowledge, aside from him, and us there aren't any other competitors we really need to worry about. There might be one or two people freelancing, but they're so few and far between that their names have never come up.

I feel we could potentially contact these clients and get at least some of them to switch over to us (for hosting and maintenance), but I'm not even sure these people know what is going on with his business. Our primary concern is that he will find another buyer, who will continue to under-sell us with sub-par work (or worse, that they will under-sell us with quality work).

That said, I think "selling" the business may be a last-ditch effort from him to try and make a little more money. I don't know that he could find a buyer if not us, but I am concerned at what could happen if he did. I have considered just offering to pay him for a list of his clients and their contact information.

I would like to find out a little basic information before I speak with him tomorrow, but he has taken down his company website and portfolio. I just went to the site and it has become a personal web page, an empty one at that.

I have no idea how to evaluate how much his business is worth, nor am I certain what types of questions I should be asking him and what sort of information I should be trying to gather. This is where I need help.

Any help or insight that anyone could offer would be greatly appreciated.

Thanks a lot!

[Chris]

I think you're right that he is just trying to make a little more money, if you don't buy it likely no one will. That puts you in the position to negotiate heavily.

If there is any regular monthly revenue (hosting and or maintenance contract revenue), and this revenue would for sure transfer to you, I would base the value solely off of it, and forget about his client portfolio as you're right, you could probably get those clients anyways.

[KelliShaver]

Thanks, Chris. The more I think it over, the more I think that this isn't going to be something we want to sink money into (just writing that first post out helped me think a lot of it through). However, I do still want to talk to him intelligently about it so I can make an informed decision.

I do know he does hosting, but I did go to a couple of sites that I know he was hosting. They used to state this fact in their footer, and they no longer do. So this has lead me to wonder how many of his clients have already left.

Edit: Thanks to archive.org, I now have a list of his clients.

[demosfen]

Edit: Thanks to archive.org, I now have a list of his clients.

Taking over his company probably would be easier than approaching each client individually. But I'm not sure it's worth much, basically you would be only paying him for convinience as I understand.

[Cutter]

I would get a list of all clients, plus revenue from the past year from him. You can factor in your costs, and get a rough estimate what each customer is worth. Give him a really low ball offer, maybe $10 per client.

He's got a service business and a name. This isn't like buying an established semi-passive income business that you can just hire new managers to run.

[KelliShaver]

Taking over his company probably would be easier than approaching each client individually. But I'm not sure it's worth much, basically you would be only paying him for convinience as I understand.

Yep, that's pretty much the way I see it, too.

Thanks for the feedback, everyone. I really appreciate it.

[KelliShaver]

Just, FYI... I talked to this guy the other day. I asked a few simple questions:

How many clients do you have currently?
How many do you host and what do they pay for hosting currently?
How much bandwidth/server space are they consuming?
What were your profits/expenses for the last 12mo like?

Now, these are things I normally wouldn't tell someone if they just called me up and asked, but if they were looking at buying my business, I'd be expecting them. And he either couldn't or wouldn't give me a definitive answer to any of them. He was supposed to call me back with some more concrete info, but hasn't yet. I doubt he will.

As I figured (upon further reflection)... not really worth fooling with. I'd rather just go through his list of clients and contact them directly.

[Bleys]

If he can't or won't answer simple questions like that, to a qualified potential buyer, I don't see how he expects to sell the business.