[quote=Hobie]” Well established business” A rough rule of thumb is you will retain 1/2 the current clients after an owner change. Especially if it is a working owner situation.
Another huge asset is the company’s supplier list. Perhaps the single most undervalued asset to a buyer. You may be lucky and piggyback on some long time very loyal suppliers with great pricing.
Go talk to their competition, current clients, employees, etc. This will help you more than you can imagine.
All the good advice given here. Consider hanging your own shingle vs. buying ongoing. You can buy a lot of equipment and ‘experience’ for the amount of goodwill many owners ask for. Remember goodwill in the eyes of the owner is very biased and all too often way overvalued. Many just fed up with all of the hard work and want to exit and retire in luxury.
Term of sale is another issue to be explored more in detail as you go along. This is huge. njtosd has hit excellent points and I may add the cash flow and payments are crucial as well.
Try to tie payments of goodwill to retention of current business. This will usually include owner working for you. This is another can of worms, but necessary.
Probably best advice is to trust your gut feeling.
One more thing, there are a lot of perks for working for the man. Insurance, medical, 401k, etc. This stuff gets expensive on your own. Just keep it in mind.[/quote]
The supplier thing is a good point. My daughter is starting a small business for which she needed grommets of a certain size and finish. It took a lot of work to find what seemed to be a simple item in the quantity that we needed. There were 4 or 5 things like that – it took a couple of months (very part time) to find everything she needed.
The goodwill issue is particularly relevant to trademarks. You can’t receive assignment of a trademark unless you also receive the “goodwill appurtenant thereto” Failure to get the goodwill can invalidate the mark.
If you are thinking about a software company you should have a working understanding of copyright and patent rights as they relate to software. Lots of confusion about shareware, “creative commons” licenses, open source software, etc. The potential liability for infringing a registered copyright in software is enormous.
I could go on, but I will leave it with a warning to be careful.
