My father has recently suffered ill health and is no longer fit to work in or run his small business. The business is basically the provision of a service, and a large part of the business’s value lies in the extensive repeat customer base built up by my father due to the level of service he has given over the years. He now wishes to sell the business, which is raising a number of questions, including:
- How do you put a value on reputation? There are some physical assets (equipment etc), but the biggest assets are the trading name, the contact numbers and the customer list. He’s struggling to put a value on these. Is there perhaps a fomula commonly used to work this type of situation out?
- An employee is interested in buying the business from him, however they would not be able to raise funds up front, so my father is considering selling it to her over say a period of 5 years in a lease type arrangement, eg. Employee pays him x / month over 5 years to the total value he would've sold it for & interest or whatever. I’m concerned that if the employee reneges on repayments, what recourse would my father have? Should he draft a legal agreement (and if so, is there someone that can do this)? Even if they had a water tight legal agreement, if there were problems down the road, for the money involved it wouldn't be worth going to court. And if my father ends up having to take over the business again, it may have significantly reduced in value should the employee turn out not to have a good business head. How can my father protect his asset?
- If he decides not to sell to the employee, how might he identify potential customers for it? And how can he show the potential of the business to a stranger, who may not appreciate the worth of my dad’s work? (The business is based on good name so a stranger would be unlikely to buy it as they would probably believe they could set it up themselves with no start up costs, this is true but it would take them years to get to the income level that my father has built up. My father turns away customers every day that he simply can't fit in, this would also not be reflected in the books as potential turnover, so again, a stranger might not appreciate the earning potential.)
- I remember a post here ages ago mentioning that small businesses are usually sold through accountants. I also remember some Irish guys setting up a website for selling small businesses but don't remember the link or if its still around. I found www.businessforsale.com but wonder do any businesses actually get sold through this site.
Any advice would be much appreciated, thanks.