Gretchen Zinkan on fri 14 jun 02
I am in the process of considering the purchase of a small pottery supply
business. How does one determine the monetary value of a client list? How
do you determine the value of a distributorship (exclusive) for a region?
Any thoughts about this would be appreciated.
John Hesselberth on sat 15 jun 02
Buying a business is a big step. Good luck. I would only make a couple
points. Neither a client list nor an exclusive distributorship have any
value at all unless they deliver profits to the bottom line. My point
is: as a buyer don't place any value on them. Insist on seeing the
last three or so year's books and do your valuation only on how much
money has been made. You might add a teensy bit if you see some very
obvious ways the profitability can be improved, but not much--that is
value that should accrue to you--not the current owner--because you did
it. Getting you to put value on things that haven't contributed to the
profitability of the business is one of the oldest tricks in the books.
If it has contributed to the profitability then it will show up there.
On Friday, June 14, 2002, at 09:38 PM, Gretchen Zinkan wrote:
> I am in the process of considering the purchase of a small pottery
> business. How does one determine the monetary value of a client list?
> do you determine the value of a distributorship (exclusive) for a
> Any thoughts about this would be appreciated.
> Gretchen Zinkan
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Earl Brunner on sat 15 jun 02
Is it the only show in town? How much competition? In general terms,
you are talking about intangibles, how many customers will you lose just
because the shop is under new management? Is there a non-competition
clause in the sale that prevents the seller from opening up down the
street and pulling his customer base with him?
There is essentially only one supply store in town here. I have no
problems with them, they are friends of mine, but I know potters that
would order from out of state and pay shipping rather than deal with the
people that run the store.
From: Ceramic Arts Discussion List [mailto:CLAYART@LSV.CERAMICS.ORG] On
Behalf Of Gretchen Zinkan
Sent: Friday, June 14, 2002 6:38 PM
Subject: buying a business
I am in the process of considering the purchase of a small pottery
business. How does one determine the monetary value of a client list?
do you determine the value of a distributorship (exclusive) for a
Any thoughts about this would be appreciated.
KLeSueur@AOL.COM on sat 15 jun 02
I agree with John to examine the books closely. In fact, get an accountant to examine them. Even then you can be tricked by the owners.
In the 80's my partner and others were looking to buy a small nursery in Texas. In evaluating the business they found that the owner was meeting monthly projections so they thought it was just a matter of reducing costs. However, a closer look showed that the owner was boosting numbers by buying cuttings for a nursery in Texas. This substantially increased his revenues but he charged buyer only the actual cost the cuttings so there was no profit. He also hid outstanding payables to suppliers. If you buy a business and then find out that the owner hid debt it is unlikely you will be able to rescind the deal or get him to reimburse those hidden costs. Careful scrutiny is essential.
Steve Mills on sun 16 jun 02
Take a good look at the books with an accountant you trust, and get a
certified breakdown of the annual turnover for the last five years or
so; you are looking for growth achievement and potential. Personally I
don't like *exclusive* deals; they can become a millstone. Like all
independents we can agree or not to promote a particular line, depending
on how it fits with our commercial philosophy. With an exclusive deal
you are tied hand, foot, and finger, and will have difficulty in
responding (intuitively) to your customers needs. You are after all
serving THEM, not t'other way round.
(wearing my shopkeeper's hat)
Bath Potters Supplies
In message , Gretchen Zinkan writes
>I am in the process of considering the purchase of a small pottery supply
>business. How does one determine the monetary value of a client list? H=
>do you determine the value of a distributorship (exclusive) for a region?
>Any thoughts about this would be appreciated.
Janet Kaiser on sun 16 jun 02
I missed the original post, but picked up on what John Hesselberth
says about buying a business. He is quite right. A great many people
seem to be under the misguided belief that an established business is
worth more than it really is, especially when they depend on customer
loyalty being part of the equation. They forget that there is such a
thing as "customer fatigue" too.
I would like to add one point to consider: How often have you (for
example) read the notice "under new management"? What does that tell
you? Old or previous customers should be alerted to the fact that "it
is now better" and they should at least try out the service. It is a
ploy to either retrieve lost custom since the take-over, or gain new
because the expectations of the deal have not been met.
Customers may want something new and not the same old thing? Or they
may want the same old thing and become belligerent once the new owners
start making changes. It can work both ways. At least it does around
here... Maybe it is different elsewhere, but I doubt it.
There seems to be an extremely high turn-over of shops and retail
outlets everywhere I look and I get tired of hearing, "Oh, I'm
surprised you're still here" type comments. Even in a nation where
old, established family businesses are still part of the landscape, it
is becoming unusual to see the same outfit in the same place for more
than a couple of years.
Let's face it, there is no easy way around establishing your own
business. If buying one is an option, never over-estimate intangible
factors such as customer loyalty. And be aware that agencies are not
always transferred automatically. Check that out with the company
concerned and get something in writing from them, before you add that
to your list of pros and cons.
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