Most business sales are of businesses that will continue to operate as a separate entity after the sale, but with a new owner. However, in some cases, particularly when the business is not doing well, the best sale may be one in which the business is merged into another company in the industry. In this situation, the primary asset being sold is the customer base. The customer base is the group of customers that buy from the business on a regular basis. The business is, by definition, one that does business with other businesses.
Generally, the sale of a customer base doesn’t work for a retail business for a couple reasons. First, location is typically very important to maintaining the retailer’s customers. Moving the business to another location, even a few blocks away, may cause a large number of customers to leave. Secondly, the tradename, brand, or owner may mean a lot to customer retention and changing any of these may also cause the business to lose customers. However, there are sales of retailers where the business stays in its location and is re-branded. This is usually done when the buyer is a franchise or chain store operation. This is a way for the buyer to start with a going business rather than a startup.
The sale of a customer list is thought of when a business that sells to other businesses closes. They cannot sell the customer base because, if they are closed, they no longer have customers. I have not sold a customer list – the list of former customers. It is questionable what value it would have if the customers are already doing business with other suppliers.
The sale of a customer base can be a win-win for the buyer and the seller. When the buyer merges the seller’s business with his, many expenses are eliminated – rent, utilities, some employees, accountant, bookkeeper, and more. In many sales, the buyer doesn’t need most of the seller’s equipment and the seller can sell it elsewhere and make additional money.
The additional business is very profitable for the buyer. However, this doesn’t mean the buyer is willing to pay more for the seller’s business. The buyer won’t pay more than he has to. In many industries, the buyers see the seller’s business, particularly if it is not doing well, as damaged goods and expects to buy the business for a lower price. This type of sale is one in which a good business broker can add a lot of value. A business broker can find the right buyers and find more than one so there is competition to buy the business.
In many industries, the buyers who are buying up companies in their industry are not the ones willing to pay the highest price. I had a sale a few years ago of a distribution company. The big industry buyer gave us an offer which the seller turned down — with my agreement. I later sold that business for 4 times what the industry buyer offered and had multiple offers at that price range. I recently sold a printing business that another broker couldn’t sell during the 18 months he had it for sale. I sold it in 5 months after receiving 3 offers — at a price the seller was very happy to receive.
A good business broker can sell a business for more than it would sell for if sold by the owner. This is to a large extent because they can find more, and better, buyers for the business. A business broker who is experienced in selling customer bases can add even more value. If you want to discuss your situation, contact us today by filling out the form on the right or calling us at 617-562-5700.