Nimo wrote:Thks guys for the advise.
I m doing IT services mainly maintenance contracts for corporate client, turn over is about 500K. Do have a few big names that others might be interested to establish business relationship. I know this will add some value to my firm if I got the right buyer, but first of all, I got to know an estimate value of my business before I can proceed to find a buyer. Is there any company that provide cheap valuation services for business or acquisition of small firm ? I m selling my business because of health problem.
Not really... at least nothing that would be cheap.
Here are a couple of questions for you.
a) Are you doing all the work yourself? If yes, then I'm afraid you don't have much to sell. If you are doing the maintenance and then you leave, what is there to buy?
b) If you have personnel, how many and what is the term of the contracts you have with your clients? What are your gross margins? I hate to be the bearer of bad news but IT maintenance is extremely competitive. The largest maintenance firms are averaging 3 to 7 percent margins.
What this means is that there is little return on investment. Consider: You have $500K revenues. With a 10 percent margin, you have $50K. How much would your pay for a $50K revenue stream? I would need to invest $1 million at 5 percent to get a $50K revenue stream.
But, you will never get that for multiple reasons. First, your revenue streams are not guaranteed. They are in fact, high risk since the loss of one or two clients effectively ends the stream. Thus, your price must be discounted for risk, and the risk is very high.
Second, investing is a passive activity. Running a business is an active undertaking. Your price would have to be discounted again.
A rule of thumb is that a business would be worth 2 to 3 times earnings, so using my 10 percent margin number, you would be able to sell for $100K to $150K. But, I don't think you can get that. First, unless you have guarantted long term contracts, your revenue stream is at risk, and it is very risky if the majority of your revenue comes from one client.
Second, the costs of entry into your business are extremely low. Why should I pay you anything when I can hire 10 computer maintenance technicians this afternoon? It would come down to the quality and duration of your contracts.
And there is the final rub. If you were running a shop with a couple of million in revenue, and you had a significant track record of profitability, tehn you might be worth buying as a going concern with multiple customers, process and procedures and a large enough staff to manage your loss. But at $500K, any change in circumstance is material to your company.
I don't value companies. However, I am in IT, in the project management arena. I would not buy your company, or any company in your line of business. The margins are not there to support the investment. And the long term outlook is not good. Dell, HP, and IBM continue to take a larger and larger share of the market, and their focus is on service. They can't make money on hardware so they focus on service. Even the large independent shops are being sorely squeezed. It does not bode well for the small guy.
Sorry to be negative but in my opinion, you would be better off keeping the company you have, scale back your part in the operations and keep taking profits from it.