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How to Start or Buy a
Telephone Answering Service:
Buying Accounts Only
By Steve and Chris Michaels
Updated January, 2007
It
makes a lot of sense for existing Telephone Answering Service (TAS) owners to buy the customer base of their
competitors instead of spending a lot of money on advertising and sales people
to acquire new customers one at a time. Since the buyer already has the
location, staff and equipment, it is more feasible to purchase just the accounts
and roll those accounts into
your
existing business.
The
best scenario for purchasing accounts would be to have the accounts in the same
central office of the phone company as that of the seller. Then the purchased
customers could keep the same DID (call forwarding) number and the buyer would
just switch them over to new DID trunks. If the buyer is across town, then new
DID or 800
numbers will have to be assigned to the
newly purchased
customers.
If
a buyer who
is out of state purchases a customer base, the
customers may forward
their
calls on 800 DID numbers which are
the same as DID's only forwarded to 800 numbers. Another option for long
distance buyers is to use what is called a T1. Basically, the buyer leases a
phone line from the phone company going from point A to point B.
The T1
has the ability to compress 24 talk paths into one phone line giving you 24
lines from point A to B. Now it becomes cost justifiable to purchase a sizable
amount of accounts in far off locations. What you have to do is compare the cost
of the equipment and phone line to that of the monthly billing of the proposed
acquisition to see if you can cost justify the purchase.
There are CLEC's
out there who can also provide you with wide area coverage plan
depending upon where you are located and what areas you want to cover.
In
most cases, a phone answering
service's assets
are non-tangible making it
difficult to borrow money from the bank to use for the acquisition. A bank likes
to see
tangible assets, such as
buildings, land or something that they can attach
a
value to. However, in the
answering service business the telephone answering service has one major asset, its customer list. This
list is predictable into the future and drives a future cash flow.
You
are buying
profitability and future cash
flow. In most cases, it is mainly a multiple of
net profit
that drive the value of an answering service, not a multiple of revenues (monthly billing).
But in purchasing the accounts only, there is value even though there may not be
profits. To consider a reasonable price, use
historical data
for comparable telephone answering services
that have been sold.
Even
if the seller is just breaking even, the new owner will not be burdened with the
sellers'
overhead or debts. The only
costs for the buyer are the service debt for the accounts, phone lines to move
the new customers, and some additional equipment with staff to service those new
accounts.
The
average drop off ratio for buying new accounts
is anywhere from
10% - 20%, although I have literally seen from 0% to 60% loss depending on how
the accounts are moved. That
number may be decreased through several factors. One way is for the seller to
stay on for 30 to 60 days
after the sale
to help with the transition of those accounts. This is especially true if you
are buying a small number of accounts that have been pampered by the previous
owner. Another way is for the buyer and seller to draft a joint letter to the
sellers' accounts stating that the two businesses are merging
operations
for the benefit of the customers. In the letter,
state
that the new company will be able to serve the customer with
more sophisticated
and enhanced services such as
voicemail, fax and email services, alpha dispatch
and voice logging.
The new company also
expects
less hold time due to the
speed of
the newer equipment. This way
the customer feels they are
receiving
a better deal for their money and
will not start looking around for another service. Of course, this would not be
possible if they were going from a paperless environment to a paper based
system, but this is rare in the industry.
People
hate change. If the buyer is going to move the customers out of state, change
their DID number,
change the
operator answering their calls, give them a new call-in number for messages and
bill them differently from a new location, then the buyer will lose customers.
The more change you put them through the more customers you will lose. Sometimes
buyers will leave a storefront office in the newly purchased city to give the
appearance of being a local company while answering the calls from their main
facility located elsewhere.
An
important factor to consider in the purchase of new accounts is how they are
being billed, especially if you are moving the account a great distance. Beware
of purchasing services that charge a flat rate for their service. You may not be
able to justify their traffic flow for the amount of money charged. One billing
structure is to charge a monthly fee for a predetermined amount of calls and
then so much for overcalls. A second, and more profitable way to charge is by
time. An example would be $20.00 per month and 80¢ per minute or $89.00 per
month including 60 minutes and 99¢ per minute thereafter. Make sure that you
find out if they charge on a per call or a per message basis, because there is
a BIG
difference.
If you are a
buyer, you will want to check the seller's call volume and number of phone lines
used to service those accounts. That way you will be well prepared and staffed
for the additional flow of traffic to your location. Another item to check is if
the seller has any voice mail or paging accounts: many times you will also be
able to roll these into the purchase price. Check to verify that all of their
customers are using call forwarding or ISDN. If they have some hard wire
accounts, you will have to convert them to call forwarding in order
to transfer them to your service. It would be wise for the seller to convert
them before thinking about selling. Also, check to see if any of the sellers'
accounts are using the DID number that the seller issues to them. Sometimes a
client will not have a local telephone number and will want the service to
provide them with one of their DID
numbers to be used
for their business cards or
Yellow Pages advertising. This is not advisable and will only cause you trouble
in the future if and when you want to sell your business.
This also prevents
you from reusing that number
for another customer if your present customer leaves the service. If that client
decides to leave or not pay, then you have a number that can no longer be used.
A way to get around this dilemma is to have your new client order remote call
forwarding in their name and then have it call forwarded to your DID number.
Items to check
before signing on the dotted line; Is
the seller tied into a lease they cannot break? Have all of their employment
taxes (which includes federal, state, workman's compensation and unemployment)
been paid? Do they have any liens against the business? Have you filled out a
supersedure form from the phone company taking over the responsibility of the
seller's telephones and Yellow Page advertising? All of these items must be
considered and verified before the closing.
Once
you have bought this group of accounts, you will need time to input the account
information into your system as well as ordering the appropriate number of phone
trunks to handle the volume. Make sure you give yourself enough time for this
process. It will depend upon the number of accounts that you are purchasing, but
two to four weeks would be a minimum, since it may take the phone company that
long for your new trunks. You may want to consider hiring the ex-owner and
employees from
the seller's
service since they are familiar with the accounts. The larger phone answering systems now
have the capability to put remote operator positions in the houses of the agents
who would like to stay on. You may not have to retrain them unless you have
different answering service equipment than the seller. If they are coming from a paper based
environment, you will want to make sure they have typing experience, especially
if you have paperless computerized equipment.
Most buyers elect
to keep the business phone numbers of the seller along with the Yellow Page
advertising and Web address. This business has spent a long time building up
their reputation and establishing a presence, so why not capitalize on it? I've
seen several answering bureaus that have only one location, but many phone
numbers utilizing different ads in the phone book and different Websites. When
a prospective customer "lets their fingers do the walking or browsing",
it gives you a definite advantage over your competition.
When
buying customer accounts, the buyer would like to pay as little down as possible
and stretch the payments over
a five-year
period. Of course, the seller would like all cash. An average deal used to be
20% to 30% down with the balance due between two to five years at one point over
prime depending upon the size of the purchase. But as of 2003, most of the deals
that I have been involved with have been all cash.
Another important item to consider is what is called a retention clause.
Basically stated, it means that if I am the seller, I will guarantee that you
will receive X number of accounts billing X amount of dollars. Of course, the
buyer would like this and the seller would not. The argument for the seller
should be, if I sell these accounts to you and you lose them because of poorly
trained operators, then that is not my fault and you should pay for them. The
argument for the buyer is, " How do I know that these are all good paying
accounts that are still on service," and "Why should I pay for something that I
never receive?" They are both correct. Flexibility is important in this
particular facet of the negotiation process.
Another problem arises concerning the accounts receivables. Typically,
receivables go to the buyer so they may have a steady cash stream in which to
operate the business. But in some instances, the seller may say that they have
worked for that money, so it is theirs.
Stating in the
offer that it includes the accounts receivables, or offering an amount for the
accounts and an additional amount for the accounts receivable can resolve this.
Sometimes the seller will sell their accounts receivable for a percentage on the
dollar because the buyer most likely will not be able to collect all of the
receivables. If the seller keeps the receivables, it is not a good idea
for both of them to bill the
customer for payment. The question arises that when a payment comes in, does it
go to the seller for a past due account or to the buyer for services performed?
It can get pretty sticky.
It is my
recommendation that any account that is 90 days past due is not a valid account
and should not be considered as part of the sale.
An important
question is when is the account information transferred to the buyer? If the
buyer waits until closing, they have to scramble to input the account
information into their computer system. Meanwhile the operators from the old
service are aware of the sale and are out looking for jobs possibly leaving the
seller in a lurch, especially if there is a retention clause in effect. To solve
this problem, use an agreement called, "Satisfaction
of Due Diligence" whereupon the buyer has agreed to buy the accounts and has
done their due diligence. Once this document is signed, the account information
is then transferred to the buyer for input prior to closing. If for any reason
the deal is not consummated, the buyer agrees not to solicit those accounts for
a period of five years and if any of those accounts do transfer to the
prospective buyer, than the buyer will pay the seller the agreed upon multiple
that was established in the selling price.
If you are the
seller make sure that you have plenty of documentation to back up what you are
selling. This should include bank statements to verify your deposits, a current
Profit and Loss statement and a Balance Sheet along with three to five years of
tax returns. The more documentation you have, the better and faster the sale
will go. It is always easier to expand your business through acquisitions as
long as you do your due diligence, verify what you are buying and give yourself
plenty of time for the transition.
For more information:
Steve and Chris Michaels operate TAS Marketing, a business brokering
company focusing on assisting clients buying and selling telephone answering
services and outsourcing call centers. Contact them at 800-369-6126 or
TAS@tasmarketing.com
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