Mind Your Business: Adjusting the Sales Price

By Steve Michaels

Q. We have signed a Letter of Intent and have agreed upon a closing date for the sale of a telemessaging call center.  The seller asked me, “If I sign up another few accounts before the actual closing date, then what happens?  Do I get more money for my business?”

A. In the teleservice industry, there is continual growth and attrition that happens on a monthly and even on a daily basis.  Every telemessaging service has its ebbs and flows where business picks up and slows down depending upon the seasons and time of year.  That’s why I recommend that the multiple for the selling price be based on a six-month average of monthly receivables. This makes it fair to both the buyer and seller, as spikes occur in billing from month to month.

With this type of valuation, the addition or subtraction of a few accounts doesn’t really do much to the bottom line as it relates to the sales price of the business.  Plus, it makes for an equitable transaction for both parties, so the buyer is not purchasing a business at its highest billing month nor is the seller losing money by selling during its slowest month. Some buyers want to use a twelve-month period, but I like to use six months. A lot can happen in a year, so by using six months, you are getting the most recent averages of the business cycle.

If the seller has some pending sales that have committed to signing up after the sale, then the buyer and seller should negotiate a commission agreement that would be separate from the Asset Purchase Agreement.

Steve Michaels is a business broker with TAS Marketing. He can be contacted at 800-369-6126 or tas@tasmarketing.com for questions.

[From Connection Magazine October 2007]