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Can I Sell My Document Storage Business For $150,000?

The Question

I have a small document storage business that I started in 2005. My company has grown at a 14.8% rate per year since 2005. Gross dollars this year will be approximately $75,000. Most of my customers are in medical, insurance and accounting businesses. They are very happy with my service and rate structure. I bill every month. I have never had a customer who hasn't paid me for the service I provide. This year I foresee at least three new customers which will increase my revenue at least 10% or more. My question to you is: Do you think that I will be able to sell my company and get out of it what I want?? I am looking for anything over $150,000. I'd like to sell within the next year.

The Answer

I think there are a few key questions that will determine the price you can sell for. First, of the $75,000 you will gross this year, how much of that is profit? Since you have been consistently growing at a nice rate of 14.8% and because your customer base is so stable I definitely think a multiple of 3x your annual earnings is reasonable. More specifically than earnings I would use a multiple of your "Owner's Benefit". The formula for determining the owner's benefit is: Annual Pretax Profit + Owner's Salary + Owner's Perks/Benefits + Interest + Depreciation. This number will give the buyer an idea of how much cash the business generates for you, the owner.

Here are two questions to think about.

First, is the facility where you store the documents leased? If so, when is it due to expire? If it is due to expire with in two years of when you sell, I would consider talking to the landlord about extending the lease now. Any less time on the lease and the buyer will worry about what will happen next year:

.................Will I have to move?..... Will my rent skyrocket?

So if possible, try to avoid that issue now by working out a long term lease.

The second question is, are you the only employee? In a lot of single-person businesses the customers are doing business based on their relationship with the owner. Buyers worry that when the owner leaves, so will the customers. If you have long term contracts with your customers that's best, but if they are paying month to month and can cancel at any time that will be a concern to buyers.

Since you are not looking to sell until next year, that gives you some time work on this. Give your customers the opportunity to "lock in" an attractive rate for your services for the next 2, 3 or 5 years. If you give a discount for a longer agreement (i.e. 5 years) you will be reducing your immediate revenue, but in the eyes of a business buyer you will be much more attractive (and valuable) because their risk is reduced.

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