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How do I determine the value of a property insurance
inspection business?

The Question

I started up a very small Property Insurance Inspection business in 2008 after I lost my job. I perform property inspections for the insurance and financial industries. I have one main customer who gives me work from about a dozen insurance providers. I get paid once a month and am considered a contractor. The business generates about $1,000 month average with a high of $1340 and a low of $565. I spend about 20 hours week on average.

Doing most of the work on weekends. I have since secured new employment and this part time job is now getting in the way and I really don't have the time to do it. I would like to sell the business rather than just quit. It would be a perfect business for a semi retired individual who just wants something to do and earn a few dollars on the side.

I have and established customer base and assigned territory but there is no guarantee of future business. It all depends on the quality of work and meeting the deadlines as to whether you keep the business. It is easily expandable.

My question is how do I determine value of the business and does this sound like it is something that can be sold?

The Answer

Yes, your business is something that can be sold!

I would categorize your business as a professional service business (much like a one person accounting or legal practice) because you do all the specialized work.

A business like this is usually valued at one times the annual "Owner Benefit". Owner's Benefit = Pre-tax Profit + Owner's Salary + Owner's Perks/Benefits.

One concern that buyers will have with a business like yours is that you are the business. Buyers will worry that clients are doing business with you personally and not with your company.

Also, you state that you "have one main customer". So, as I see it, the main obstacle you will have to overcome is a buyer's fear that your one main customer will leave when you do.

The best way to overcome this is with what is called an "earnout". With an earnout you don't get all your money up front. Instead, you would get paid at predetermined intervals as long as the key client stays with the new owner.

For example, the buyer might pay 50% up front, and then another 25% in 6 months the final 25% after 12 months. I'm not suggesting you offer an earnout arrangement up front. But if a highly qualified buyer expresses concerns about so much business coming from just one client, you could offer the earnout option as a way to make a deal. Earnouts are very common in your type of business.

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