If you are serious about expanding your business, you might look at buying another VA business to expand rapidly… However whilst these deals can be an excellent way of expanding your client list, owning a ready-made business, and a shortcut to SEO supremacy… They can also be extremely duff deals!
So how do you assess the ACTUAL value of the business? Traditionally, a business valuation would assess the bricks and mortar of the company, plus the stock, plus an element of “goodwill” (i.e. the value of the customers and company reputation). In a virtual assistant business, the bricks and mortar does not exist, the stock is the owner’s time, and the goodwill is somewhat difficult to assess as projects are often short term. Buying a virtual business is in fact a whole new genre of business valuation.
The Bricks and Mortar: Domain name/Website
I said there wasn’t bricks and mortar – but there is a storefront: the website and domain name. One of the most amusing things I’ve found about people selling VA businesses is the claim that the domain gets lots of visitors, or is highly optimised for SEO. Both of those statements are hugely subjective!
The first thing to do is to check Google’s page rank: http://www.prchecker.info/check_page_rank.php
Page rank is the score Google gives each website and will determine where you fall within search engine results and how much traffic you will get. As a guide, a PR of 3-4 is reasonable for most small businesses, a PR of 5-6 is very good, 6+ tends to be for larger organisations with lots of authority and content (BBC, Google themselves, governments, etc.). For the website to be worth anything, you would expect it to have at least a Page Rank of 3+.
Secondly, you want to assess the value of the domain name. One tool is: http://www.valuate.com/ and you can also look at the traffic that the site receives on http://www.alexa.com/ (the lower the Alexa ranking, the better!). If you want to look at similar domain names which are for sale and their value check: www.sedo.co.uk or www.123-reg.co.uk
In terms of traffic for UK virtual assistant websites, most VAs get under 50 unique visitors/month to their website. (See our poll here: https://www.societyofvirtualassistants.co.uk/2013/03/01/how-many-hits-does-your-va-website-get/). You need to make sure the website is getting enough visitors in order to create leads and make sales. Ask for historic web data so that you can check it’s not one-off traffic enticed by a special deal or freebie giveaway.
You’ll also want to check who the website is hosted with and what the T&Cs are. You need to make sure you get all the source files from the seller, plus all passwords that you would need to access the hosting (if they are including this – some sales will just include the source files + transfer of the domain so you would need to organise your own hosting).
To give you an idea of the costs involved in starting from scratch and buying a domain name, organising hosting and designing and installing a wordpress site:
|Domain name||.com/.net/.org = £21.98/2 years
.co.uk/.org.uk = £6.98/2 years
|Hosting||£4.99/month (£59.88/year) for 1 wordpress install + 3,000 2GB email addresses|
|Design & install of WordPress website||Ranges from £150-£500 – check the install includes SEO on your chosen search terms.|
Secondly, let’s look at the business package they are offering. For example, they might need particular software in order to update the website, bill the clients, or perform client tasks. You would need this software and also need to know how to use it. Are they offering any training? Is the software something you would feel comfortable using yourself or would you want to use your own systems?
Would there be a handover period where you can refer any queries to the old owner? Would they offer email/telephone support whilst the clients settle in?
Who is responsible for drawing up the contract of sale? Is the old owner prohibited from starting up a similar business within a certain timescale? Is there a “golden handcuffs” agreement?
This is possibly the bit which VAs will place most value on – buying the client list. However, you need to be very careful about assessing the value of each client as there is no guarantee that they will all stay with you.
Firstly, you need to check what the seller’s systems are – do they offer 24 hours turnaround on all work? Do they use a particular system of checking the work in order to ensure quality? Do they respond in a certain amount of time to incoming queries? Do they offer long credit terms? What is the hourly billable rate? You need to make sure that your systems are able to cope with their terms of business they have created with the clients. Essentially: are you able to offer the same (or improved) service?
Secondly, you need to make sure that the clients they are claiming to have really are billing what they say… Ask for at least 2 years of accounts and P&L ledgers including a breakdown of the clients. Are they long term clients? Is there an unusual spike in activity (could be a maternity leave contract or they were simply short staffed over that period of time)? Are any of the clients’ family members or have a personal connection to the seller?
In terms of the client list, do they have this broken down into a CSV/Excel file for easy mail merge? You’ll need this for explaining the sale to the clients and also for marketing to them in future. Agree on the exact wording that will go out in this letter: it’s extremely important!
Lastly, how do you place a value on these clients? Traditionally, business advisers suggest between 5-10 times the annual post-tax profit. But this would be artificially inflated as the VA could potentially be working an 80-90 hour week herself without outsourcing in order to boost the profits… Work out how much it would cost you if you had to outsource everything – which if you increase your business size rapidly, could very well be the reality.
E.g. Say the billable rate is £15/hour, they bill £1,800/month; you would need 120 hours of outsourced work @ £10/hour. Operating costs each month are around £150 (subscriptions, website maintenance, phone lines, marketing etc.). Profit each month would be £450 (£5,400 per annum), not £1,650 (£19,800 per annum) as it would be if they were singlehandedly doing all the work!
However in this recessionary environment businesses have been changing hands at as little as 10% of the annual profit, particularly if the seller is pressurised into selling.
You may want to stagger payments to ensure a smooth handover of the clients – e.g. let’s say they get £XXX upfront + £YYYY in 6 months if the profit from the clients remains static or increases.
Whatever you negotiate, make sure the deal makes financial sense!
We’ve dealt with the value of the client list above, but reputation and branding is also a big part of what you’re buying – and it’s often undervalued. Your brand is the image that sticks in the client’s head. It’s not just your logo, the fonts you use and your corporate colours. It’s also about how you present your brand to the world: how do you sign off your emails? What sort of impression do people get when they phone the company?
A few years back I got offered a very substantial chunk of money for the call answering side of the business – I was just about to order my new car, but I asked them if I could do some test calls to the buyer to see what the response was like when my clients called them. Sadly, I had to put away all dreams of an easy life, as the response was dreadful. Not only did the person answering the call fluff the company name, she also had no idea how to react to a new business enquiry, and failed to get anyone to call me back. I knew then that I couldn’t in all conscience palm my clients off on such an incompetent bunch, and that it would reflect extremely badly on me, especially if I wanted to continue offering VA services. I turned down the cheque, and kissed goodbye to my new car!
Ask around about the seller and their business. Google them and see if any customer reviews come up – good or bad. What else are they involved in? If you’re taking over the business, you’re also buying their reputation.
To build that from scratch takes time, typically VA businesses take about 2 years to generate a replacement salary from. Even the physical branding (logos, fonts, colours etc.) could run into a few hundred pounds if you have to hire a designer and reprint stationery, business cards and so on. (NB: Make sure you get the copyright for these assigned to you in writing).
- Web data – historic data of unique visitors to the website (at least 2 years)
- Domain name – Check that the domain name is transferred in ownership to you via Nominet.
- Website hosting – who is the hosting with, what does it include? Can you transfer the hosting or will you need to source this yourself?
- Website – ask for source files (regardless of whether the hosting will be included or not).
- Legal contract – who is drawing this up?
- Software: For billing, marketing, website, performing client tasks.
- Client list: available as a CSV/Excel document?
- 2 years’ accounts & P&L
- Copyright of any logos assigned in writing
- Their hourly rates