Client's Basis

[Booger]

Client has an auto detailing business. Plans on selling it.

No business assets, except for cleaning supplies and some

pressure washers. Has a clientele of auto dealerships.

He plans on setting the price at x times annual revenue.

Anybody know how to establish and quantify basis of "customer

list" ?

Thanks in advance.

Booger

[kcjenkins]

Basically, you value the equipment at FMV and then the rest is 'goodwill', which includes the customer list.

[Booger]

kc, understand FMV of equipment. How does one come up with the BASIS of the

customer list? He started this business from scratch. Does the basis of the customer

list equal annual sales, for example?

Booger

[kcjenkins]

There is NO basis with 'self-generated' goodwill. Only 'purchased' goodwill has a basis.

[jainen]

>>Does the basis of the customer list equal annual sales<<

Sales is what he is using to determine FMV. He can't use the same number on the other end too. He could have capitalized some elements of creating the customer list, such as software, but I'm sure everything was already deducted.

Your client might have a negotiating advantage in valuing the customer list, which must be done with the buyer's agreement. The buyer might want to price it much higher if he plans to sell the list separately, or he might want to discount it if he isn't going to use it. And of course unless the seller gets paid for a non-competition covenant, he is perfectly free to continue to use those client contacts for further business activities.