I am not sure which basis to use to value these clients who generate a turnover of about £30K. She wishes to retain her sales of books and resources in her sole trader business. If it was "goodwill" then I could use the "net profit after deduction of her tax and her pay x multiple" calculation. But if it was a sale of client list then it would be based on the fee turnover x 1 or 1.1. But I don't want any capital gains issues so could I just sell the list for a price just under the Capital Gains allowance?
Both Client and I want to keep it simple !
Thanks in advance for your thoughts!
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Replies (7)
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What you absolutely cannot do is just decide to sell it at a little under the Capital Gains Tax allowance. That is just asking for trouble. What you need to do is come up with an alternative way of valuing it.
I must be honest that I don't follow the logic of what is being done though. Clients transferred to a company but sales retained in the sole trader? What sales are being retained by the sole trader (if the clients are being transferred) and why? What is the purpose splitting the business in the first place?
Thanks for prompt reply. She is an author and also produces training materials. This is the part she wants to keep separate as is personal to her. The clients that are being passed over to the Ltd company receive therapy and training support in mindfulness for children.
Does that help?
Then the question does become one of an appropriate multiplier (I don't know where to find one for a business like that).
First thing I would look at is are they recurring fees. If not, then a lower multiplier is justified since future income is not guaranteed. Some research into competitors is also in order. If clients can easily get the same services elsewhere, then a lower multiplier might be justified.
As I said in my first response, you can't just say "CGT allowance" and call it a day. If you can justify a multiplier that brings it down to that level, that is fine.
Thanks very much. So this magic multiplier is appled to gross fees if all you are selling is the clients list.... but if you are selling the whole company then a different multiplier is applied and it's applied to net profit after tax and wage cost for proprietor ?
Is that correct?
This is a very helpful conversation for me . There is so much on the web about multipliers but I can't find a good link to the appropriate multiplier options to set against fees. Anybody who can help would be most welcome and Happy Easter !
What does your client do? The multiple varies wildly depending on sector, I've got a client selling their customer list just now for 0.375 of turnover, which would coincidentally give you a figure just below the CGT exempt amount.
Thanks again for prompt reply ! Please see answer above to what she does. Where might I source the multiples for sectors?
Very helpful thanks
Might there be data protection issues just selling a list of customers ? If the business deals with sole traders or partnerships there will be. You may be best going the whole-hog limited co route, depending of factors not explained in your question. This is NOT going to be simple.
