How to put a value on free?

December 12, 2013 6:58 AM

I run a daily free (tips appreciated) walking tour and would like some ideas on how to work out how much it is worth as a business.

I've been running a free daily tour, 6 days a week for the last 3 years and might find myself in the position to sell it as a going concern but I don't really have any idea on how to value it.

The facts and figures:

- tour runs once daily, 6 days a week
- in 2013, I've given 187 tours
- 1100 tourists
- average tip of $12
- total annual income approx $13000
- outgoings: none
- website, SEO optimised and front page of Google for most " walking tour" search combinations
- #1 for walking tours on Tripadvisor for the city in question

So the question is, what is this worth as a business assuming the person buying it is planning to continue offering the same tour? Is there some sort of formula based on turnover / profits? Any thoughts would be appreciated.

posted by anonymous to Work & Money (9 answers total)

Here's a short and fairly easy to understand article about how to value service businesses.

So let's say that your Accounts Receivable are $13,000 annually. Given the list there, I'd say your valuation is going to be somewhere between 50% and 75% of AR. Splitting the difference at 62.5%, I'd say about $8,125.

It's a SWAG, but at least you have some basis for valuation.
posted by Ruthless Bunny at 7:14 AM on December 12, 2013

Business valuation is. . . complicated. There are people who do business valuation work as their entire job.

Off the top of my head though. . . is this really something you can sell? You'd need to train the buyer as to the information you provide on the tour, bringing them up to speed so they can provide the same service that you do. That means you'd probably need to stick around for a while after the sale, which is going to serve the function of raising the purchase price.

Tell you what: stop in with your local SCORE chapter. That link actually goes to their business valuation tool, which you might find helpful.

All of that being said, not taking into account any time you might have to put in after the sale, something in the suggested $8,000-9,000 range doesn't strike me as unreasonable. Factoring that in would send it higher, obviously.
posted by valkyryn at 7:16 AM on December 12, 2013 [1 favorite]

2nding SCORE. If it makes you feel better, selling a traditional business with inventory, etc. is also very market-driven and winds up being "what the buyer will pay." It's not like buying a house or used car where there is a formal system for valuation.

The biggest problem I see is that it's a very small value business, not even enough money to qualify as a full-time job for most people. Paying a lawyer to parse this out would almost certainly cost more money than it's worth. I'd be tempted to approach it the other way around - keep the concept and hire one (or more) interested parties to actually do the walking around while you figure out a way to monetize the search engine ranking you've achieved.

Also, are you really paying nothing? No peddler or street vendor fee to your city? No business license? No web hosting fees, no money changing hands at some coffee shop where you meet customers? I've got a home-based business using equipment I would have purchased anyway (web development), and I've definitely got overhead.

If you're this well established, why in the world can't you charge an established ticket price? I'm more or less a rube from a smaller city, and if I landed in DC or someplace like that and had some time to play tourist I'd expect to pay $25+ for a quality walking tour, plus I might still tip the guy.
posted by randomkeystrike at 7:27 AM on December 12, 2013 [1 favorite]

Particularly given that there is really no incentive for the person to buy from you, I'd keep you expectations modest. The other person can just set up a competing tour for no money. You may have a highly rated, world renowned tour or whatever, but it's free. If another tour is free, too, I'm going to be pretty flexible about which one I choose.

Plus, think about the incentives here: I'm a buyer with $8000-9000 in hand. Say I buy your business and I start making $13000. Assuming there is no financing costs (or opportunity costs), let's just say I net $5000 in the first year.

If I just compete against you, I keep my $8000-9000. We compete for customers; while you have the fancy website, hey, the tour is free so people are not too fussed about which tour they take. So now let's say you end up making $8000, and I make $5000. I don't have even half the gross sales as I would have had I bought you out, but on a net basis, I'm in the same place. And I still have my capital, which, perhaps, I throw at Google Adwords. Or a great colonial costume (or whatever), or make a partnership with the coffee shop across the way so that I subsidize a free latte or ice tea at the end of a cold (or hot) tour. And, of course, I could just take your tour a couple of times, supplement your spiel with a trip to the library and I'm in business, using your materials.

As a general proposition, it is very difficult to make any real amount of money by selling a service business where the owner does all the work. The consideration paid is, in effect, a non-compete payment to get you to quit, and then the new "owner" has to do all the work. In most cases, it's going to make more sense to go head to head, rather than do a buyout.

Good luck.
posted by Admiral Haddock at 7:35 AM on December 12, 2013 [9 favorites]

Which is to say, if you want to make some money from this and not be doing the tours yourself, you should be thinking much more seriously about charging for tickets, hiring some cute energetic college students to use your script and offering the tour three times a day. Then develop another tour and do the same.

The fundamental lesson is that you are never really going to make money doing work, because you have to sell your time to get it; you make money by owning something that works for you.
posted by Admiral Haddock at 7:42 AM on December 12, 2013 [3 favorites]

I don't think anyone would buy your business for more than $1000 (mostly just to get your cooperation). Otherwise, I think they'd try to learn what you do and then start a competing tour at night (or morning, opposite of what you do). Someone already gave the same answer but honestly that's the logical move.
posted by 99percentfake at 8:48 AM on December 12, 2013

I think there's good value in the Google ranking and Trip Advisor listing. Of course, that's dependent on the city where you give the tours and how big the tourist market is there. Given those assets, the buyer could potentially grow the business quite a bit. Of course that depends on how much tourism there is in your city.
posted by alms at 8:50 AM on December 12, 2013 [1 favorite]

Front page of Google is an incredibly valuable asset IF you are at the top. I say you need to qualify your google search results position before you can make a valuation. Of course, this works in tandem with monthly search traffic that leads to this position... 2nd link for 10,000 local queries a month is very different than 6th link for 1,000 general queries a month. Can you clarify what position, and the search volume for the terms that result in these positions as well as the average click-through rate? And has this position been stable over time, for example vis-a-vis google's latest Penguin update? Depending on your answer, you may be sitting on a very valuable lead generator.
posted by rada at 10:02 AM on December 12, 2013

Building on what others have said, I think you'll have an easier time selling the business if you turned it into more of a "franchise". Look for people who are willing to offer additional tours each day (or to take over some of the shifts you currently do). In return for a cut of the tips they make (or perhaps a per person fee you charge them, but they keep all of the tips), you teach them stuff to say on the tour and bring them a flow of customers.

With this you can progressively scale back the amount of tours you personally do. If you get that number down to zero, then you have a nice business you can sell.

Basically think of your current business as two jobs:
1) Business owner who pulls in a crowd of tourists
2) Tour guide who works for tips

It should be pretty easy (relatively) to find more people who want to do (2) for you. I think it'll be hard to sell someone (1) until it is a separate job from (2), since I don't think you'll find many people with money to spare who want to do combined (1)/(2).
posted by vegetableagony at 7:17 AM on December 23, 2013