Business Service Choices and Liquidity
“Being everything to any or all people” sounds good, but generally it cuts down on the liquidity of the business. Business liquidity encompasses the amount of prospective buyers, the business valuation, and how long needed to promote the then close the offer.
o Probably the most liquid scenario is really a co-located website hosting clientele, without any data center, offices, or employees, and just one owner/decision maker. This kind of business could be under contract to become offered within 48 hrs. (Publish ‘Letter of Intent’ research, contract preparation, integration plans etc. all take a little time.)
o Minimal liquid scenario is really a website hosting company, that provides design services, has offices, an information center, while offering related services for example access, marketing services etc.
Something I’ve come across many occasions may be the owner/decision maker around the sell side has heard website hosting company valuation formulas and wishes to apply that formula to his company. Inevitably the dog owner is disappointed once the offer pops up short in their eyes, and passes on which really is really a fair valuation.
The choice to staff up and begin offering website design services to enhance the pure play hosting recurring revenue is a big decision according to the impact on business liquidity. Obviously design services could be a natural match hosting clients by assisting to reduce client churn or more selling existing clients. However, the need for the revenue and funds flow produced by one-time design jobs isn’t any t nearly the need for the recurring hosting revenue and funds flow.
Negatives of design departments when the time comes to market:
o In the buyer’s perspective, obtaining the whole company and maintaining your design efforts going is dangerous. It’s 50/50 if the key design individuals will hang in there after closing … regardless the things they or even the seller states. Additionally, if you need to replace key people, the brand new staff won’t have the relationships using the clientele.
o In the buyer’s perspective, obtaining the whole company then canceling the look efforts is generally a dangerous decision too. You will find offices to cope with additionally to staff which must be release … both time intensive and harmful towards the existing clientele.
o My estimate is perfect for every 20 buyers of the pure play webhost, there are just 1-2 buyers for hosting design shop combo’s.
Internet Data Center:
Purchasing an IDC could raise the worth of the whole company by a massive amount with time, but certainly cuts down on the liquidity within the short term. Typically smaller sized hosting company co-locate at first, then later on acquire their very own data center. Consequently, the organization will offer space with other smaller sized host hence creating another service offering.
Getting an underutilized data center reduces the amount of one sort of buyer … the “income buyer”, yet invites a brand new group of buyer, the “asset and funds flow buyer”. The later buyer is searching to both grow through acquisitions making the swap from co-place to owning the information center. The less remaining capacity from the data center, the greater of the income type deal it will likely be, hence usually more liquid.