Service businesses for sale

A service business rarely has heavy machinery or stock. Its value lies in customers, contracts and the people who deliver the service. That makes two questions decisive: how secure are the customers, and how much depends on the owner?

Start with the contracts. Are there written agreements for ongoing work, or do customers order job by job? Check the notice period in each contract, because one that can be ended at short notice is worth less than one that runs for years. Ask whether any contracts were won in public tenders and when they come up for tender again.

Then look at owner dependence. Is it the owner who holds customer relationships, sells new work and handles difficult cases? Or is there an operations manager or long-serving staff who can take over? The more rests on the owner, the longer the transition period you should negotiate, and the more sense it makes to tie part of the price to customers staying.

Service businesses with employees are usually priced on EBITDA, with the owner’s work deducted at a market salary. Sitavo’s indicative range is 2–4 times EBITDA, cross-checked against 0.3–1 times annual revenue. Long-term contracts, a broad customer base and staff who can run the business without the owner push the price up; a few large customers, short notice periods and heavy owner dependence pull it down. These are general market ranges, not a valuation — use Sitavo’s price estimate for a specific business.

• Recurring revenue: the share from ongoing contracts versus one-off jobs.
• Customer split: the largest customers’ share of revenue.
• Customer churn: how many customers have left in recent years, and why.
• Payroll costs relative to revenue and the trend in hourly rates.
• Staff turnover: how long employees stay.

• Customer contracts: term, notice period, price adjustment and whether they can be assigned.
• Employment contracts, any collective agreement, accrued holiday and other obligations to staff.
• Who holds the customer relationships, and how many hours the owner works in operations.
• Permits and approvals the service requires, and whether they transfer on a change of owner.
• Insurance, including professional and public liability, and any claims or complaints.
• Lease for offices or premises: term, notice and assignment.

Sellers can place contracts and accounts in a data room behind an NDA. See also the pre-purchase checklist.

Under Danish rules on transfers of undertakings, employees transfer on their existing terms, and you take over seniority and obligations. In a service business, it is often the staff that customers are loyal to, so meet key people early, once the seller is ready. In a share purchase, contracts stay with the company. In an asset purchase, customers usually have to accept the transfer of their contract. Agree a transition period in which the seller introduces you to key customers, and consider a non-compete for the seller. Foreign buyers should expect Danish employment law, collective agreements in some sectors and Danish-language contracts, so a local adviser is worth having. Read more in the handover guide.

Service businesses have few physical assets a bank can take as security. That is why vendor financing or an earn-out, where part of the price depends on customers staying, is common. Sitavo does not provide financing. Messaging sellers and making offers on Sitavo is free, and the deal workflow keeps the purchase agreement and handover in one place. The purchase price is paid directly from buyer to seller — Sitavo never holds the money. Read how payment works. Looking for a digital agency instead? See digital agencies for sale.