Buying a Book of Business

Outside of a dog, a book is man’s best friend. Groucho Marx

Your business is doing well. So well, that you’re thinking it’s time to expand. One possibility is to slowly continue to build the business by adding customers or clients one at a time. Another possibility is to quickly add new customers or clients by acquiring a book of business from another company. This article will examine some of the issues involved in acquiring a book of business.

Finding the book

Locating the book of business may be one of the more difficult parts in acquiring a book. There are four common sources of finding a book of business to acquire:

  • Networking
  • Competitors
  • Business brokers
  • Investment bankers

The least expensive, and perhaps the best, way to find a book of business to acquire is to find it yourself.

It’s generally advisable to engage in professional and social networking. It’s a good way to expand your knowledge and learn what others are doing. It’s also a great way to make contacts that may eventually lead to an acquisition.

Networking, however, tends to be long term. It can take years before results are achieved. And some people, no matter how hard they try, just are not very good at networking.

An alternative, then, is to turn to a business broker or finder or an investment banker.

Conducting due diligence

Once found, you’ll want to fully investigate the book of business before you agree to purchase it. This investigation—to minimize the risk that your acquisition is not what you expected—is known as due diligence.

The conduct of your due diligence should include at least the following:

  • Seller’s financial and personal background
  • Books and records
  • Evaluation of customers or clients

The due diligence can be conducted before or after a definitive agreement is signed.

How much to pay

The amount that you will pay for the book will be negotiated by you and the seller. As a shortcut method of valuation, people often look at the price as being equal to a multiple of revenue or EBIDTA. But this is just a shortcut. The actual value of a book of business cannot be truly derived by applying a simple multiplier. Each company—and especially its mix of customers or clients—is unique. The parties need to review and break down the demographics of the customers or clients.

The key factors to evaluate are the age of the customers or clients, the services and products being purchased by the customers or clients and the location of the customers or clients.

In addition, you’ll want to consider whether the seller’s customers or clients are a ready source of additional business. Do they have children who are now or may in the future be the next generation of customers or clients? Have the customers or clients historically been a ready source of referrals?

If necessary, an outside valuation firm or accountant can be hired to place a value on the book of business.

Signing the definitive agreement

You and the seller should enter into a definitive agreement. The purpose of the agreement is threefold:

  • To memorialize your actual agreement
  • To create a road map for closing the deal
  • To govern in case of dispute

Depending on the deal with the seller, the agreement may include certain seller covenants, including agreements by the seller that it will not solicit the clients being sold to you or will help you transition the customers or clients.

In any event the agreement will provide for the method and timing of payments that will be made to the seller.

Paying for the book

It’s customary that at least a portion of the purchase price be paid at the closing of the acquisition. The balance may be paid over a period of time in the form of fixed payments or earn-outs or a combination of both. The buyer may also issue or assign equity to the seller for part or all of the purchase price.

Fixed payments and equity are pretty straightforward, but what’s an earn-out? An earn-out is a way for the seller to be paid based on the future performance of the book of business being sold. The more the book earns for the buyer, the greater the payment to the seller. And contrariwise, the less the book earns, the less the payment to the seller. The earn-out shifts some of the risk from the buyer to the seller. It’s a real option, especially when the seller agrees to help transition the customers or clients to the buyer.


Acquiring the book of business is not the only option. There are alternatives.

One possibility is to purchase more or all of the business, not just the book of business. Are there personnel that you wish to bring on board? Are there facilities or systems that you might wish to use? If so, consider acquiring the business, not just the book.

Purchasing a business will be a lot more complicated than just purchasing a book of business. The definitive agreement will need to be longer and more comprehensive; the due diligence review will need to be more extensive. And, of course, following the acquisition, it’s a lot more difficult to integrate a business then it is a book of business.


A second possibility is to acquire the book of business indirectly, instead of making an outright purchase. The book can be acquired by accepting referrals from the “seller,” instead of purchasing it outright. The seller, as a referrer or solicitor, would sign a proper solicitation agreement with you. He would then receive a portion of the fees you receive from each of the referred clients. The fees can be a fixed amount or a percentage. They can run from one year to five years to forever.

You may be concerned that the book of business is somehow tainted, that the seller may not quite have the freedom to transfer the book to you. This can be a real issue when the seller is working for another firm; the customers or clients technically (and legally) may belong to the firm, not to the “seller” who has the real relationships with the customers or clients.


Now may be the time to expand your business by acquiring a book of business. I hope this article sheds some light on the issues involved.

Inside of a dog it’s too dark to read. Groucho Marx

— Alan N. Walter

A Checklist of Major Buy/Sell Considerations

No two deals are alike. However, it’s useful to at least think about the following items when shaping and negotiating a deal.

1. Finding the buyer or seller

a. Networking, professional and social

b. Competitors

c. Business brokers

d. Investment bankers

2. Useful professionals

a. Lawyer

b. Accountant

c. Investment banker

d. Tax advisor

3. Before serious negotiations and discussions begin, consider

a. Entering into a confidentiality agreement

b. Requiring no communication with customers, clients and employees about the possibility of a deal – to avoid damaging relationships

c. Agreeing not to “shop” the deal elsewhere

4. Identify what’s being bought and sold:

a. Book of business

b. Entire firm

c. Certain customers or clients only

5. Asset vs. equity purchase and sale

6. Valuation

a. Negotiated

b. Multiple of revenue, EBIDTA or something else

c. Third party appraisal

7. Letter of intent—non-binding, but useful to set out parameters of deal

8. Non-disclosure agreement

9. Purchase and sale agreement.

a. Purpose:

i. To memorialize agreement

ii. To create road map for closing

iii. To govern in case of dispute

b. Some contract terms

i. Representations and warranties

ii. Covenants

A. Seller not to solicit old customers or clients

B. Seller not to compete?

C. Seller to help transition customers or clients

D. Seller continuing as consultant

E. Need for key personnel at seller to continue

iii. Payment options

A. Cash down

B. Earn-outs

C. Equity as payment

10. Consider approvals needed

a. Board

b. Equity owners

c. Lender

d. Contract partners

11. Financial due diligence

a. Financial statements

b. Tax returns

c. Extraordinary or non-recurring revenues and expenses

d. Excess owner compensation and benefits

e. Undisclosed liabilities

f. Strategic and value-added components

g. Reductions or additions for contingent events

h. Tax consequences of transaction

i. Allocation of purchase price

12. Some other major items of due diligence

a. Principals’ and key employees’ financial and personal background

b. Books and records

c. Past and present litigation

d. Past and present regulatory actions

e. Intellectual property

f. Tangible assets

g. Evaluation of operations

h. Evaluation of customers or clients

i. Environmental audit (if physical plant being acquired)

j. Evaluation of employees

k. Lien searches

13. Availability of financing

14. Necessary filings and approvals

a. Regulatory

b. Bulk sale

c. Contractor and creditor approvals

d. Antitrust (Hart-Scott-Rodino)

15. Closing

a. When and where

b. Contingencies

16. Post-closing

a. Transition of customers or clients, including assignment of customer or client agreements

b. Transition of management

c. Retention of certain of Seller’s employees

d. Possibility of maintaining Seller’s office

e. Updating of business continuity plan

f. Updating of succession plan

g. Regulatory follow-up

Please feel free to contact me, if you have any questions or comments.

Alan N. Walter, 973-937-8636,,

Business Succession

die_a_littleYou may have heard of this guy who lives used to live in my town Montclair, Yogi Berra. Yogi’s famously known for his words of wisdom, including:

“You’ve got to be careful if you don’t know where you’re going, because you might get there.”

Every business, new and old, needs to know where it’s going. Businesses can pivot all they want, but they still need to deal with succession. How can an entrepreneur or other person pass on his or her business or at the very least realize the value in the business?

It’s a classic problem. An entrepreneur works his or her whole life building a business. It’s very difficult for the entrepreneur to realize that it’s time to start transitioning the business, to support others in the running and further building of the business.

An owner who has failed to consider succession planning has not just failed him or herself or the business—the owner has also failed his family and his employees and his customers.

What is Succession Planning?

Succession planning can take many different forms. But there are basically four different options. The first is an internal succession plan with partners or key professional employees. The second is a merger with another firm. The third is the bringing in on a new employee or partner for an eventual buy-out. And the fourth, the least desirable, is the winding down of the business.

Read moreBusiness Succession