What is an IT support & break-fix shop worth?

In a break-fix shop, revenue is earned one call at a time. Nothing obliges a client to ring again next month, so there is no contract book for a buyer to rely on. What a buyer weighs is the habit of phoning this shop when something breaks, and whether that habit survives a change of owner. That is why two shops with the same annual billings can look very different to a buyer: one may be treated by its clients as their IT department, and the other may be a run of unrelated repairs. What follows covers what a buyer may read into the ticket history, what can weigh on value, how the owner’s own labour is removed from earnings, and why a small recurring base changes how everything else is read. It is general discussion, not a valuation of any business.

Repeat calls are the asset

With no contracts to read, invoices are the place to start. A client-by-client history over several years shows who called repeatedly, how long ago the last call was and what each client has paid in total. A client who has phoned every few months for years behaves like a recurring customer even with no paper to say so, while a client who called once during a crisis does not. It also helps to ask where the work comes from. New clients who arrive by referral from existing small-business clients point to a reputation a new owner may be able to inherit. A shop leaning on customer concentration, with a few offices supplying most of the hours, carries more risk, because losing one account moves the whole result.

Whose client is it?

Loyalty that belongs to the owner personally is worth testing in a shop like this. Some clients may hold the owner’s mobile number and call it directly, and the books do not show which of them would phone a stranger. Indirect evidence can help: how many tickets were handled by someone other than the owner, whether clients have met more than one technician, and how the shop wins new work. This is the practical meaning of owner dependence. BDC’s guidance for sellers points the same way. It tells owners to document standard operating procedures so operations transfer more easily to a new owner and to address customer concentration, and it warns that an owner will not get full value where customer concentration is a risk.

Much of the price may be goodwill

Check what the shop actually owns, such as computers, bench tools, parts stock or a service vehicle. Where those are modest, much of what a buyer pays for may not be on the balance sheet. The CRA notes that a sales agreement can set a price for each asset, a value for the inventory and an amount attributed to goodwill, and that depending on the seller’s situation the sale of assets can produce a recapture or a terminal loss of capital cost allowance. How a price is split is a tax question for an accountant. For valuation the point is simpler: goodwill is worth only what the client habits behind it are worth, which brings the analysis back to the two sections above.

How the earnings get recast

The earnings a buyer looks at may differ from the figure on the tax return. Owner pay and personal expenses run through the business can be adjusted, which is the logic behind add-backs. Where the owner is also the busiest technician, the owner’s pay can be restated to what it would cost to hire someone to do that work, because a buyer either does the job or pays for it. Parts and hardware margins can be separated from labour, since labour depends on hours someone must work while resale margin depends on supplier terms. One-off projects such as an office move can be set apart from the baseline. BDC describes earnings-based methods as built on past results and forecast cash flow or earnings, and market-based methods as applying a multiple to a measure such as EBITDA, and notes that the multiple used varies greatly with the industry, market conditions and other factors, so any multiple heard in conversation is not a rule for this one.

Recurring plans change how the rest is read

A share of revenue already on a monthly support plan is worth looking at beyond its size, because it may show that clients will accept a different relationship with the shop. Recurring revenue can be easier to forecast, and it can give a buyer a working template for converting the transactional remainder. It counts only if it is real: billed on time, renewed without heavy discounting and held by clients that also call for extra work. A plan base that exists on paper but is rarely invoiced may count for little. Revenue that spikes when clients refresh hardware and then falls away makes a single strong year a poor guide, so it helps to set several years side by side.

What can weigh on the price

These patterns can weigh on what a buyer is prepared to pay.

• Revenue that is entirely per call, with no plan or retainer behind any part of it.
• Clients who deal only with the owner, by mobile phone, and have never met another technician.
• Network diagrams, asset inventories and administrator credentials that exist only in the owner’s head or personal accounts. That is a handover problem, and because PIPEDA’s safeguards principle for personal information gives passwords and encryption as examples of technological measures, credentials that open client systems holding personal information are a protection question too.
• A strong recent year driven by one large hardware refresh or office move that will not repeat.
• Technicians engaged as contractors, where the CRA looks at all the facts of the working relationship and not just the parties’ intention when deciding whether someone is an employee.