Carrying seller paper on a listing-marketing shop with 38 retainers and 4.5% monthly churn on 60 month terms

The $480 average is the other thing worth pulling apart. Is that 38 clients all paying somewhere near $480, or four teams paying $1,400 and thirty solo agents paying $250? Teams are the ones who can afford to bring marketing in house the moment they hire a coordinator, which is a normal hire for a team doing volume. Losing one of those is a bigger hole than losing five solos.

I'm mid licensing and I've sat through four different vendors pitching the new agent class. Every one of them charged between $200 and $350 a month and every one of them was selling the same listing presentation template with your headshot dropped in. The agents who stayed past six months were the ones who actually got listings, and most of the class won't. So churn in the low end of that roster isn't a marketing quality problem, it's just agents washing out of the business. Vellum, ask how many of the departed clients left for another provider versus left the industry.

Curious what happens to the contractors when the owner leaves. If the two 1099s are the ones the agents actually talk to and they're loyal to him, the buyer inherits a list with no delivery capacity.

Following this because I've been poking at the same corner of the industry from the other side. What jumps out is the $95k of project work. That's 30% of revenue and it's the least sticky line on the page. A brand refresh happens once. Whoever bought one last year is not a customer this year. If you're valuing the business on total revenue you're paying a multiple on a number that has to be re-won from scratch every twelve months.

The acquisition side is the thing to see most, which vellum already flagged. The seller replaced 42% of the roster every year and stayed flat. That means roughly 16 new clients landed annually. How? If the answer is twenty years in the market and people calling him directly, that channel walks out the door at closing and a buyer starts at zero replacement with 42% still leaving. Price the note as if MRR falls to $12k in year two and see if $3,770 still clears.

On security, a UCC-1 on the assets of a shop like this gets you a used iMac and a subscription you can't transfer. What actually belongs in the documents is an assignment of the client contracts, a covenant that the buyer keeps monthly revenue reporting to the seller, and an acceleration trigger tied to MRR falling below a stated floor. Whether an assignment of those retainer agreements is even enforceable depends on the language in the client contracts and on state law, so have a lawyer in that state read the actual retainer form before relying on it. Also check whether the retainers are month to month. If they are, there's nothing to assign.

Dumb question from someone still working out his first deal: if the buyer's putting in $124k of his own cash, doesn't that give him enough skin that he fights hard to keep it? Or is $124k small enough on a $310k business that walking away is easy?

@aliyah_b in the trades I've watched people walk from more than that. Skin in the game holds until the monthly payment is bigger than the take-home, then it stops holding.

Say an operator drops a shop like this after eight months, and the reason isn't price, it's turnaround. A listing lands Thursday and needs the package Monday, and the shop runs a five business day cycle. Whoever buys this needs to know the delivery SLA and whether the two contractors can hold it while the owner is gone. Speed is what agents actually pay for.

Taking the numbers as given: $18,240 MRR, 4.5% monthly decay, no new clients, and month 24 MRR lands around $6,200. Even at half that decay rate it's about $10,400. A $3,770 payment is 21% of today's MRR and 61% of the no-replacement month-24 number, before the buyer pays himself or any contractors. The note only survives on the replacement assumption, which is the one number that's typically undocumented in a data room like this. Three years of new-client counts by month, with the source of each one, is what to ask for. Without that, it's lending against a story.

This reads like buying a 38 unit building where the leases are all month to month and half the tenants move every year. That is not automatically uninvestable, plenty of operators run buildings like that successfully. But it should be underwritten at replacement cost of the tenant, not at current rent roll. What does it cost to land one agent client? If it is $900 in effort and ads and the client pays $480 for 22 months, the unit economics are fine and the whole question is whether the buyer can execute the acquisition. If nobody knows the cost, there are no unit economics.

Two things look wrong in the P&L as described. The owner draw of $118k is not necessarily the SDE, because if he was also doing the selling and the account management, the buyer either does both jobs or hires. And $310k on $118k of owner earnings is 2.6x, which is defensible for a service book, though that is the buyer's problem to price. Your position is lender at 8% on a 60 month term against a 22 month asset. Shorten it. 36 months takes the payment to roughly $5,830, which is 32% of current MRR and probably too much for the buyer to swallow, and that refusal will tell you what he actually thinks the revenue does. @dpatel_re is right that the replacement rate is the whole trade.

Worth asking directly: what happens if the buyer just stops paying and the business is worth nothing to repossess? Does that mean chasing the personal guarantee, and is that usually worth anything in practice?