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Would valuing a (janitorial) service contract at a years gross

Would valuing a (janitorial) service...
Would valuing a (janitorial) service contract at a year's gross revenue be a typical price an investor would pay for such an asset? Also, is the useful life of the service contract 15 years or the life of the contract?
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Answered in 3 minutes by:
7/29/2013
Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2,439
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Anne :

You can use any price that the seller and the buyer agree on, so selling the contract for the gross income is one way of establishing a price. Doing a survey of the cost of purchasing the same type of business in your area is another.

Anne :

The useful life is 15 years, UNLESS, it is stipulated in the contract that the life of the contract, including intangibles, such as goodwill, is for a set # XXXXX years

Anne :

 


I truly hope this information is helpful but please do not rate until you are satisfied. If you want to click on 1 or 2 just click on the continue to work with me button instead. You will then be able to add any other info or respond to what I have posted so far. Rating 3-5 gives me credit and a good rating but you can still converse with me.

Customer:

The purchase & sale agreement can stipulate the amortizable life of an intangible for tax purposes?

Customer:

In regard to the purchase price, I was asking if 1x revenue was an industry standard, or how could that be determined. I guess you could discount the future value. Just thinking.

Anne :

There are factors OTHER than just the MACRS table when it comes to useful life. Please see below:

Anne :

http://connect.mcgraw-hill.com/sites/0077328787/student_view0/ebook/chapter11/chbody1/amortization_of_intangible_assets.htm

Anne :

If you're asking how do you establish Fair Market Value for an asset, basically its the $ value that a buyer is willing to pay for an asset.

Anne :

There is no industry standard, although comparing the cost of similar businesses in the area is probably the most tried and true method although as I said, you can sell the business for any $ amount that you and your purchaser agree on

Customer:

OK, thank you. So, I would say if the service contract, for example is for a 3 year period, I would depreciate it over 3 years. Is that the correct interpretation in your opinion?

Anne :

Yes, if you have determined that 3 years is the useful life and you put that in the contract

Anne :

Is there anything else I can help you with today?

Customer:

No, thanks for following up!

Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2,439
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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