we have been approached by a competitor going out of business of website design to buy their customer list. as exciting this might be it also might bring various issues to the table and to take care of ahead of time
please advice on what to consider in dealing with the company and also their customers
Customer lists are tricky since you really don't know how good they are. Since this company is going out of business, presumably because customers are not buying their products or services, how much worth can there really be in their customer list. I would dig a little deeper into why they are going out of business and how that effects their customers.
You have to ask yourself, what do I get if I buy their customer list? Clearly a list of customers but what you don't know is whether or not they will do business with you. The better approach would be to buy the company and then those customers become your customers. Then the discussion with these customers is a lot simpler since you now have an immediate relationship with them.
In general, I am always wary of customer lists. You never know the quality nor the history. If you just want the customer list, then I would setup triggers in the purchase agreement that spread out payments based on the performance of the list. You can give them some money up front but try and tie some to how much value you get out of the list.
As Jarie mentioned, customer lists are tricky. I would suggest proposing the following deal to the company. If their list really is valuable, they should accept the offer.
If their website is still up, ask them to reply to customer inquiries by referring them to you. Otherwise, ask them to e-mail/contact their customers and say they recommend and trust you.
For every referred customer, give them a % of the contract.
In my opinion, it's a win-win solution. You pay for what you get and they have an incentive for you to get new customers.
EDIT : I forgot an important point: you eliminate the risk of the said company selling the list multiple times or using it for their next startup.
Are you going to offer your customers to never SPAM them or sell their information? If you answered yes, you shouldn't buy that customer list. Imagine if they will trust your word about never spamming them if you began your relationship sending unsolicited emails to them!
As others have said, you have questions of legality and of the actual value of the list.
Second, the value of the list. Typically, Web design businesses are relationship-based businesses: the designer and their client build trust and work together to create the end product. Repeat purchases come because the client trusts the designer enough to return to them. Buying the customer list doesn't buy any of that trust -- all it is is a list of contact information for people who were once, and still may be, in a decision-making position for a Web design purchase at various companies. That's not worth a ton, if you ask me, since you're not far beyond what you could get by just looking at those companies' Web sites right now.
What you need to do is somehow buy that trust. Instead of paying a flat cash fee, why not ask the principals of the other design group to personally connect you to the clients of their choice, offering them a generous commission to do so. They can hold your hand through the initial contact and make sure that you get things started with the potential client right. You may have to pay a flat fee per name for this service as well, but it's the most likely arrangement to turn out well.
There are many legal issues to consider - the following merely are highlights, and they assume that you will have a written agreement specifying the terms of the purchase.
As one answer already noted, you presumably want the exclusive right to the list (i.e., a promise that the seller will not use it and that it will not be provided to anyone else).
You want a warranty and representation that the seller is authorized to provide the list to you. You should have the right to indemnification if you suffer any losses from third-party claims arising from the list (e.g., because the seller did not have the right to provide the names to you). Because the selling company is going out of business, you should try to have the seller's owner agree to be jointly liable for the warranty/representation and the indemnification obligation.
The agreement should make it clear that your two companies are independent contractors, especially if you will be compensating the seller based on revenue or earnings from the list.
Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.