Selling your business may be the most important decision of your career. Whatever prompts the sale – retirement, illness, partner disputes, or some other reason – selling your business is a high-stakes transaction with far-reaching financial and emotional consequences.
In a perfect world, you have managed your company like it’s always for sale, with every decision focused on maximizing value. Rarely do you find an owner planning the needed 2 to 4 years in advance and doing what they can to maximize the value of their business. More often, this critical timeline is shortened to 6 to12 months. With hundreds of thousands (or millions) of dollars at stake, why the casual attitude?
Getting the best price for your business is far more complicated than just driving a hard bargain. Without preparation, this faulty mindset will fail every time. Once you realize that more could have been done to increase the value of your business, the suffocating feeling of “too little, too late” will come a’ haunting. Then you’ll be the one asking, “Why?”
The real key to selling your business is not finding a buyer; that’s easy. It’s finding a qualified buyer who will purchase at a price and terms acceptable to you. How do you do this? You must prepare your business for sale and present it in the best light possible. To help make this manageable, let’s look at six important areas for remediation-related businesses.
1. Financial StatementsStart by assessing your financial statements and cleaning them up, so to speak. Focus on establishing P&L statements that demonstrate the company’s profitability and various profit centers. With the industry software available today, this is not as complex as it once was. There will always be “add-backs” to the bottom line which together represent the total financial benefit to the owner, but maximizing profitability is a solid first step.
While you will pay slightly higher income taxes, you will be rewarded with a higher sales price. Clean and readable financial statements over a three-year period will do more to sell your company than any other tool.
2. Owner InvolvementAny buyer wants to understand the role of the business owner. It’s quite simple- the less you work, the better. As owners, we wear many hats. The trick is to make them small hats, hats that anybody can wear. If you alone are the main estimator, project manager, office administrator and service representative, you’re busy. You may be so busy that a buyer can’t replace you. This makes a sale very challenging. If help is needed, consultants are available to help you shed some hats and shrink others. You’ll improve the quality of both your business and your life. Guaranteed!
3. Management Team/Human CapitalThe quality of your managers and employees is related to your ability to shed those hats by delegating work. With solid key personnel in place, more weight of the business falls on their shoulders, not yours. Ideally, buyers look for key managers and employees who not only accept, but excel in their given responsibilities, freeing you up to work “on” your business, not “in” it. With quality managers and employees in place your business is easier to transfer, resulting in a higher value.
4. Professional SenseWhoever said “get it in writing” got it right. Many businesses have too many verbal contracts, handshake deals, unwritten or assumed procedures, and worse yet, poor or misleading paper trails. Records and procedures should be formalized, documented and clearly understood. Professionalism will impact many processes including employee turnover, an array of HR issues, dependency on professionals and operational strategies.
Not only will this be obvious to potential buyers, but it means a new manager or owner will be able to take over with a clear understanding and minimal training.
5. Client DiversificationBuyers get nervous when more than 35% to 40% of revenue comes from one insurance company or vendor program. With relationships being critical in this industry, the risk is substantial if one key client were to disappear with an ownership change. Minimize your risk by having multiple clients, programs and insurance companies creating the majority of your revenue. Buyers will clearly and instantly perceive the risk to be less, making your company worth more.
6. Asset QualityThis category covers a variety of areas including real estate, vehicle fleet, office equipment, software and technology, production and extraction equipment, etc. In most every instance, a buyer will be watching for old or outdated equipment, deferred maintenance and the general condition and useful life of most business assets. No buyer wants to take over a business and immediately discover the need for capital improvements for normal business operations.
Deferred maintenance is typically discovered quickly in due diligence. Don’t give the buyer this club to use on your head!
Other AreasObviously there are dozens of areas that will maximize both your sales price and yield, these areas may include reputation; product and service diversity; growth strategies; company and individual expertise; industry alliances and networks; local/regional competition; industry/market conditions, and intellectual property. Depending on your specific business and state of affairs, your areas of preparation could be as few as 1-2 items, or as many as 10-12.
First, assess your starting point and what issues may be the most significant. Then, over the course of a year or two, methodically address these areas that will add the most value to your business, and ultimately your exit.
A Few Questions
- Is it easy? No. If it were, every cleaning and restoration company out there would be perfectly positioned for sale at a premium price.
- Is it time consuming? Yes. Many of these changes are not ‘quick fixes.’ Many take weeks or months to create and implement. That’s why 2 to 4 years of planning and preparation are considered ideal.
- If I don’t have 2 to 4 years to prepare, is the business still saleable? Certainly. My hope is that you get a terrific price. However, in most every instance, the amount of preparation directly correlates to a higher sales price.
- Is it worth it? Only you can answer that. By the time some owners decide to prepare their business for sale, they’ve already been thinking about a sale for years. Close to the end of their “emotional rope,” some find the energy and commitment to prepare for a transition while others do not.