As a restoration contractor you’ve worked hard building your business. As an owner, the day will come when you ask yourself, “What’s next?” Once this question becomes more than a passing thought, answers are paramount. Without them, it’s impossible to make solid decisions for the future.
Your business is quite possibly your largest asset, so the thought of a sale or transition is intensely personal. Whether it’s a full or partial transfer to a family member, key employee(s), or an outright sale to an independent third-party or investment group, emotions can run high. Which transition is best for you may not yet be clear, but the questions abound. As you begin looking for answers and commit to getting educated, your best options will become evident.
As a guide, here are 10 critical questions every owner should ask (and answer) to kick-start their education:
No. 1: What is my business worth?
When a business owner calls, 9 times out of 10 this is the first question asked. Of course this is a natural place to start as it satisfies your curiosity. However, based on the type of sale (asset vs. stock sale) and overall deal structure involving cash, receivables, payables, liabilities and WIP, the question needs significant clarification. Business worth is only a starting point to calculate your ultimate yield - the remaining funds after the deal is done.
No. 2: What will I pay in taxes?
This should be the immediate follow-up question to the above, along with, “How can I minimize taxes?” Let’s face it, this is an unpleasant subject but we can’t ignore it. Solid answers here are absolutely vital in your decision-making and planning process. Depending on the business value, equity and legal structure of your entity, tax planning and minimization measures can be very effective. Without tax-related answers, meaningful decisions surrounding a sale are difficult at best.
No. 3: Can I personally retire?
This answer is two-fold. First, is it financially feasible to retire? Based on your age, lifestyle and level of personal assets, only you can determine the timing. Secondly however, for some it’s not always about the money. They want to sell, yet the thought of actually selling is unbearable. Why? Having worked with 500-plus business owners there is a common theme - some don’t know who they are without their business. This will sound absurd to some. But business ownership and all related responsibilities are a big deal. Remove the title and responsibilities, what’s left? For some, not much. In your mind, separate owning your business and working, as they are not related. Some owners prefer to sell, securing their retirement, reducing their headache and stress levels, etc. However, they continue to work for a few years, easing their transition into retirement.
No. 4: What am I selling?
For some, the age of retirement is here and you’re ready. For others, you may be burnt out, or the industry has changed to the point where you don’t recognize it. Some owners indicate, “I’m tired and don’t want to do this anymore.” It’s not an easy industry and most will admit it can be consuming. However, please make sure your career is in balance. When consistently working 60-70 hours a week, it’s easy to lose it and become weary. If you could discover balance once again and work 40-45 hours a week, would you still want to sell? Be honest with yourself… if the answer to that gives you pause, then maybe it’s not the right time.
No. 5: When is the best time to sell?
Most buyers view business value like stocks - when financial performance is strong, values go up. When financial performance is weaker, values go down. When the business is having an “off year,” it cannot be sold based on what it did the previous year, or what it might do next year. Timing is critical to maximize the value. Ideally, both the business and you personally are ready to sell at the same time.
No. 6: How long does it take to sell a business?
Selling any business is complex - the remediation and restoration industry is no exception. Valued and marketed properly, most businesses will sell between 9-14 months.
No. 7: When should I start to prepare?
In a perfect world, owners would start preparing 3-4 years in advance. However, most will only prepare for a matter of months. The reality for many is this - once you’ve crossed the emotional hurdle and first consider selling, the sell date can’t arrive soon enough. For some, they’ve already checked out emotionally and this can be a very treacherous slope. If possible, give yourself a solid 2-year window to get your business in order. Get educated. Get answers. Then make the best decisions.
No. 8: How can I prepare the business for sale?
This is a lengthy answer and would take pages to do it justice. For the sake of simplicity, here are a few key areas of focus:
- Delegate: One of a buyer’s first questions is always, “Can I replace the seller?” If you as an owner are wearing too many hats, the answer to that will be “no.” This obviously makes the search for a buyer difficult.
- Clean Financials: Buyers (and their lenders) like transparent financial statements allowing for easier valuations and tracking all income and expenses. Doesn’t mean you can’t have some personal expenses, but keep it clean.
- Systems & Procedures: Documented systems and procedures will help make virtually any process in your business easily repeatable, more efficient and therefore more profitable. Most buyers look for a turnkey operation.
- Assemble Necessary Documentation: Be prepared for the due diligence process. As any seller will tell you, it’s akin to a colonoscopy. But there is no getting around it. Response time and accuracy in due diligence builds trust and confidence. Know what you need and be prepared to produce it.
- Key Employees: Trust them by delegating - retain them by valuing who they are and their contribution to your team. Key employees and the knowledge they carry regarding the industry and specifically your business is an important asset in the eyes of a buyer.
- Stay Focused: When preparing your business, do not take your eye off the goal of a successful sale and transition. Human nature is to relax and put your efforts on cruise control. Do this and your value will suffer. Stay focused and do all you can to keep sales and profitability trending upward.
No. 9: Which advisors should help?
The sales process along with the myriad of details can be intimidating. Thus, a “transition team” should be assembled and may include an accountant, attorney, business intermediary or finder - and quite possibly an estate planner and financial advisor. The entire focus of your transition team will be to maximize financial gain and minimize your risk. You have your life’s work and hundreds of thousands of dollars at stake, so protecting it should be a priority.
No. 10: How do I keep this confidential?
Confidentiality is absolutely paramount before and during the selling process. There is a strict, yet efficient, process to follow when confidentially marketing and recruiting potential buyers. Every potential inquirer will complete and sign a Non-Disclosure Agreement that has teeth. Depending on the size of your company and type of buyer being targeted, Summary Financial Statements and Curriculum Vitaes may be applicable as well. Nobody likes tire-kickers who waste your time - the process is designed to efficiently side-step them and focus on the best buyers. There is no room for error when it comes to confidentiality.
After reading this list more questions may cross your mind regarding employees, real estate, personal vehicles, deal structures, etc. Please know answers are available to these questions and hundreds more. Educating yourself is first a matter of being willing. Second, it’s wanting to hear the answers. Answers will give you a peace of mind and confidence moving forward, allowing you to make the best decisions for you, your family and the business.