Continuing A Legacy By Selling Your Cleaning Company
Most business owners, if they’re being honest with themselves, will say that they’d love to see their legacy carried forward by another owner who can grow the business and reap the same rewards as the seller has throughout his or her career. In today’s environment, however, it’s rare that an individual is able to make the best financial offer, and the valuation gap between individuals and corporations or private equity investors can be massive.
That doesn’t mean that selling to an individual precludes the owner from netting enough from the sale to achieve whatever financial goals he has set forth. Making this determination requires a strong evaluation of the janitorial business to determine the valuation an independent buyer would place on the business today, and a subsequent analysis of the owner’s personal balance sheet and ability to achieve certain goals upon a liquidity event. It’s entirely possible that this lower valuation still enables the seller to achieve full financial freedom, and in such a case it may not matter that the buyer isn’t paying the highest price.
If, however, the analysis suggests that the owner will come up short, a reset is required. An owner first needs to understand the underlying reasons for the valuation gap and the steps required to close it. Then, the owner has a choice – create and execute on a value building strategy to position the janitorial business to be sold to an independent buyer at a higher price, or reframe expectations.
Reframing expectations may be as simple as delaying the sale. Consider an owner making $400,000 per year with a business that is worth $2,000,000. If the owner continues working for five more years, she will make $2,000,000 over that period. Even if her valuation declines, and after five years she sells for $1,500,000 instead of $2,000,000, the sum of her annual income and proceeds from the sale is greater than the proceeds from a sale today. Further, by earning income for five more years she has not only continued to save (hopefully) but also delayed drawing on her retirement savings, making her better positioned to enter retirement.
Reframing expectations may also mean finding other buyers willing to make more generous offers. This typically involves engaging strategic or private equity buyers who represent a very different reality. The business becomes part of a much larger entity, and the owner’s legacy is that of someone who built a business large enough and attractive enough to warrant such an investment. This is an oft-overlooked aspect of legacy — most businesses are not big enough or profitable enough to interest a strategic or private equity buyer, so the mere existence of this opportunity suggests the owner has accomplished something great.
Peter Holton is the Managing Director for Caber Hill Advisors and has been in the service industry for nearly 20 years and is well known and respected throughout facility maintenance industry. He manages the firm's practice facility maintenance sectors. Peter offers valuations, exit planning, consulting and buying or selling business. He has performed numerous speaking engagements for organizations such as ISSA and BSCAI. He can be reached at email@example.com or by visiting www.caberhill.com.