Exit Planning: Getting The Most Money For Your Business
Janitorial business owners have put blood, sweat and tears into building their businesses. Most have created a detailed plan, a vision of what they hope to accomplish while owning a business. All good things must come to an end and at some point it’s time for the next chapter of life to begin. Have you thought about your exit plan? In order to maximize the value of your business in a sale it is important to understand what I call the “5K’s.”
Know what your business is worth in the marketplace
Typically the largest asset owned by a business owner is their business. Many people ask me “How much is my business worth? What multiple should I sell my business at?” There is no simple formula or quick answer. Each business is unique and back of the envelope math is rarely accurate. The only way to know what your business is worth is to invest the resources into a comprehensive business valuation that will analyze your business internally as well as compare it to other comparable businesses that have recently been sold.
Know what motivates buyers
There are three primary types of buyers: large companies, private equity groups, and private individuals. Each buyer has their own strategic objectives and a unique perception of value. It is extremely important to know how to present your business in a way that will align with a buyer’s motivations. Understanding the buyer’s perspectives can help you negotiate a better deal.
Know when to sell
I find it funny that when a professional athlete is in a contract year they typically end up having the best year of their career. They go into free agency and find a team willing to overpay on their next contract. Using the same analogy, if your business is thriving then now is the time to sell it in order to maximize value. There are three factors to consider when selling your business: personal timing, company timing and market timing. The natural tendency is to base your decision on personal timing – e.g. when you want to retire or when you are forced to sell due to illness, divorce, etc. I cannot stress enough – personal timing is the least important factor. Buyers do not care that you want to retire, but they do care if your business is growing; likewise, the market won’t be hot just because you want to sell, but you can choose to sell when the market timing is right. John Elway and Ray Lewis each retired the year following Super Bowl victories. They could have played another season, but each knew they had the opportunity to go out on top and did just that.
Know the difference between Price VS Terms
The obvious goal of every business owner is to sell their company for maximum value. Unfortunately, too many owners only focus on the price without giving proper consideration to the terms of the deal. This can lead to disappointing and even disastrous results. Consider two offers for the same business, one for $1M, paid all in cash at closing, and the second for $1.5M, paid out over 10 years. Without understanding the terms, there appears to be a significant gap between the two; however, depending on how the $1.5M deal is structured, the seller may not collect the full $1.5M and may end up worse than if they had accepted the “lower” offer. At the end of the day there are many ways to structure a deal for both parties. The more flexible you are as a seller, the more likely you will reach a positive outcome.
Know how to manage the deal process
It is imperative to know and understand the steps in the deal process. Every deal is different, but on average it takes roughly 6 to 12 months to sell a business. There are four keys to the deal process: preparation, marketing, deal structuring, and closing. We all know that practice and preparation are the key ingredients to win in sports, the same applies to a successful sale of your business. If the preparation is done correctly all other portions of the deal process will flow smoothly.
Having a third party to help you prepare your business for sale and represent YOU with no emotional connection to your business can boost your retirement income. Let’s face it; if you’re like most people you are counting on your business to fund your retirement. At the end of the day, selling a business is a lot like cleaning. Everybody knows how to do it to a certain degree, but only a select few truly excel and produce astonishing results.
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 firstname.lastname@example.org or by visiting www.caberhill.com.