What To Consider Before Selling Your Small Business

The reasons for wanting to sell a janitorial business run the gamut. Whether building service contractors are seeking an exit due to retirement, family matters or to take advantage of new opportunities, the first step to finding a buyer is understanding that the process is far more complicated than putting up a “For Sale” sign.

It sounds rudimentary, but mergers and acquisitions experts say BSCs often think they are ready to sell their companies, when in reality few have all of their affairs in order.

Consider a call taken by one of the M&A experts: A potential client wanted to sell his regional janitorial company. Yet, when pressed about some basic financial fundamentals of the business, the seller revealed the company was not only in debt, but also owed money to the IRS.

It’s an extreme case of ill preparation to be sure, but experts say it rivals an all too common misconception among building service contractors looking to plant their feet in the acquisition market.

“I would say about 10 percent of companies we encounter are prepared for a strategic sale,” says Mark Herbick, president at Pursant, Bannockburn, Illinois. “They think [the business] is fine. They think the business is great. But, it’s very rare that BSCs have gone on to optimize their businesses.” 

It Takes Time

Prior to the recession, acquiring facility service companies was a hot market. Buyers willingly paid for companies based on future expectations and generally saw a return on investment. But when the economy collapsed, tenants moved out and the janitorial industry subsequently suffered. As a result, buyers “felt burned and pulled in all their tentacles,” says Lyle Graddon, president at Graddon Equity Advisors, Seattle. These days, BSCs who are looking to sell can expect a lot more scrutiny.

“Over the past few years, [sales] have been gradually increasing,” he says. “We’re at a relatively strong time, as far as buying. But the buyers are much more cautious. They want to have confidence in their investment.”

Herbick says BSCs often “wake up and just want out” of their businesses, and try to opt for a quick sale. Unfortunately, that’s not how the market works. M&A experts say BSCs should take anywhere from one to three years to actively enhance the value of their businesses before feeling out buyer interest. In the long run, both the seller and the buyer benefit.

“A lot of business owners just don’t know how to do it,” says Herbick. “If you were to sell your house, you wouldn’t just wake up and say, ‘Honey, I want to sell the house.’ It’s a major undertaking. There’s a lot of value in maximizing your enterprise value and in terms of just having a business.”

Graddon agrees.

“When you’re selling your house you do things to it — you paint, do the landscaping, clean the windows — everything is neat and staged properly,” says Graddon. “What we’re recommending is that your company should always be like that. If you get it all ready, so it’s beautiful and presentable, you’ll be ready when an opportunity comes up. Then you’re able to exit.”

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Building Service Contractors Must First Get Their House In Order