6 things you must do to sell your business

6 things you must do to sell your business

How to take your company from the middle of the road to an M&A target.

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September 27, 2016

If you expect to pocket a bunch of money when you sell your business, you may be in for a sad surprise. Chances are, if you employ less than 10 people, gross less than $1 million per year, don’t have a highly coveted, really strong market niche and well-known brand in your area, there is no sugar daddy buyer in your future. 

But a profitable sale of your business is possible – with the right plan and a little time. If you plan to sell in 3 to 10 years, or even longer, here is what you must do to become a desirable acquisition target. And if you’re not ready to sell just yet, these tips will still serve you well as you run your business.

1. Be sure you have a business to sell. This means your company should be something another company can take, run and generate profit from immediately. Design and build your business as if you were never to be seen again, while making the customers experience seamless as if you never left. What does it take to do that? Documentation. Paperwork and data are your friend, because they are the trail to success for you and your buyer. Put what is in your head into written form.

Your company needs written instructions as to how everything is done in the office and the field. They need to be written in a clear, concise, logical style with the idea that a new person could read the information and perform the job. This includes when customer payments are recorded, when late pays are notified, how foremen start and end their days. Even describe how certain tasks such as mulching, spring clean-ups, mowing and sprinkler winterizations are to be performed step-by-step.
Schedules for business activities are needed. Create a month-by-month calendar listing what is to be done and when. The list should include what marketing is done and when, what services start when, completion dates for services, equipment maintenance and anything else done on a scheduled basis you have in your head.

Have or develop an employee handbook that you actually adhere to. It will aid you in building better employees and employee relationships, as well as showing your potential buyers how you managed your employees.

2. Get your own accounting software if you don’t already. No one is going to buy a business that doesn’t have credible numbers that can be understood and corroborated with tax returns. Accounting software allows you to print profit and loss statements and balance sheets for several years. They can be used to set your own financial goals in sales and expense budgeting, track trends over years and export data to spreadsheets for manipulation when determining a sale price. Accounting and payroll records are the foundation of your business from which service pricing and all other business decisions are generated.

3. Implement field service software. I used field service software in my own business and can testify that it can really help grow your sales and profits. Thanks to online mapping programs, quotes for maintenance and lawn care services can be prepared with no trip to the property. Field service software can allow you to prepare and email your quote, and have it accepted online in minutes. Customers love it. Some field service software has client portal links available to put into your website so customers can pay their bills online. These features make you look more competent and easier to do business with, plus speeds your cash flow. To a potential buyer, you look like a business with good customers and not just a customer list that may rapidly disappear. The investment in field service software can be justified with reduced labor costs in both the office and the field and enhancing business as described. It doesn’t cost, it pays.

4. Develop profitable pricing methods.
Be sure to have pricing methods in place that contain an overhead recovery and profit plan for every job or service you offer. Relying on guesswork and tradition pricing may not be optimal for profit. Suppose you are doing $200,000 in sales and 20 percent of your work, after analysis, is low- or no-profit. That means $40,000 in sales is making you next to nothing, and all your profit comes from the remaining $160,000. If, with better pricing, you could increase the low-performing $40,000 of work to at least 10 percent profit, you would add $4,000 to your bottom line. That’s additional profit that you made that required zero capital investment and zero additional work to create. The numbers you need to make this happen come from your accounting and payroll data.

5. The hip bone is connected to the leg bone. Do job costing for every client you service regularly, every one-time job you do, and every service interval job you perform, because all jobs consume labor. Labor is your biggest variable expense. Just because you use more labor than planned for a job doesn’t mean you used more materials. It may mean you added equipment usage, like a truck traveling one extra trip to a job, or extra hours in equipment usage generating extra wear and tear you didn’t get paid for. It may have been an 11-hour work day and not a 9-hour day. These changes in the field are directly connected to your bottom line. 

If you are using the same faulty time guesses or pricing structure through all of your jobs, your shortfalls are repeated time after time, year after year. Time estimates need to be part of and spot on for every job. Your smartphone stopwatch function will help you develop production time data. Combined with profitable pricing methods, profits can skyrocket. Again, no investment other than time for a few keystrokes and data logging for future reference is required.  

6. Cash is not king. Cash off the books is not a business or retirement strategy. All you can do is stash it under the mattress. No business buyer is going to pay you anything for something they can’t see. Whatever you hid, you can’t sell. As is often the case when selling, you may be holding an interest bearing note for the buyer. Hiding income means you are out sales dollars and the interest on them. Social Security will be lower in your retirement because of your lower profit on your tax returns. That means more money is needed from other assets in retirement, but what will they be? You couldn’t invest the hidden money to multiply it. You can hide your money and win by using an approved IRA or other plan. These plans allow to you save your pre-tax dollars, lowering your current income taxes. Then you pay tax when you withdraw money during retirement. Over a 40-year working career, investing 7 percent of your profits ($291 per month or $68 per week) from a current $50,000 annual earnings could create a nest egg of $860,000 

Conclusion.
The sale of your business can be part of your retirement nest egg, but you have to build it to become something that another person wants to buy. With these six points, you’ll be able to improve your company through better systems, management, pricing and profitability. 

Harold Fox was a lawn care and irrigation contractor servicing residential and commercial clients in southern New Jersey for 43 years. He sold his company and retired in 2015. You can reach him at harold@haroldfoxllc.com.