If you’re thinking about selling your business in the next few years, you probably have some work to do. If you want to get the full value for your company when you sell (and who doesn’t?), making the transition from an owner’s mentality to a seller’s mentality is critical. You might need to change the way you do business. Here are four things you can focus on right now.
- Get out of your own way – and out of your van. You don’t have anything to prove to your staff or your customers after all these years in business. If you’re the best technician you have – if you don’t trust anyone else to do the work – you’re limiting your potential for growth and the amount someone will pay for your business. You should focus on growth, both in revenue and among your top employees. No one wants to buy a business that requires them to work in the field all day and come home to do five hours of paperwork every evening. Hire good people, train them well, and let them get to work.
- Clean up your books and records. I’ve written about this before: a business owner usually takes a tax mitigation strategy. You might run as many expenses as you can through the company to reduce your profit and tax burden. But when it comes time to sell, a buyer will make an offer based on your profitability. This is the time to clean up, organize, and modernize your record-keeping so it’s easy for a buyer and a lender to see what your bottom line really is. Let me put it this way: you can save 30 cents in taxes on every dollar you make now, or you can make 3X on every dollar of revenue when you sell. The math is pretty easy to do.
- Build your business on service, repair, and replacement. The value of your business lies in repeat business and customer loyalty, and maintenance agreements are the surest way to create recurring revenue. It should be a no-brainer: customers are paying you to ensure their loyalty to your brand. For a couple hundred dollars a year, you become top of mind and the first call when something fails or they need a new unit. If you’re wondering how many service agreements you should aim for, a good rule of thumb is 500 for every million dollars of annual revenue you’re bringing in.
- Stay away from the temptation of new construction. I know, I know. You can earn a significant income working on new developments. However, the revenue is rarely repeated, and most buyers understand that once the current owner leaves the company, they become just another bidder for a job. It’s a race to the bottom, and buyers don’t want the risk. Lenders also don’t want to finance deals where more than 20 percent of a company’s revenue is based on new construction. Re-read #3 above, and make it your daily mantra.
These four items on your to-do list are simple, but they may not be easy. But the payoff when you sell could be the difference between a comfortable retirement and working another 10 years until your company is worth what you believed it would be.
