There are several good books out there on small service business valuation.
Most of them will establish them at a multiple ( say 2-4 times ) net pretax profit with all owners discretionary pay and depreciation added back in ( Mind you net profit does not include what you earn working or managing ). I sold businesses three different times ( 1996 - 50% of Route Sales ) ( 2004 - 80% of Route Sales ) ( 2014 - 100% Residential of sales ). I had very solid - detailed recordkeeping and books. I did not have any contracts.
I encourage you to pursue creative ideas to sell your business. Each of mine were different in the sales contract language. I sold once to an employee, once to an individual who had never been in business and the last one to a company that was looking to expand into the Residential Market.
This topic does come up occasionally and I have observed many negative comments regarding this. Mainly from individuals that have neither sold or bought a company but will make these bold unsubstantiated statements speculating why it wonāt work ( or ) that you can only receive a small portion of annual gross. Another common theme is that the value is depreciated without contracts. None of these have been true with any of my transactions because I set the standard for what I had build higher than that and projected that on any potential buyers. Donāt be sheepish, shy, or apologetic for what you are asking for. Own it confidently and it will help ease a buyers reluctance.
I have a copies of three different contracts you are welcome to look over. Be creative and polish up your salesman skills - plan your Exit and kill it !!
@WDW excellent reply. I am currently investigating buying out a local competitor. Iād love to speak with you for a few minutes if you have time. Most of the perspectives Iāve gotten are from the buyerās side. Would be great to hear something from a sellerās point of view.
My last sell was just that. A very well established service bought my Res Accounts. He and I both took a lot of time to come up with a contract that we were both comfortable and secure with. I can share that with you.
Yes, more than happy to speak with you. The soonest convenient time for me to call would be Wed. or later.
@WDW, I have been looking into the residential sale process. Can I ask if you went through a broker or how you went about finding someone to look at purchasing your residential company? Did you reach out to competitors?
I did not use a Broker. It was advertised on Craigslist for several months. Had a few inquiries but eventually a W/C businesses from about 60 miles away began discussing a deal. It took several months and we finally agreed to the terms and had an Asset Purchase Agreement drawn up. I also, had discussions with several other companies by reaching out to them and telling them what I had to offer if they were interested.
Although admittedly I have very little experience buying/selling businesses, and am therefore largely uneducated in that space, I do puzzle at the negative view of overall value businesses can hold.
It makes me wonder if those making such claims donāt really have substantial equity in their own business. Or lean more towards bucket bobbin. (No offense to the much needed bobbers of the community.)
I say that, not to harpoon or demonize anyone, but I just have to think, I know how much work it took to get my business up, running and profitable enough to support my wife and I. And I know how much time, energy and capital I sink into acquiring each and every new customer, the grinding and pushing to advance my business.
You gotta think, someone with the finances to purchase and the motivation to purchase has to see what a pain it can be too. If they didnāt, perhaps they wouldnāt be in the market in the first place, just start a business from scratch. Iām sure itās easy enough.
That said, beautiful advice all the way around. Iām not looking to sell, but itās nice to keep that in the back of your mind. Keep your records tight and clean just in case.
That is very helpful. You certainly do not need to go into great detail, but what kind of terms ended up happening with your deal, or what would be the norm to be expected?
Also, did you have an attorney draw up the agreement, and if so, how ābindingā is a written agreement in your experience?
It was an Asset Purchase Agreement which is a common document for such a sale. It was quite extensive and very detailed. It is binding - as far as a legal document can be. Obviously those who are entering into any agreement needs to bring a level of integrity beyond any committed words on paper.
The sell was for Residential only because I was winding down my operations ( I should say as far as my involvement ). I maintained the Commercial and Route Accounts. I am more than happy to share a redacted copy for you to use and take to an attorney when you are at that point.
I sold for one years gross revenue ( last three years average ). I have always had very good financials and clean records and job details history. Credible tax returns. I believe that is critical in retaining a premium price.
Hi Luigi,
I have a window cleaning business in Richmond and would be interested in purchasing your business if you are interested.
Contact me at [email protected]
