If you are considering selling your service business in California, here are some of the unique challenges the business service industry faces, and how you can help your buyer (and your business) overcome them.
Business is strong in California. Unemployment is low, and companies that provide services to other businesses are thriving. The market is wide open to those selling these types of businesses, but there may be challenges you should be aware of and know how to address.
Selling a business in California is different from selling one in other states, and potential buyers want to know about those challenges before they decide to buy and operate a business here.
What industries are a part of the business services industry?
The business services industry comprises a diverse range of businesses. They include employment services, building services, security, travel arrangements, waste management, and environmental remediation.
Many businesses fall under this category, and some provide services to residential buildings as well, such as landscapers, pest control companies, waste management, and even, in some cases, janitorial services. The largest category nationwide is employment services, with 30% of the market.
Why are business services doing so well?
One of the reasons these industries are doing so well is the low unemployment rate. While some larger companies like to move business services in-house instead of contracting them out to another company, in times of low unemployment, finding qualified workers takes time, energy, and expense that they often don’t want to endure.
Demand is also driven by new business growth and increases in disposable income by businesses and individuals. In other words, when the economy is good, as it is in California, business is good as well.
What are some common barriers to entry for buyers?
This is a complex question, as there are so many different industries in this sector, but here are a few of the general ones buyers are concerned with and how to deal with them:
New Technology
New technology has revolutionized the way many companies in this industry conduct business. For example, in the security sector, remote monitors and cameras enable the simultaneous monitoring of multiple locations, reducing the need for as many on-site personnel. This means they are more profitable in the long term.
The Technology Cure
Ensure your business is up to date with the latest technology before attempting to sell. If that isn’t possible or it’s something you just don’t want to tackle on your own, explain to a buyer what they will need to do early in the purchasing process.
Licensing and Regulation
Many businesses in this sector require special licensing and permitting at both the state and local levels. For example, pest control services need special certification in California because they handle potentially hazardous chemicals. Your buyer will need to have or be able to get the necessary certifications.
The Licensing Cure
In the recent successful sale of a tree and landscaping business, Rogerson Business Services was able to find a buyer who held a general contractor’s license, one of the several licenses required to purchase the business. Because he already had his contractor’s license, getting other certifications was easier.
The buyer was also able to qualify for an SBA loan because he held the necessary licenses. Encourage your buyer to obtain the necessary licenses before they begin the buying process to make things easier and faster.
Competition from Large Companies
Large business services companies have a certain amount of leverage for landing national contracts with other large companies. This means that the competition for these lucrative contracts is stiff and significant.
The Competition Cure
While large companies may secure larger contracts, numerous other companies also compete for business. The industry is overall fractured, with the top 50 companies accounting for only 25% of the industry’s overall revenue.
Localization and specialization are the cure, and if you have those, you’re ready to delight your potential buyers with the good news about your company’s earning potential.
These are just a few of the most common barriers to entry for buyers seeking to enter the business services industry. Here are some more general tips when you are selling:
- Keep things positive. If you focus on the negatives of your business and the possible downsides and challenges, your buyer will too. Focus on the good things and describe ways to approach challenges positively.
- Be honest. If you experience a typical down season where things are slower, explain this to a buyer and tell them how you address it. If some key employees make your company, share that as well, and what you have done to keep that group of employees satisfied. If there is anything wrong with your business, don’t cover it up.
- Answer questions, but don’t volunteer too much. This is a tough one. While you want to be honest and straight with your buyer, you also don’t want to reveal certain trade secrets and other vital information until the sale is final. Remember to keep confidential information confidential until you need to reveal it.
Remember that selling a business takes time and involves finding the right, qualified buyer at the right time. Just because someone shows an interest in your company does not mean they are the right buyer for you.
Other Issues to Discuss
There are other issues your buyer should be aware of when considering your business and entering the business services industry in California.
- Taxation: California has unique taxation laws that affect the way you should structure a business. Discuss these points with your buyer if they don’t currently reside in California.
- Escrow: Buying and selling a business in California demands a unique escrow process, and your buyer should have realistic expectations of how this works and what will be required.
- Financing: This is a discussion you should have early on, to determine if the buyer needs an SBA loan and if you might have to carry part of the financing yourself to make the deal work.
Selling a business is probably the most significant financial event of your life, but buying one is also a massive deal for your buyer.
The Best Way to Sell a Business in California
The most effective way to sell a business in California is by utilizing the services of a Certified Business Broker. Their job is to find the right buyer at the right time and help you through every part of the business selling process, from business valuation to escrow and closing.
At Rogerson Business Services, with our extensive experience, we’ve probably sold a business a lot like yours. Still, every business is unique, and we would love to be your business broker. Contact us today to initiate the process.
Andrew Rogerson is a certified business broker based in Sacramento, California. Call Toll-Free at (844) 414-9700. If you prefer, email him at support@rogersonbusinessservices.com. Andrew services the whole state of California.