Sell a Professional Service Business for the Best Price: Exit Plan
A person may sell their service business for several reasons. It may be because you plan to retire or feel you’ve done your part in your service business, and it’s time to move on. Or maybe you’re considering a new investment and want to sell to free some capital.
If you’re a main street company in the professional service industry and looking to sell your service business for the best price, but you’re not sure how to sell a business in California, here are a few essential points and business selling tips to consider.
Value a Professional Service Business
Selling a service business requires some planning. A clear understanding of what those taking over your business believe to be essential assets in driving the company’s value is key.
When valuing your service business, consider the following:
Step 1: Value of Current and Future Clients
The first thing that most people look at when figuring out how to value a service firm is the value of the existing clients. Customer relations are so important that they account for 38% of company value on average.
Some of the factors that influence customer stability include:
- The solidity of customer relations.
- Excess margin.
- How independent the relations from influential persons are.
To secure customer value, a firm must put non-compete and ESOP (employee stock ownership plan) arrangements in place. Doing so ensures key individuals don’t exit with some clients.
Step 2: Trade Name Reputation of Your Professional Business
Although the trade name is unimportant, its reputational value plays a key role in “replenishing” relatively recent customer relations.
The reputational value of the trade name is helpful in the following ways:
- It helps in creating future customer relations
- It helps attract more and new talents and skills to the business.
Note that, on average, the trade name accounts for 4% of business value. And once the acquirers come in, they may either maintain the name or replace it after some time.
Step 3: Find the Current Asset Value of Your Professional Service Business
Most other intangible assets account for a meager 1% of the firm value. Examples of intangible assets include agreements yet to be complete and software.
As for tangible assets, these comprise a more significant percentage of receivables and liquid financial assets and less fixed assets, such as company vehicles and office equipment. These account for about 20% of an enterprise’s value.
Goodwill is another vital asset to consider. It accounts for 45% of the company’s value.
Professional service enterprises need to ensure key individuals don’t leave. Doing so is vital for ensuring the enterprise keeps running at the current profit level for a long time.
Therefore, if you want to sell your professional service company at a high price, you must have clear measures in place to retain key staff.
Increasing Business Value of a Professional Service Business
Most people don’t start a business to sell later. They’re motivated by that urge to remain self-employed to build a sustainable business.
However, as Michael Gerber puts it, the only reason you should worry about how to increase company value is to sell it and at top dollar. So, how does a company create value?
Before you can sell your professional service business, consider the top five ways to help increase business value and your selling price:
- Offer something hard to copy or expand into more verticle services.
- Be able to operate the business independently: Flexibility attracts more buyers and has a high demand.
- Have a high recurring monthly income stream.
- Have a solid team of experienced leadership roles.
- Have solid customer relations.
Building a Professional Business to Sell
Right now, the market is full of Baby Boomer professional service businesses for sale as owners retire, so buyers have no shortage of choices. You have to create a business that stands out from the crowd.
To build, grow, and sell your service business at its peak, consider the following tips:
- If your industry or market is growing, ensure you expand your service business options.
- Gaine new customers. Also, keep your existing customer base and what they want.
- Improve your online and social media presence.
- Identify what makes you special and work on solidifying it.
- Branding means a lot. It’s what identifies your professional service to your clients.
- Have a business plan with an exit strategy in place for today, tomorrow, and the future.
Consistently growing and improving your professional service business can significantly build on a business value.
Prepare to Sell Your Professional Service Business
Preparing to sell your business is not a single-day affair. It requires a well-thought-out plan, and you must cooperate with lawyers and other professionals who can make the sale a success.
However, these preparations are mainly dependent upon the size of the business. If you have a company to sell that’s small, you can probably sell it yourself. On the other hand, main street businesses with an EBITDA between $500k and $3m may require engaging the services of an intermediary.
Preparing a service business for sale checklist
- Update your business plan.
- Look for ways to increase profitability.
- Prepare the business so that it can run without you.
- Build a loyal workforce to the brand.
- Identify your assets.
- Ensure your client base is happy and satisfied.
- Have a timeline in place.
- First, ask who might be interested to acquire or buy your professional services company in California.
- Then, create a list of several specific firms in each business or industry category.
- Analyze these companies – Perform SWAT analysis.
- Put yourself in the shoes of the buyer.
- Know the value of your business so you can engage with potential buyers better.
Hire a Service Business Intermediary
Business intermediaries, also known as business brokers, help business owners value and sell a business at the best price and highest standards. They assist as you prepare to sell your professional business and handle the transaction until it’s complete.
Brokers usually help you determine how to price your business for sale, after which they take it to the market and help you find qualified and serious buyers. Additionally, working with a California certified business intermediary brings a lot more benefits, including:
- Help with an accurate estimate value of your business.
- They promote and market your service business to prospective buyers on your behalf.
- They assist with negotiations with buyers, so you can keep building and running your business.
- Help with executing an exit strategy that best fits your options and needs.
- They keep the confidentiality of the sale.
- Finally, they ensure the transaction is successful and for the best price.
Selling a professional service business can be daunting, especially for the business owner. However, if you employ the five steps on increasing the value of your business, positioning your service company for the acquisition will be easier.
Proper timing is also key to ensuring you get the best deal when selling your professional service business. And as mentioned, a certified and qualified broker in California comes in handy in helping value the professional service business and sell it at the best price.
Go to the next article: Part of tips to sell a company in the professional services business in California series ->