January 8, 2019
As a pest control business owner, you typically start the business from the ground up. You secure a truck, some needed equipment, materials and supplies, and along the way, you build the business…
There are an estimated 20,000 pest control companies in the United States and an estimated 40,000 pest control companies in total around the world. Many companies begin similarly, with hopes to build the business, take care of one’s family and do well locally, or maybe even grow bigger with multiple locations in multiple states. In the end, many pest control businesses will change hands (sell) and most will sell to a company that is a regional or national firm. Most if not all of those buyers have experience buying. However, most pest control owners do not have experience selling or even getting ready to sell. What are a few things you can do to prepare to sell and increase the value (selling price) along the way?
The sale of your pest control company is not the same as selling a house or a car. There are many things you might consider and several steps you might take prior to taking your business to market. Making some strategic decisions prior to selling will help you achieve the highest possible value and offer for your company. Consider these 10 tips:
Time is the friend of the seller. If you are in a hurry to sell, you will lose leverage, value and possibly control of the deal. The more advanced preparation, time and consideration you put in to preparing to sell typically translates to the business being prepared for the process. When the business is prepared for a sale, everybody wins (buyers, sellers, customers and employees) and the process is smooth. This is all about details — especially financial preparedness (including sales, profit, profit and loss statements; balance sheets and more). You want to be able to demonstrate to any buyer the business is well run with many best practices in place.
Separate Family Issues from Business Issues When Possible
When it is time to sell the business, can you solve any outstanding family issues up front? Can you address hidden family issues where possible? This can include such items as:
“Non-productive payroll.” Is a spouse or child on payroll but he or she does not really work in the business?
Are there “excluded assets” around the business? Some sellers have personal assets around the business they will want after the sale. Buyers will see all kinds of personal possessions laying around such as old cars, boats, pianos, memorabilia, hunting and fishing gear and so on. Getting the workplace free of personal items wherever possible will help the seller.
Working to clean up and restructure family expense habits (travel, eating out, memberships and so on) will help the selling process and will help buyers clearly see the financial strength of the company.
Be Able to Articulate History, Culture and Vision
Being able to tell your story is important and it adds value to your sale. Helping buyers understand the history of the company, the current culture and the vision will help put the buyer at ease.
The history of the company is important. How did you start? Why did you start? Who helped? What are the milestones? How did you fund the start and growth of you company? Why are you selling? What will you do next? Why? Believe it or not, your story is critical to your sale. Understanding your history helps buyers continue with your business in the future. You might be wary of a buyer that does not want to hear your story.
For some people “company culture” seems fuzzy. What values drive the company? It is important that sellers can articulate the culture of the company they are selling and it is also equally important to the transition after the sale that the buyer shows interest in it.
What is the company vision if you don’t sell it? It is typically important to most buyers that the seller stays engaged with the business all the way to the day of close. To that end, the seller’s vision for the future and a history of consistent growth is important.
Does the Business Have a Team in Place?
Sometimes it is difficult to remember, but you are selling the company, not you. In fact, in most sales, the seller will “transition out” of the business sometime in the first year after the sale. Most prospective buyers really want to see a strong management team in place. Do you have a reliable team and/or a strong supporting cast? Do you have a supervisor, sales leader, lead administrator, renewal coordinator, etc.? This is important because it indicates the business is not simply reliant on one person (you).
Keep Control of Controllables and Costs
An average pest control company has most of its costs in payroll, fleet, and materials and supplies. As you are preparing to sell, it is important to stay focused on whatever your controllables are and try to keep costs down and profit in line.
Another thought is what some buyers and their attorneys call “material change.” Buyers, and especially buyers’ attorneys, do not like to see change in the business during the process. This can mean you probably may not want to run out and buy new trucks or expensive computer systems since assets are typically sold and delivered to buyers “debt free.” Once you engage in the letter of intent with a buyer, the buyers want to know about any changes.
Keep an eye on costs before and during the sale. The buyer will certainly be looking.
Keep Strong Financial Control
How often do you meet and talk with your financial leader (CPA, CFO or accountant)?
Having a good financial person to guide you and the business is important as are strong financial controls on the business. It is also important that the seller have a good understanding of the business. This would include being able to have a general discussion of the P&L, balance sheet (A/R, debt and so on), bank statements and tax returns. Simply being able to describe your business financial process and health is important and will add value.
Understand Your Customer Concentration
Residential? Commercial? Pest? Lawn? Termite? Other? It’s all important to know. What is the mix of your largest customers? This is another indication of risk.
Offer Buyers a Realistic and Supportable Forecast
Many buyers will value a seller’s business on future cash flows and or future earnings. So, sellers will hopefully be able to demonstrate a history of growth in revenue and profit. Further, sellers should consider having a realistic forecast for their business. This shows buyers the seriousness and points to the credibility of the business, quality of the business and focus of the seller. Your financial leader should be able to produce this for any business at a minimal expense.
Working Capital: Understand It, Manage It and Embrace It
Working capital is a financial metric representing the operating liquidity available to a business. Why is working capital important? If a company’s current assets are less than current liabilities, a company may have a working capital shortfall, also called a working capital deficit — and that’s not good. This probably means the company cannot pay off its short-term debts — also not good. If cash from operations is low, then the company may be in financial danger. This is not a desirable position to be in when considering a sale. Positive working capital is needed for a pest control company to be able to continue its operations. Fortunately, most pest control companies typically have very strong working capital. You need working capital not only to be able to pay off short-term debt but also cover unexpected expenses, investments and to stay in business.
Working capital is an indication of the health of the business in general. Typical current assets that are included in the net working capital calculation are cash, accounts receivable, inventory and customer pre-paid accounts minus accounts payable. So the formula for your pest control business could look like this:
CASH + AR + Inventory + Pre-paids – AP = Working Capital
Consider Seeking Professional Advice
Representation from seasoned advisers can provide you and the business transaction/sale with sizable savings and significant value. Having experienced guidance from merger and acquisition professionals will help you build a “team” for your sale. Most sellers look at this as a pure expense. Why not look at it by asking, “How much more value to the transaction can this add?” This “team” includes but is not limited to CPAs/accountants, tax experts, attorneys who have done business sales and transactions, and other advisers to help you get ready to sell and represent you and your company through the entire selling experience. Each has a valuable role in the process of preparing to sell and selling your pest control business and each should provide you with different perspectives and expertise in their areas.
The SCORE Association (www.score.org) is a non-profit association for entrepreneurs and a partner of the U.S. Small Business Administration. SCORE estimates the sale of a small business may take between six months and two years. In the pest control industry, two years is excessive; however, six months is not. This is a process; it does take time. Sellers who prepare to sell typically sell for more than those who do not prepare.
FINAL THOUGHTS. Selling your business will take time and planning. It is emotionally draining for many so preparing in advance helps. While understanding the value of the business as you venture in to the market is critical, today’s hot market, and support from a seasoned team of professionals with acquisition experience can help you through this difficult task. It also may be possible to receive free counseling from your local chamber of commerce, in-person or online seminars, local workshops or internet research.
In the end, the day you close on the sale of your business should be a celebration of your newfound freedom and time — and the large amount of money in your bank account. If you prepare, you will maximize what is typically a once-in-a-lifetime event.
The author is president of Kemp Anderson Consulting. Learn more at kempanderson.com.