There are a number of things any plumber, electrician or any tradie should do before they think about selling their business. The list below is not definitive but is a good guide on the basics of how to enhance the value and desirability of your business.
A warning this article contains the “C” word
1. Sack yourself! Well not literally…but make the business less dependent on you! You’re probably an amazing tradesman and you’ve built a successful and profitable business, but if you can’t remove yourself from the daily operations without the business falling apart, then a buyer will be concerned that they will be able to fill your shoes. Get all of that knowledge out of your head and put it on paper! Train your staff to go to the procedure manual before asking you a question. After time, they will become more and more self-sufficient. If you can demonstrate that your team can run the show without you being there daily, then a buyer will have greater confidence that business will continue to track along as it is, once they take ownership.
2. Systems & Procedures – There are many apps on the market these days that can save you loads of time and money. They can help you quote, manage your tradies time on jobs and even send out invoices directly from your smart phone. Having these sorts of systems in place can save so much time that you may not even need an administrator in the office. Saving you $40K or $50K p/a and increasing the value of your business considerably. A business that has 3 or 4 tradies in the field probably doesn’t need to employ a full-time administrator.
3. Record Keeping / database – if you have MYOB, Xero, Quick Books or similar then you’re a step ahead! Any of those systems will enable you to run various reports to help understand your business better. What buyers don’t want to see is a database that is handwritten in a note book and no idea of individual client spend.
4. Look at your expenses – What are you paying for that you don’t need? Are you leasing an old-fashioned phone and fax system from the 90’s? How much of your advertising spend is effective? Yellow pages, SEO marketing, google ad-words etc all have their place, but you need to know how your customers are finding you. If you’ve spent $10K on Yellow Pages for the year and only recorded two enquiries from there, then maybe it’s time to reduce your spend.
5. Don’t put all your eggs in one basket – You may be making a million dollars a year, but if you only have one or two key clients, the risk of losing half your business is high. Obviously, not what a buyer wants to see. Generally, the most attractive businesses are those that aren’t dependant on a small number of clients.
6. Offer to stick around… standard hand over period is 4 weeks, but if you make it clear during the sale negotiations that you’re available to be involved as a consultant, or on call for 3 months or so, it gives the buyer that much more confidence. Sometimes this can avoid talk of earn outs or buy outs.
7. The “C” word…CASH – In short, if it’s not on your income statement (P&L), then it doesn’t exist in the eyes of the buyer. It’s important to remember that most buyers will seek the advice of their accountant before buying a business. Their accountant will analyse the financials and any talk of cash will be ignored. Furthermore, the buyer will probably need finance to buy your business. If the profitability isn’t there on paper, then the buyer will have a hard time getting a loan to buy your business.
To learn more about how best to prepare your business for sale and achieve the best price possible, contact the author Matthew Grech at email@example.com or 0408 299 888.
About the Author
Matthew is a Licensed Business Broker (LBB), an associate member of the Australian Institute of Business Brokers (AIBB) and partner of the Business Broker Network (BBN), a national network of professional business brokers.
Matthew has sold business’ as diverse as cafés and cleaning businesses to trade businesses with multi-million dollar turnover. Regardless of the industry, he will take his time to research the industry, analyse your business and negotiate the best deal possible.
Matthew also holds a Masters of Business Administration (MBA), specialising in International Business from the University of Newcastle and a Diploma of Financial Planning.