Why can’t I sell my business? Let’s get REALISTIC.
Have you received numerous letters and emails offering to buy your business? If you haven’t, I expect you are in the minority. Most of the landscape company owners I speak with have received them. The writers let the owner know that if he/she wants to sell, they are ready to help them. Based on all the eager helpers, you would think it would be easy to find a buyer for your business and get the “market” price if you have most of your fundamentals right. It’s just a question of when you are ready to pull the trigger, right?
It isn’t. Let’s get real. It never was that easy. If it appeared to be, you may have been fooling yourself.
The number one reason companies don’t sell is that sellers have an unrealistic expectation of what their business would sell for. By now most owners know that recurring revenue is more valuable to a buyer than a business that must be “resold” every single year. Some owners don’t realize that the different parts of their company might be valued differently. Typically, maintenance revenue will command a higher multiple of Adjusted EBITDA or SDE than construction revenue.
Sure, if you own a company that is very large, commercial maintenance focused, achieving at or above target margins, in a growing market, you should be easy to sell. But even in a seller’s market like we’ve had for larger companies in the past year, it might not be so easy. Why? Well, let’s get real. You must take off your “rose-colored glasses” and give up an overly optimistic view of your company’s real worth. You may think that your company is worth $5million, all cash, all employees to be retained, seller walks away. Your intermediary may be telling you that they always get the best deals for their seller. And they may. Or they may have several years ago but lately, they are “phoning it in.” Or they may tell people they can sell high and once you’ve taken the plunge you will have a hard time switching to another broker.
Please, don’t do what I did a few decades ago when I was too young, too busy with work travel and, worst of all, too gullible. I wanted to sell my house and buy a new one. My agent (who sold me the first house) said I really needed to make an offer without a contingency for selling my old house first. She said my original house would sell easily — at most I might have to pay for two mortgages for a few months. Fourteen months later, she finally sold my house. The timing was bad, and the situation was worse. I was certainly not realistic in my expectation. Guess who paid the price. Not the buyer and not my agent!
The good news is that I had enough time to recover financially. But I shudder to think what might have happened if I were trying to sell my business so I could retire comfortably with little time to recover the missing value. The bottom line is that when selling your business, it’s even more important that you have a realistic expectation of the price and terms you can expect. If you don’t like the price, you can face the reality, work on a profit plan, and sell when the market cycles back to your favor.
Another fact of selling your business that you must be real about is that taxes must be paid. If you haven’t already started working with a smart tax advisor (that may or may not be the CPA who does your financial statements ad your tax returns—you must check with them!), you may want to invest the money to get some advice about how to responsibly minimize the taxes, so you achieve the best after-tax result for your business. This number will be different from the listing price of your business! Planning can be the difference between achieving your goal and missing it.
Oh, and let’s be real about “multiples.” The multiples you hear tossed around in conversations with other sellers or owners who just sold (or their attorneys or their brokers or some other people) are generally not what you want to rely on when you are selling what is probably one of your biggest assets and a large part of your financial plan. Those multiples are general rules of thumb. Keep in mind that there is a fish story whenever a seller is talking about his deal. The seller wants to tell everyone that she got the highest price for her company, and the higher the multiple, the smarter the seller looks, the better the attorney and broker look, and so on.
Multiples can work, but wouldn’t you want to get some reliable input from someone who has a reason to give you a realistic value? Or, you may want/need a valuation prepared by a CPA or qualified professional business appraiser. Sure, this will cost you more than nothing, but it may be a valuable lesson on valuation. In some cases (divorce, partner disputes, estate purposes, etc.) you need a qualified business appraisal anyway.
There are other elements of a deal that you may have unrealistic expectations about that will do you harm if not corrected. How about the seller who had an unrealistic vision about his need for a deal attorney? He would not hire a deal attorney but insisted that he use his family lawyer. That lawyer was not familiar with market standards and would not advise his client to share any of the risk in the outyears? That buyer got real and killed the deal!
The best path for selling your business is to start with your end in mind (know you will sell someday, if you will) and track the important factors for valuing the business as you build the business. When the market cycle is optimal, you will have your tax plan in place, your business in a strong state, and a realistic view of what you can expect. It pays for the seller to get real.
Would you like to discuss your next steps in selling or otherwise transitioning your business? Is your company achieving profitable growth? If you’d like to discuss your company’s organization from a buyer’s perspective, or the health and salability of your company’s anticipation of selling or otherwise transitioning your business, feel free to give us a call or email. We are also happy to discuss other ways to prepare your company for sale for now or for the future.
You can reach me via email: [email protected] or on my cell phone a: 224-688-8838.
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