Whys, Whens & How’s of Selling
Your Restoration Business
John Horgan & Gokul Padmanabhan
EXITING YOUR BUSINESS
• Even if You Don’t Plan To Retire For Another
10 Years, Here’s Why You Should Listen To Me
Now
Whys, Whens & How’s of Selling
• Majority Of Business Owners I’ve Worked
With Over the Years Have Confessed:
• ‘I Wish I had Thought About Selling Sooner
REASONS WHY OWNERS SELL THEIR
BUSINESS
•
Retirement
•
Health
•
Desire To Try Something New
•
Family Reasons
•
Industry Not The Same it Was When You Began
UNDERSTANDING THE PROCESS
•
Selling Your Home
• Fresh Coast of Paint
• De-clutter
• Neat and Organized
• Attractive to the Buyer
UNDERSTANDING THE PROCESS
•
Selling Your Business
• Updated financials / tax returns
• Clean AR
• Family members
• Clean office/warehouse
THINGS TO KEEP IN MIND
•
Most Owners get 30% Less Than the Value of the
Business When it Sells
• Sellers Tend to Think From Their Perspective Only
• Most Buyers from Outside the Industry
THINGS TO KEEP IN MIND
•
Your business is only worth what someone
will pay for it
TYPES OF BUYERS
•
Strategic Buyer
• Looking to Add Your Company To Enhance Their
Present Operation
• Make up a Very Small Percentage of the Buyers
• Generally Very Well Funded
TYPES OF BUYERS
•
Financial Buyer
• Looking Strictly and Only at Financial
Profitability Of Business
• Makes up Vast Majority of Buyers
• Often From Outside Restoration Industry
KEY IS TO APPEAL TO BOTH
•
Have A Proven Track Record
• Strong and Loyal Customer Base
• Experienced Staff
• Skilled Management
• Cash Flow and Proven Profitability
8 PROVEN STRATEGIES TO
IMPROVE BUSINESS VALUE
• 1. Employ a Plan to Increase Cash Flow
•
Cash Flow is Strongest Indicator of Value
•
Generally Three Years of Financials Used
•
1% Reduction in Expenses Generally lead to a 5%
Increase in Net Profit
•
A Good Set of Books Increases confidence in the
Business Among Buyers
8 PROVEN STRATEGIES TO
IMPROVE BUSINESS VALUE
2. Remove Yourself From The Business
• Can Your Business Operate Without You?
• Buyers Need to Know It Will Operate Without
You
• Train Your Personnel to Take Over Key
Responsibilities
8 PROVEN STRATEGIES TO
IMPROVE BUSINESS VALUE
3. Develop A Strong Management Team
• Quality of Staff Enhances Value
• Inspire Key Staff To Take Initiative
• Take Time To Explain To Buyer The Quality of
Your Employees
8 PROVEN STRATEGIES TO
IMPROVE BUSINESS VALUE
4. Replace Family Members on Your Staff
• Buyers are Uncomfortable With a Business
Filled With Family
• Buyers are Very Concerned if Employees
will not Stay on After Sale
8 PROVEN STRATEGIES TO
IMPROVE BUSINESS VALUE
5. Reduce The Amount of Personal Perks
• Only Have in the Business Easily
Documented Personal Items
• First-Time Buyers Often Have a Difficult
Time Understanding Owner Perks
8 PROVEN STRATEGIES TO
IMPROVE BUSINESS VALUE
6. Sell Unnecessary Assets
•
Sell With The Business All Assets Needed to Produce
the Volume
•
Lenders do not Consider Excess Assets in Value of
Business
•
Present Your Business to Have Highly Productive Assets
8 PROVEN STRATEGIES TO
IMPROVE BUSINESS VALUE
7. Develop and Document Your Sales and Marketing
• Do You Market?
• Do You Have a List Of Names or a Data Base?
• New Buyers Need to Know Business is
Transferable
8 PROVEN STRATEGIES TO
IMPROVE BUSINESS VALUE
8. Diversify Your Customer Base
• Does a Large Portion of Your Volume Come
from One or Two Clients.
HOW IS VALUE DETERMINED
• Items Needed
• Three Years P&L’s /Tax returns
• Balance Sheet
• Items Run Through Business
• Personal Insurance, travel, leases etc.
HOW IS VALUE DETERMINED
• Sellers Discretionary Income (SDE)
• What is SDE?
• Items Normally Allowable to Be Used
• Items Normally Avoided
HOW IS VALUE DETERMINED
Multiplier of SDE
• Growth or lack of Growth
• Is The Business A Turnkey Operation
• Condition of The Financial Statements
• Is the Sale Part or All of The Company?
• Employees Staying With Company
TALE OF TWO COMPANIES
Dream Clean
• Volume = $1,000,000
• Net Profit = $60,000
Perfect Clean
• Volume = $1,000,000
• Net Profit = ($40,000)
TALE OF TWO COMPANIES
Perfect Clean Volume
• 2012
$800,000
• 2013
$920,000
• 2014
$1,000,000
Dream Clean Volume
• 2012
$1,350,000
• 2013
$1,190,000
• 2014
$1,000,000
TALE OF TWO COMPANIES
•
Perfect Clean
Net Profit
Owners Salary
Depreciation
Amortization
Interest
Other Addbacks
Total
Add Backs
($40,000)
180,000
30,000
5,000
7,100
71,000
$253,100
Dream Clean
Net Profit
Owners Salary
Depreciation
Amortization
Interest
Other Addbacks
Total
Add Backs
$60,000
40,000
5,000
0
2,000
10,000
$117,000
TALE OF TWO COMPANIES
•
•
Perfect Clean Summary
2014
$1,000,000
•
SDE
$253,100
•
NET /NET
25%
•
Higher Multiple when setting price.
•
•
•
•
•
•
•
Dream Clean Summary
2014
$1,000,000
SDE
$117,000
NET/NET
11.7%
Losing Volume
Lower Multiple when setting selling price.
WHEN IS THE BEST TIME TO SELL
Stages of a Business
• Infancy
• Child
• Adolescent
• Adult
• Declining
WHEN IS THE BEST TIME TO SELL
WHEN IS THE BEST TIME TO SELL
The Best Time to Sell is When Volume and
Profit are Increasing
•
GOKUL PADMANABHAN
•
[email protected] | 407-781-4596
•
4767 New Broad Street, Orlando, FL 32814
•
www.sellmyrestorationbusiness.com
•
About Gokul:
•
MBA / Finance - from University of Central Florida
•
Value Transformation consultant for Fortune 500 companies
•
Extensive experience in global outsourcing, business development and business value
•
Over the last 15 years successfully launched and sold 4 businesses
•
Experience in all aspects of buying and selling businesses.
•
JOHN HORGAN
•
[email protected] | 615-812-2450
•
4767 New Broad Street, Orlando, FL 32814
•
www.sellmyrestorationbusiness.com
•
About John:
•
Consulting, management and sales background
•
Experience in restoration industry consulting restoration owners.
•
Extensive experience in growth strategies for restoration companies.
•
over 37 years in management and consulting
•
Experience in all aspects of buying and selling businesses.