When trying to decide if it’s time to sell your pest management business, soul searching blended with logic and awareness of financial aspects will help you assess your situation and make things clearer.
Let’s use the example of a pest management business (S-Corp for tax purposes) generating $1.5 million in annual revenues with about 10 percent of such amount ($150,000) allocated to the business owner in salary and perks each year. A one-time annual revenue rule of thumb values the company at about $1.5 million. Also assume there are $100,000 in liabilities outstanding at the time of sale. This would leave the owner with about $1.4 million before taxes and $950,000 after tax assuming a blended federal and state rate of 30 percent (using federal LTCG rate of 23.9 percent and a state tax rate of 6 percent).
The following questions might help you decide what to do:
- How old are you, and given your health, how many more years do you want or need to work in the business given responsibilities to yourself and your family?
- Is your business still in an expansion mode or is it a mature and declining business because of increased competition, loss of key employees or local economic problems?
- If you sold the business, would the after-tax sale proceeds provide you sufficient income replacement for the years you expect to live, or will you have to seek a new career to sustain your lifestyle?
- Does your business have employees (or family members) to fill your role if you were unable to work because of a disability or you needed to work part-time drawing a salary or potentially retire and draw a pension?
- How important are you personally to the business in terms of maintaining client relationships vs. internal administrative systems that work efficiently whether you were there daily, retired or a part-time employee?
- Do you have financial resources available outside of what the business provides you to maintain your lifestyle and financial obligations (e.g., large inheritance from parents/grandparent or a pension or equity vested from an earlier career before becoming a PCO operator)?
- Are you tired of the business and have ambitions or opportunities to start a new business or hobby after the sale of the business disregarding the maximized sales price?
Honest answers to these questions will help you determine whether to stay the course and sell later when business is more valuable; find a younger employee to mentor during the next 5 to 10 years; merge with a regional pest management company to continue working with greater resources and a support team or; cash out to a larger company and retire to pursue your hobbies.
Norm Cooper is a renowned PCO Merger and Acquisition specialist, John P. Corrigan is an Attorney, MBA and CPA and Daniel S. Gordon is a CPA, working together as the M&A team of PCO Bookkeepers. Visit http://www.pcobookkeepers.com/selling.html or send an email to email@example.com.