How to navigate the sale of your pest control business

By |  October 4, 2016

Properly preparing for and maneuvering through this once-in-a-lifetime process will have a huge impact on its outcome.

tullius

Lance Tullius

Most pest management professionals (PMPs) start their business with an eye on the future. As the years progress, they operate and manage it with that same eye on the future.

That future represents the point at which they will sell their business, and presumably (or rather, hopefully), reap ample benefits for all that they’ve put into their business. But by no means is it a guarantee that they will, in fact, sell their business for a huge profit, let alone any profit.

Many variables and circumstances have to fall into place for a business to be sold successfully. Some of these are within the PMP’s control; some are not. We’ll focus on those within your control.

Let’s break the process of selling a business into two steps:
 

Step 1: Preparing and positioning for a sale

As with any major milestone objective, proper planning and preparation are vital. If you haven’t already begun to do this, no matter how far a sale might be into the future for you, it’s never too early to start.

There are many questions to ask yourself, but two are particularly significant:

  1. How can I build or shape my business to have the greatest appeal to the buyers that will be the best candidates to buy my business?
  2. What type of corporate structure will allow for the best transaction outcome?

I’ll address the second question first, given its general simplicity: With a privately owned business, you will almost always have the greatest opportunity to sell the business successfully when the business is incorporated as an S corporation. That’s not to suggest it’s impossible to do so under a different corporate structure, but simply much easier with the S election.

Without going into exhaustive detail (you should consult your accountant on this subject in any event), buyers overwhelmingly prefer to purchase the assets of a company rather than the stock. Selling the assets of an S corporation, given its nature, results in a tax event at one level: the personal one.

On the other hand, selling the assets of a C corporation, for instance, triggers two tax events: one at the corporate level and then another at the personal level when you remove the proceeds from the corporation. If you’re already a C corporation and decide you want to change, which I think is a good idea, you must be mindful of certain “look-back” provisions that prevent you from capturing the full benefit of such a change for certain periods of time. (Editor’s Note: For more on the differences between S corporations and C corporations, see “Why are S corporations so popular?”)

As to the first question, when I refer to planning and preparing for a sale, I’m not suggesting you need to determine the date at which you will likely sell your business. In fact, the more flexible you can be with respect to that date, the better. And some might say they never plan to sell. But it’s a fact that none of us will be around forever; at some point, someone else will own your business. Regardless of whether that’s going to be a family member, someone you know or a third-party buyer, it behooves you to construct a business that is as valuable as possible. Therefore, you should focus on building your business to have maximum appeal to the market.

As an absolute starting point, you have to be able to validate the appeal of your business. That means you have to be able to produce timely, accurate and relevant data. To do that, you need systems and protocols. Like it or not, data and analytics in this day and age drive value. If you want a premium value for your business, you must have them.
This does not mean you have to be a technological expert, only that you must access people and talent who are. These days, plenty of these folks are out there. Pest management businesses should have systems and protocols in place that allow them to most efficiently design and redesign service routes, input customer transaction data in real-time, sort this transaction data into meaningful analytics, and measure costs at numerous levels. Then, you must diligently manage the process for inputting data and, of course, use the data. Systems and reports mean absolutely nothing if they’re not managed and used properly.
 

Step 2: Executing the sale

Let’s move on to the process of actually selling your business. Many, if not most, business owners go through at least one failed attempt to sell their business prior to actually closing a deal. In addition, many of the deals that close end up being the ones that the business owner regrets for various reasons. Do whatever you can to avoid ending up in this lot. A failed transaction, either before or after it closes, can cost both financially and emotionally.

To maximize your opportunity to achieve a successful sale, I have two recommendations:

  • Hire a quality, experienced advisor to help you navigate the process. No matter how experienced and skilled you might be in selling or acquiring businesses, this move will almost certainly pay huge dividends. As a business owner, you have a heavy emotional investment in your business, which likely has been built up over many years. A good advisor facilitates business transactions like this every day, and will bring the valuable objectivity you need to secure the best transaction possible.
  • While it might seem counterintuitive, you don’t need to contact tons of buyers to generate the best deal. In fact, I would argue the opposite. There’s a fine line between too many and too few buyers, and there’s more risk with more buyers. Perception is reality in this regard, and if it is perceived that your business is being aggressively and widely “shopped,” it’s possible that interest will diminish. The best outcomes result when prospective buyers perceive the business owner has taken a deliberate and thoughtful approach as to who will represent the best pool of potential buyers. This absolutely can be done without adversely affecting the competitive nature of the process. Another benefit to this approach is that it’s easier to manage confidentiality, which should be important to every business owner.

For smoother sailing…

While there is much more that could be discussed to selling a business successfully, here are two more critical points to keep in mind:

  1. Timing is everything. It’s not necessarily important that you have a timeframe in mind for exactly when this event will take place. In fact, flexibility in this regard gives you strength in that it allows you to be able to take advantage of great market cycles and sell when the going is great. Remember earlier when I said some things are within your control and some things are not when it comes to successfully selling your business? The economic climate and market conditions at any given time are not within your control. If you have the flexibility to take advantage of a good market, you will be better for it.
  2. Start with good planning and prep work. You really do have the opportunity to almost scientifically construct a business that is exactly what the market that will pay you for it wants most. Don’t miss this important concept. If you nail the preparation part of the process, the sale itself will be far easier and the outcome much more satisfying.

Lance Tullius is a partner at Tullius Partners, an investment banking firm that specializes in providing merger and acquisition and financial/strategic advisory services to companies operating in select industries, including pest management. He can be reached at lance@tullius.com or 858-832-8043.

This article is tagged with , , and posted in Business, featured

Comments are closed.