Many pest control business owners started their companies from the ground up. They secured a truck; some needed equipment, materials and supplies; and along the way, they built a successful business. In the end, many pest control businesses will change hands. What can pest management professionals (PMPs) do to prepare to sell their companies and increase the value — and sales price?
You must consider many factors and take several steps before putting your business on the market. Making strategic decisions prior to selling will help you achieve the highest possible value for your company. Here are 10 tips to help you get ready:
1. Prepare early. Time is the friend of the seller. If you are in a hurry to sell, you will lose leverage, value and possibly control of the deal. When a business is prepared for a sale, everybody — buyers, sellers, customers and employees — wins and the process runs smoothly. A sale is all about details. You want to be able to demonstrate to any buyer that your business is well run with many best practices in place.
2. Separate family issues from business issues. When it is time to sell your business, solve any outstanding family problems in advance. Identify and address hidden family issues, such as:
- “Non-productive payroll,” wherein a spouse or child is on the company’s payroll but does not really work in the business.
- “Excluded assets,” which are personal possessions some sellers keep at their companies, but will want after the sale. Buyers see all kinds of personal possessions around the office — old cars, boats, pianos, memorabilia, hunting and fishing gear, etc. — that are not intended to be part of the sale. Help the seller by making your workplace free of personal items you want to keep.
- Clean up and restructure family expense habits, such as costs related to travel, dining out, memberships, etc. Doing so will help during the selling process, because it allows buyers to clearly see the financial strength of your company.
3. Articulate your company’s history, culture and vision. The ability to tell your story is important, and adds value to your sale. Helping the buyer understand the history of your company, the current culture and the vision will help put the buyer at ease.
- The history of your company really is important for the sale. How did you start out? Why did you start a pest control company? What milestones have you reached? How did you fund the start and growth of your company? Why are you selling? What will you do next, and why? Understanding your history will help buyers continue your business into the future. Be wary of a buyer that does not want to hear your story.
- For some people, “company culture” is a fuzzy term. Ask yourself: What are the values that drive my company? It is important for sellers to be able to articulate the culture of the company they are selling. It is equally important to the transition after the sale for the buyer to show interest in the company culture.
- What is the company vision if you don’t sell? While you clearly may be selling your company, it is typically important to most buyers that the seller stays engaged with the business all the way to the day the sale closes. To that end, the seller’s vision for the future and a history of consistent growth is important.
4. Ensure your company has a team in place. Sometimes it is difficult to remember, but you are selling your company, you are not selling you. In fact, in most sales, the seller will transition out of the business sometime in the first year after the sale. Most prospective buyers really want to see a team in place. Do you have a management team, or at a minimum, a strong supporting cast? Do you have a supervisor, sales leader, lead administrator, renewal coordinator and other competent employees? This is important because it indicates your business does not rely on simply one person: you, the owner/seller.
5. Keep control of costs. For an average pest management company, the majority of its costs are in payroll, fleet, and material and supplies. As you prepare to sell, it is important to stay focused on your controllable costs, and to try to keep costs down and profits in line.
6. Keep strong financial control. How often do you meet with and talk to your financial leader (certified public accountant, chief financial officer, accountant or others)? It is important to have a good financial person to guide you and your business, as is having strong financial control of the business. It also is important that the seller has a good understanding of the business. Simply being able to describe your business’ financial process and health is important; it will add value to the sale.
7. Understand your customer concentration. Residential? Commercial? General pest? Termite? Lawn? Other? It’s important you know. Also, what is the mix of your largest customers? The answer may be an indication of risk. Depending on business location, some customer concentration may be unavoidable. If you have signed agreements that take the customer relationships into the future, however, this certainly will help ease the buyer’s concerns.
8. Offer buyers a realistic forecast. Many buyers will value a seller’s business on future cash flows and/or future earnings. Ideally, sellers should be able to demonstrate a history of revenue and profit growth. Further, sellers should consider having a realistic forecast for their business. This shows buyers they are serious; it points to the credibility of the business, the quality of the business and the focus of the seller. Your financial leader should be able to produce a forecast for a minimal expense.
9. Working capital: Understand it, manage it and embrace it. In general, working capital is an indication of the health of your business. This financial metric represents the operating liquidity available to a business. Why is working capital important? If a company’s current assets are less than its current liabilities, a company may have a working capital shortfall — also called a working capital deficit — and that’s not good. This probably means the company cannot pay off its short-term debts, which also is not good. If cash from operations is low, then the company may be in financial danger. This is not a desirable position to be in when considering a sale.
Positive working capital is needed for a pest control company to be able to continue its operations. You need working capital not only to be able to pay off short-term debt, but also to cover unexpected expenses, make investments, and stay in business. The typical assets included in a net working capital calculation are cash, accounts receivable, inventory, and customer pre-paids minus accounts payable.
10. Consider seeking professional advice. Representation from seasoned advisors can provide you — and your business transaction or sale — with sizable savings and significant value. Guidance from experienced merger-and-acquisition professionals will help you build a team for your sale. Too often, sellers look at this as a pure expense. Why not look at it from the standpoint of how much more value to the transaction it can add?
This team includes, but is not limited to, CPAs or accountants, tax experts, attorneys who have conducted business sales and transactions, and other advisors to help you get ready to sell and represent you and your company through the entire selling experience. Each has a valuable role in the process of preparing to sell, and selling, your pest control business.
Preparation pays off
Selling your business will take time and planning. It is time-consuming and for many, it is emotionally draining, so preparing in advance helps. While understanding the value of your business as you venture into today’s hot market is critical, support from a seasoned team of professionals with acquisition experience can help you through the process. It also may be possible to receive free counseling from your local Chamber of Commerce, seminars, local workshops or internet research