When we started our pest control company, Bug Doctor, 27 years ago, it didn’t take long before we learned we were building a valuable asset. We were only in business a few years when prospective pest control companies began sending attractive letters of interest to purchase our company.
But it wasn’t until a close friend and colleague sold his company that we began to entertain the idea for our business. The saying “It’s all about timing” would be an understatement. If you’re wondering whether the time is right to sell your company, consider these key factors:
1. Revenue growth. Some think the best time to sell is when your business is on the decline. It’s actually the opposite. You want to sell when your business is growing and the future trajectory of this growth can be established. In our case, we were coming off three years of solid growth with an upward trajectory of total revenue. Our recurring revenue was also at an all-time high. Remember how Derek Jeter from the New York Yankees retired when he was on top of his game? That’s the way to do it.
2. High profitability. Investors and industry buyers want to see high levels of operating cash flow. Ensuring efficient route density in small geographic areas and appropriate pricing can translate into greater profitability.
3. Competition and differentiation. What sets your company apart? What is your competitive advantage with regards to technology, marketing, branding, and service offerings? When these are solidly in place, purchasers will be drawn to the unique edge that sets your company apart. In our case, we individually branded each division to appeal to various demographics. Also, by adding a bird division 10 years after the inception of Bug Doctor, the entire trajectory of our company changed significantly — and increased value, demographics and business opportunities. Buyers also look for a good cultural fit and strong management and field staff.
4. Market conditions. What are the multiples, or current value, of your company? It’s ideal to sell when the market conditions drive the multiples up. You may pass on an opportunity to sell, hoping the multiples rise — only to work another 10 years and end up selling for the same price, or even less. Of course, there’s no way to predict market trends. In addition to the market conditions affecting the multiples, your company’s growing revenues, profitability, and differentiation also will drive up the multiples, providing a perfect time for you to sell.
STUART AUST is president and DONNA AUST is chief editor and consultant of The Aust Group, a mergers and acquisitions consulting firm based in Upper Saddle River, N.J. Stuart is also a PMP columnist and former owner of Bug Doctor and its affiliates. He can be reached at firstname.lastname@example.org.