Credit: Mark Robert Halper
Since selling my remodeling business in 2004, I’ve been asked by many remodelers for insights into how they might sell their own companies. There’s no one-size-fits-all answer. Each business is unique and each prospective buyer is looking for unique characteristics.
Regardless of your time frame, start planning your exit strategy now. Pinpoint what needs to happen to make it sellable. The idea, in fact, is to always be getting your business ready to sell. If you do it right, not only will it be worth buying but it will be worth keeping: You collect the net profits while someone else manages the day-to-day.
Begin by writing an ad that describes the company you hope to sell. List the positive characteristics it has as well as those you’ll need to develop.
Here’s what I might have written for my company:
For sale: 14-year-old, award-winning, employee-managed design/build remodeling company with strong margins and high net profit. Advanced, industry-specific, computer-supported business systems. Low employee turnover, long list of referring and repeat customers, great location. Ripe for expansion. Full financial history, business plan, and budget available for review.
TWO TYPES OF BUYER
Also consider the potential buyer. The investor-buyer will want a business that pretty much runs on its own and needs little of his or her hands-on attention. Specifically, he’ll want: proven, documented systems and best practices; technology that predicts and measures business activities, and a great team of self-directed employees who work well together and embrace the systems.
The investor-buyer will also want someone else to run the company, so I suggest you transfer leadership and day-to-day management to an employee over a period of time, testing and proving his/her effectiveness in advance of selling.
Advantages of selling to an investor can include a high price and his likely ease of finding financing. On the flip side, the investor pool might be limited, as other business options, traditionally, offer a higher and safer rate of return.
The owner-operator buyer type is often an entrepreneur who wants to jump right in and run the business. He’ll also want steady profits, a strong customer list, and growth potential. And, though he’ll want systems and staff to be in place, he might very well make changes. For that reason, I suggest you assemble employees who will go with the flow and follow the leader.
The owner-operator business model may not command as high a price as the investor model, but it will probably give you more potential buyers from which to choose.
MY HYBRID MODEL
The sale of my business was in several ways a hybrid of the two models described above. My buyer was my general manager, who had many years of practical experience with the company’s direction, growth, and daily management. My terrific team liked and respected him, and the gradual transition time helped us all feel good about my eventual departure from the business.
Together, my general manager and I agreed on a selling price that was profitable for both of us, based on a multiple of earnings and the fact that the business was well-established and steady. We set the price high enough to make it worth selling, instead of keeping it and collecting the net.
But to make the sale happen, I had to provide the financing. I saw this as a risk worth taking, as the buyer had proven his competence and commitment to not only preserve the business’ strengths but to grow in a strategic and manageable way.
What model best describes you and your business? What changes can you make to strengthen your company’s appeal to its best-suited buyer?
—Shawn McCadden founded, operated, and sold a successful design/build remodeling business. A co-founder of the Residential Design/Build Institute and former director of education for a national K&B remodeling franchise, he frequently speaks at industry events and consults with remodeling companies. email@example.com.