Sell a Service Business

A lower middle market business owner in California may sell their service business for several reasons. It may be because you plan to retire or feel you've done your part in your service business, and it's time to move on. Or maybe you're considering a new investment and want to sell to free some capital.

If you’re a lower mid-market company looking to sell a service business company for the best price, but you're not sure how to sell a business in California, here are a few essential points and business selling tips to consider. 

How to Value a Professional Service Business

Selling a service business requires some planning. A clear understanding of what those taking over your business believe to be essential assets in driving the company's value is key. 

When valuing your professional service business, consider the following:

Step 1: Value of Existing Clients

The first thing that most people look at when figuring out how to value a professional services business is the value of the existing clients. Customer relations are so important that they account for 38% of company value on average. 

Some of the factors that influence customer stability include:

• The solidity of customer relations.
• Excess margin.
• How independent the relations from influential persons are.

To secure customer value, a firm must put non-compete and ESOP (employee stock ownership plan) arrangements in place. Doing so ensures key individuals don't exit with some clients.

Step 2: Reputational Value of the Trade Name

Although the trade name is unimportant, its reputational value plays a key role in “replenishing” relatively recent customer relations. 

The reputational value of the trade name is helpful in the following ways:

• It helps in creating future customer relations
• It helps attract more and new talents and skills to the business.

Note that, on average, the trade name accounts for 4% of business value. And once the acquirers come in, they may either maintain the name or replace it after some time.

Step 3: Value of Tangible and Other Intangible Assets

Most other intangible assets account for a meager 1% of the firm value. Examples of intangible assets include agreements yet to be complete and software.

As for tangible assets, these comprise a more significant percentage of receivables and liquid financial assets and less fixed assets, such as company vehicles and office equipment. These account for about 20% of an enterprise's value.

Goodwill is another vital asset to consider. It accounts for 45% of the company's value.

Professional service firms need to ensure key individuals don't leave. Doing so is vital for ensuring the enterprise keeps running at the current profit level for a long time. 

Therefore, if you want to sell your professional service company at a high price, you must have clear measures in place to retain key staff.

Increasing Business Value of a Service Business

Most people don't start a business to sell later. They're motivated by that urge to remain self-employed to build a sustainable business. 

However, as Michael Gerber puts it, the only reason you should worry about how to increase company value is to sell it and at top dollar. So, how does a company create value? 

Before you can sell your service business, consider the top five ways to help increase business value and your selling price:

• Offer something unique or add more services.
• Be able to operate the business from anywhere: Flexibility attracts more buyers and has high demand.
• Have a high recurring monthly revenue stream.
• Have a solid team of managers.
• Have readily transferable customer relations.

Building a Business to Sell

Right now, the market is full of Baby Boomer businesses for sale as owners retire, so buyers have no shortage of choices. You have to create a business that stands out from the crowd.

To build, grow, and sell your business at its peak, consider the following tips:

• If your industry or market is growing, ensure you expand your service business.
• Get new customers. Also, know your existing customer base and what they want.
• Improve your online presence.
• Identify what makes you different and work on strengthening it.
• Branding means a lot. It's what identifies your business to your customers.
• Have a strategic plan in place for today, tomorrow, and the future.

Consistently growing and improving your service business can significantly build on an enterprise's value.

Prepare to Sell Your Service Business

Preparing to sell your business is not a single-day affair. It requires a well-thought-out plan, and you must cooperate with lawyers and other professionals who can make the sale a success.

However, these preparations are mainly dependent upon the size of the business. If you have a company to sell that's small, you can probably sell it yourself. On the other hand, medium-sized enterprises may require engaging the services of a broker, and for large companies, the assistance of an investment banker goes a long way. 

Preparing a business for sale checklist can help:

• Update your business plan.
• Look for ways to increase profitability to make the investment more attractive- Your finances should be in good shape.
• Prepare the business so that it can run smoothly without your involvement.
• Build a loyal workforce that the new owners will be comfortable working with.
• Identify your assets, both tangible and intangible.
• Ensure your customer base is happy and satisfied.
• Have a timeline in place.
• First, know the type of businesses that may be interested in acquiring your service business.
• Then, create a list of several specific firms in each of the categories you've established.
• Analyze these companies based on their strengths and weaknesses
• Put yourself in the shoes of the buyer. It'll help if you compare several factors and set right or raise your business market value.
• Know the value of your business so anytime an offer comes in, you can engage the prospective buyer.
• Build a list of several business owners or CEOs who might want to acquire your firm. Then when you receive an offer, you can call them politely to ask if they would like to bid. A bidding competition is the best way to get the highest price.

Engage an M&A Broker

M&A brokers, also known as M&A advisors, help business owners value and sell a business at the best price and highest standards. They assist as you prepare to sell your business and handle the transaction until it's complete.

An M&A intermediary specialized in the business services industry usually help you determine how to price your business for sale, after which they take it to the market and help you find qualified and serious buyers. Additionally, working with an M&A broker brings a lot more benefits, including:

• Help with obtaining a more accurate estimate value of your business.
• They show the company to prospective buyers on your behalf.
• They assist with negotiations with buyers, leaving you to concentrate on running the business. It's what you do best anyway.
• Help with executing an exit strategy, ensuring it flows smoothly and remains on track.
• They keep the confidentiality of the sale. They're your secret keepers who ensure neither employees nor competitors know the business is for sale.
• Finally, they ensure the transaction is successful and that you get the best price for your service business.

Takeaways

Selling a service business can be daunting, especially for the business owner. However, if you employ the five tips on increasing the value of your business, positioning your company for the acquisition will be easier. 

Proper timing is also key to ensuring you get the best deal when selling your professional service company. And as mentioned, a merger and acquisition broker or advisor comes in handy in helping value the business and sell a company at the best price.

If you are a retiring business owner looking to exit your lower middle market service business in California, here are six tips to get you started:

1. Don't wait until the last minute to start planning your exit. The process of selling a lower middle market service business can take a long time, so it's important to start early.

2. Have a clear idea of what you want to get out of the sale. Know your goals and what you're willing to negotiate.

3.  Know what's your company's worth. This is an essential step to take when planning to sell your service business company in California.

4. Choose the right type of buyer. Not all buyers are created equal, so do your research and find the right one for your business.

5. Be prepared for a lot of due diligence. M&A buy-side due diligence is when buyers will want to know everything about your business, so be ready to provide documentation and answer questions.

6. Be flexible with the terms and conditions of the deal. It's important to be open to  negotiation to get the best possible deal for your business.

Rogerson Business Services, also known as, California's lower middle market business broker is a sell-side M&A advisory firm that has closed hundreds of lower middle-market deals in California. We are dedicated to helping our clients maximize value and achieve their desired outcomes. 

We have a deep understanding of the Californian market and an extensive network of buyers, which allows us to get the best possible price for our clients. We also provide comprehensive support throughout the entire process, from initial valuation to post-closing integration. 

Our hands-on approach and commitment to our client's success set us apart from other firms in the industry. If you consider selling your lower middle market service business, we would be honored to help you navigate the process and realize your goals.

If you have decided to value and then sell your lower middle market service company or still not ready, get started here, or call toll-free 1-844-414-9600 and leave a voice message with your question and get it answered within 24 hours. The deal team is spearheaded by Andrew Rogerson, Certified M&A Advisor, he will personally review and understand your pain point/s and prioritize your inquiry with Rogerson Business Services, RBS Advisor

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More Tips to Help Sell a Lower Middle Market Business Services Company