How to prepare a service business to sell

So you’re ready to sell your service business? You’ve done the hard work of building a sustainable business, and now it’s time to reap the rewards. But selling a service business isn’t as simple as just listing it on Craigslist. If you want to get top dollar for your company, you’ll need to prepare the business with these strategies.

At Phlash Consulting we partner with local service businesses, and some of our clients have sold over the past 2-3 years for 7 and 8 figures. We have been an integral part in their sales pitch and transition game plan with the new owners.

Here are some of the tips we have learned through these experiences:

Prioritize Profit in the short term (EBIDA)

In the short term, you have to be thinking about showing a strong profit number over the last 1-3 years. The technical term is Earnings Before Interest, Taxes, Depreciation and Amortization (EBIDA). It’s a measure of profitability and cash flow.

To figure out your EBIDA, start by calculating your net income for the last 12 months. You can use QuickBooks or whatever system you use for accounting purposes to get this number. Then subtract from that amount any interest payments on loans or credit cards; depreciation on equipment; inventory purchases that have not been sold; and any other expenses you may have incurred along the way that were non-cash items such as depreciation or accrued taxes.

Typically when prospective buyers are evaluating a business they are looking at the EBIDA or profit and establishing a “multiple” of that number that they would offer to buy the business. We have seen multiples of 3-15 times EBIDA for service businesses.

One thing to note, most prospective buyers are looking to buy a revenue producing system, not a job. If you do not have a predictable profit number, it may be difficult to sell the business.

Build a predictable marketing system

In order to sell your business, you’re going to need a sales and marketing funnel. Prospective buyers want to buy a company that has a system for attracting, converting, and delivering a service or product to customers.

Buyers do not want to buy a company that hinges on one person’s ability to sell or close. It is critical to build a system that attracts and converts leads without the owner involved, because if the owner is removed then the system breaks.

At Phlash Consulting we focus on implementing a sales and marketing system in local service businesses that allows them to increase revenue and keep their schedules full without the owner’s involvement.

We focus specifically on 3 core components:

1. Visibility
2. Conversions
3. Retargeting

Build Your Digital Brand & Reputation

We hear it all the time “We are the best company around”, but does your digital reputation say that? Building a brand and reputation that is not synonymous with the owner of the company is crucial to having a sellable business.

Several ways to build a strong digital brand:

1. Google reviews
2. Yelp Reviews
3. Upgrade your website
4. Build strong digital assets

Companies looking to sell should focus on this to get top dollar for their business. A lot of prospective buyers are looking to buy a business and literally do this for them. Why not do this before selling to maximize profit?

Document standard operation procedures

Standard operating procedures are the guidelines a company uses to ensure that each employee follows the same procedures when performing a task. For example, if you have your employees follow an eight-step process for handling customer complaints, this is one of your standard operating procedures.

Another example is if you have specific steps to complete a service you offer, it is important to have these systems documented for the next owner.

Consider Digital Assets

Before you start selling your business, there are some things to consider. One of the biggest is what assets (both digital and physical) you want to keep for yourself and which ones you would like to sell. Digital assets include things like your website, social media accounts, digital contracts, and email lists. Physical assets may include office space, equipment and furniture.

Types of people that will buy a service business

You may be wondering who will buy your business. Here are some of the most common buyers:

• Investors. These people want to invest in a service business because they can see themselves growing it and having it generate income for them. They don’t need to manage the day-to-day operations, as they are seeking passive income from the investment.
  • Private Equity
  • Search Fund
• Entrepreneurs looking for an established company with a proven track record that won’t take much of their time or energy to run during its first few years of operation (until they’ve built up their client base).
• Business owners who would like to have an expert adviser on staff during their transition period into retirement or semi-retirement (e.g., doctors who are selling their practice).
• Family members that have grown up around your business and know how everything works inside and out (e.g., children taking over their parents’ flower shop).

Things to consider when selling your company:

• Do you want to stay and work in the business?
• Will someone come in and run the company and you will be gone?
• How long will the transition process take?
• Will there be any earn-out bonuses to ensure the new owner is successful?

Help preparing to sell your service business

If you are considering selling your business in the next 2-5 years, we know what it takes to set your business up for success. We have gone through the acquisition process with several companies and even sat in on their sales pitch meetings to explain their sales and marketing strategy. Schedule a free 30-minute strategy meeting with us and let’s discuss your business and goals.