How to Sell Your Service Business
McKinsey explains that the coronavirus has been particularly difficult for service businesses that rely on in-person interactions with customers. How does your firm meet customer expectations, while also following health guidelines?
Consumers place a high value on reliable service providers. When they find that great doctor, dentist, attorney, or auto mechanic, they may stick with them for years. The best service businesses have adapted to serve customers during the pandemic.
Most people find service providers by asking for a referral. If you provide great service, you may be able to build a profitable business through word of mouth alone. Your ability to serve clients generates sales and profits, and selling a service business can be challenging.
Managing a Successful Transition
You need a plan that allows the purchaser to maintain the bulk of your customer base, and that may require a transition period. A dentist, for example, may bring in a second dentist who will eventually buy the practice, and takes on clients over time. As the customer base gets more comfortable with the new dentist, the founder reduces his or her patient load and eventually retires.
In these transitions, the new dentist may pay a portion of the purchase price upfront. The remainder of the sale price is earned-out, based on the amount of revenue the practice generates each year from the customer base.
A service business transition helps to reduce employee and customer concerns, and the buyer is also more likely to retain clients over time. The seller may also retain a minority ownership interest for a period, then sell the remaining interest at retirement.
If you have long-term contracts with clients, you’ll need to discuss the sale with each customer and create new contracts with the buyer.
After you consider how the business can be transitioned to a new buyer, think about your value proposition.
What makes your business valuable?
Assess your business and determine which of these traits apply to your company:
Uniqueness in the market
High-performing service companies offer a positive experience to customers. The best service providers do something unique and different from their competitors which increases client retention.
Financial track record
Changing customer preferences require businesses to adapt. A firm that can generate consistent profits and cash inflows- while adapting to change- will stand out from others in the industry.
Recurring revenue streams
Consider this quote from the Harvard Business Review: “Depending on which study you believe, and what industry you’re in, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one.”
Valuable companies generate repeat business, which leads to a consistent stream of revenue. The doctor or repair shop that keeps customers coming back is building a valuable asset.
If your service business has some of the traits explained above, you may decide to explore a business sale. There are several steps you can take to prepare for a possible sale.
Preparing Your Service Business for a Sale
Take action on these issues so that your business is well positioned for a sale.
Analyze your company operations, and document all routine tasks in a procedures manual. Using a manual reduces confusion about each task, and serves as a training resource for your staff.
Assess your accounting system, and use technology to save time and to produce accurate financial statements. Use software to manage accounting, invoicing, and other routine tasks.
Your managers produce value because they make smart decisions to grow sales and profits. If there’s a gap in your organization that is holding you back, find a manager who can fill the position. Delegate more of your management tasks to your team.
Review your contracts with partners, employees, vendors, and customers. Many of these agreements must be changed if you sell your business. Find out where your contracts stand now, so you can make plans for an eventual sale.
If other people in your business provide services and generate customer loyalty, they represent a big portion of your firm’s value. Create incentive compensation plans for valuable employees so that they’re motivated to stay after a business sale.
A business sale requires careful thought and planning, and a business broker can be your trusted advisor along the way.
Work With a Business Broker
How can the purchaser have confidence in a successful transition? The answer is a key component in your business sale, and you don’t have to solve the problem on your own. Hire a business broker to help manage the challenges of selling your service business.
A broker with experience selling service firms can plan a successful handoff to the buyer. The transition may require a gradual shift of clients to the buyer, and you may need to agree on a revenue sharing arrangement. Most importantly, the broker can make the case for a sale price that fairly compensates the seller.
Work With a Trusted Advisor
The brokers at Raincatcher can take on many of the business sale tasks, and help you make informed decisions along the way. You’re busy running your business, and a broker can focus solely on the issues related to the sale. Our professionals will keep the process on track, and lead you toward a successful business sale.
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