With the recent flurry of activity in the collision repair industry, many shop owners are wondering if now is the time to sell. It is certainly better to be a seller when there are multiple buyers in the market, but simply trying to capture greater value for your business by selling at the right time will not prove to be a winning strategy. Here are a few tips for consideration if you’re currently contemplating a sale of your business
- Be Organized and Prepared. If you happen to get approached by a potential buyer, how ready would you be to provide the necessary information to enable the prospective buyer to evaluate your business and propose a purchase price. Do you have at your disposal historical financial statements and tax returns for 3 to 5 years? If your business is operated to minimize taxes (and don’t we all want to pay less taxes), do such activities reflect negatively on your financial performance? If so, have you tried to recast your financial results to eliminate these tax deferral strategies? Do you have a schedule of assets with both depreciated values and current market values? Remember, if you own your land the value may have increased significantly. Do you have a complete set of all contacts, leases and other material obligations? The key take-away is that the more you are prepared, the more confidence any buyer will have with your organization, which in turn should not only translate into a higher value for you, but also a quicker and less risky period from proposition to final sale.
- Is Your Valuation Realistic. It is human nature for you to believe that your business is better than all the rest. If you didn’t have such a belief, you’d have sold out long ago. So how can you objectively determine a fair value for your business? The answer is to look for certain quantifiable and comparable metrics between your business and other recently sold businesses. For example, another collision repair facility across town sold for $1 million. It had sales of $2 million and operating profit of $500,000. So in other words, the buyer paid 0.5x for revenue and 4.0x for operating profit. Takes those metrics and apply them to your financial statements. How much different is your expected value compared to this comparable transaction value? If you’re low, then maybe your underestimating yourself. If you’re high, you better start outlining why your business should command a higher price. Remember, it is very likely that the buyer is going to have the same information about the sale across town, so be prepared to address your differences and why they make your business more valuable.
- Resist Selling Without Multiple Buyers. It goes without saying that a buyer likes to purchase a business without other buyers in the process. So if at all possible, when you are looking to sell your business, undertake a process where you will have the chance to receive multiple bids — or at least make it appear to your most likely buyer that you have alternative offers / buyers . This also means that you should probably try to consider selling your business not when you have to but when you want to. We like to sale that the appropriate time to sell is when you have a BATAS — Best Alternative To A Sale. In the end, you do not want to be pressured to accept a sale but rather be excited to have reach an agreement to sell.
- Consider Help. You know how to operate a collision repair facility but you’ll probably only sell a business once in your life, so consider hiring a person with experience selling a business. Hiring a professional comes with a cost and you should consider the value added, but in general a good professional can manage a process to maximize value for the client. Any professional should be capable of providing you with data from comparable transactions to properly value your business (and drive value higher when a buyer looks to low-ball), create a dynamic process with multiple buyers, and take the lead in negotiating with the potential buyer. A true professional will keep a sale on track when the inevitable questions and concerns come about from both you and from the buyer. Plus a professional will be willing to set a fee based in part upon the value realized for you. True professionals structure their compensation with only a modest fee if a deal closes, but they will earn more-and-more the higher-and-higher the sale price goes. This compensation arrangement is important to align your interests with your representative.
One person once said that you should approach the sale of your business just as you would approach the sale of your house. Get your home prepared for the sale, hire a real estate agent, establish a price that is fair to you but also reflects recent home sales in your neighborhood and conduct at least one open house to gauge the prospective interest in your property. Then when you have a buyer identified, work quickly to reach the finish line.
Clearly a hot market puts the wind in your sails for success, but only with proper preparation complemented by an orderly and professional process can you cross the finish line at record pace!