Every contractor executes an exit strategy. Few do much planning. Those who fail to plan might discover their only option is to lock the doors and walk away. Here are six reasons your business might not be salable.
1. You are Too Essential
The number one reason a contracting business (or any business) is unattractive is dependency on the owner. If the business cannot operate without you, no one will want it. Could you take off for a month or two and return to a going concern? If not, you own a job and not a business.
2. Your Business is not Focused
Some contractors expand horizontally. The add plumbing, then electrical, then remodeling, and then they open a bait shop. Okay, maybe not the bait shop, but they lack focus. If someone wants a residential service and replacement company, they may not want your plumbing depart and certainly don’t want your new construction business. If there’s not an easy way to break these up, no sale.
3. You Have No Repeat Business
Buyers seek an ongoing revenue stream. That’s what’s valued. In HVAC, it’s most apparent in the presence of service agreements. Lots of service agreements makes your business more of a “subscription” business. Buyers love subscription businesses. Thus, companies with service agreements are not only more salable, they sell for more.
Buyers seek an ongoing revenue stream. That’s what’s valued. In HVAC, it’s most apparent in the presence of service agreements.
4. You are Too Concentrated
If too much of your business comes from a single source, such as a big box retailer or home warranty company, your company is probably too fraught with risk for someone to buy. Think about it. Who would want to buy a company when half of its business could disappear at the whim of a big box manager? Potential buyers will also worry about the relationships. Is your personal relationship with the big box manager the glue that keeps his business?
Moreover, when you support someone else's brand, you are not building your own brand. The greater the degree of concentration, the less the brand equity. Without brand equity, you are only selling a customer list.
5. Your Company is Too Large
Really small companies can often find another contractor to purchase them for a really small payout. The buyer is mostly acquiring a customer list. Once a company grows above the $5 million revenue mark, the business becomes harder to tuck in and more difficult for another contractor to afford.
6. Your Company is Too Small
Most of the consolidators and financial buyers will not look at your company unless you generate more than $8 to $10 million in revenue and/or an EBITDA (earnings before interest, taxes, depreciation, and amortization) of around $2 million.
How to Make Your Company Salable
No matter what condition your business is in today, it can become attractive after a few years of effort. Grow your business and your bottom line. To do that, you’ve got to market and build a brand. You need repeat business, which can come from a growing service agreement base. You also need to price right, which few contractors do.
Decide where you can make the most money and stay in that lane until you achieve a dominant market share. That’s a lot more than 5% to 10%, which few contractors ever achieve in markets with any population. Do not allow yourself to get distracted.
Build a management team so that the business can run without constant presence. Put document processes in place and identify and track key performance indicators. Not only will this make your business more attractive, it will make your life easier. Next time you replace an employee, you will not need to reinvent the way something is done. The new employee follows the processes and works on improving them over time.
Decide where you can make the most money and stay in that lane until you achieve a dominant market share. That’s a lot more than 5% to 10%, which few contractors ever achieve in markets with any population. Do not allow yourself to get distracted.
There’s more to it, of course. However, these are the essentials. Put your business in the type of condition where you can sell it, even if you do not intend to sell right away. A salable business is more fun to operate and, when the phone rings with a potential buyer, you will be ready.
For help growing your business, check out the Service Roundtable and the Service Nation Alliance. You do not have to go it alone. Help is available and these organizations specialize in helping contractors increase sales and profitability. Check them out online or call 877.262.3341.
