Are you ready to sell your painting business?
You’ve spent years, perhaps decades, making a name for yourself on the local or regional contracting scene, but now you think it might be a good time to sell. Maybe someone has expressed interest—or you’re considering retirement or another business venture.
Most business sales can close within a few months. However, Peter Holton, managing director with Chicago-based Caber Hill Advisors explains that only about 20% of all businesses listed for sale will ever actually sell.
The business consultant has seen enough deals fall apart and says most of the time it’s because of unrealistic expectations on the part of the owner. Before you consider selling your painting business, consider these three important things about your company:
Placing a value on your company can be a tricky process and a good analysis will take far more into consideration than recent sales. No one, however, bases the value of a business on projected future sales, according to Steven Denny, owner of O’Fallon, Mo.-based American Business Network, LLC. It’s a common misunderstanding for sellers though.
“A buyer never buys based on future potential. Unfortunately, sellers often think they do,” Denny said.
Denny says valuation numbers are usually tied to a multiple of EBITDA (earnings before interest, taxes, depreciation and amortization). To calculate earnings performance, or EBITDA, an analysis will look back at several years of revenues. For smaller companies, that figure can include the owner’s take-home pay, taxes paid, interest paid on debt, asset depreciation, and even some of the owner’s personal expenses that are paid by the business.
Most owners, however, are disappointed at valuations, both Holton and Denny note. Ideally, Denny adds, a person starts to prepare to sell three to five years ahead of time and uses that first valuation as a starting point for building sales and implementing systems to make the company attractive to buyers.
It’s one thing to be the face of the company from a marketing perspective, but if your contracts hinge on your personal involvement, then you are probably harming your company’s value, Denny added.
Beyond number crunching, business advisors will often take a deep dive into operations to see what really makes a business tick. You need to be able to hand the company off to someone else who can ink the contracts with the personnel and systems in place, instead of leaving them high and dry with clients who won’t do business with them because you yourself are no longer running the company.
“This is a difficult concept for solo practitioners to understand,” Denny said.
ARE YOU READY?
Selling a business can be an emotional experience. Some owners simply are not ready to do it, Holton says.
“We’re taught to take the emotions out of business, but this does not happen; it is emotional,” he said.
Some owners may want to retire but, realistically, they can’t retire financially, Holton adds.
“Sit with your retirement advisor and figure out where you need to be. The big question is ‘can you afford to move on?’”
To learn more about selling your painting business, read the full feature article in the upcoming June/July issue of inPAINT magazine: inpaintmag.com