How do I sell my business? (and know what it's worth?) (fee, sales)

[madmoney]

I have a cleaning company, and I eventually would like to sell it. I have done some research, but it would be helpful to get more insight or if anyone has any experience doing this.


How do I price the business effectively? and then sell it?


Thanks for any info.

[madmoney]

Also, are there any hints of the peak? Or the best time to sell a start-up?

[sunsprit]

A service business with little investment in equipment or hard goods/supplies inventory is typically valued based upon it's annual cash flow gross sales and net profits.

Typically, a multiplier factor is applied to your net profits to establish an asked price, and will vary greatly by what you really have to sell. If your service business is a new start-up, then it's not got a lot to sell ... whatever the FMV of the equipment/supplies is worth, and the "blue-sky" of potential business income you've secured to date.

If, for example, you've built up a company with a workstaff, sales rep(s), and management employees that will stay with the company and a new owner, then you have a significantly more valuable service business to sell.

If, for example, you've built up a small owner-operated service business having a couple of cleaning contracts with yourself as the prime sales rep, supervisor, manager, office manger, and just a couple of employees or part-time workers with no appreciable loyalty to the company (high turnover hourly paid employees) ... you really don't have much to sell except the marginal value of your service contracts, equipment, and supplies.

If you don't have contracts, but have continuous service work of some sort, then your business has little more value than the replacement cost of the equipment/vehicles and supplies on hand. In other words, you'd be selling a new owner a lot of "blue sky" business opportunity and some connections you might have made on your personality and sales skills. When you leave, what has the new owner got? If all he's really bought is an opportunity to a job, then he hasn't bought much more from you than he could buy from the same sources you got your equipment and supplies from .... and your business isn't worth very much.

Certain franchises, properly capitalized and marketed, may have a good market presence and the ability to capture contracts in a marketplace that some competitors may not be able to get. Again, the real value of what you have to sell is having put together a durable business with a permanent staff that will remain when you leave.

Otherwise, you don't have much to sell .... even if you've made good money along the way.

You can consult with a "business broker" in your area who may be able to list your business for sale ... like a real estate broker, they work for a fee percentage of what they can sell your business for. You'll find that most of them will attempt to buy your "business listing" by quoting you a very high valuation for your business. If they can get that much for it, so be it. In my experience, if you don't have a durable business and assets to sell, they cannot get the sales asked price ... I've bought three businesses where the owners were in distress situations (bad health, retirement age, etc.) and were listed with a business broker at absolutely unreasonable asked prices. I made offers based upon what tangible assets remained when the owners left the business ... in one case, for 5% of the asked price that had been in the market for over two years; the seller was happy to accept that money and be out of the business, and I got a fair deal for what assets I bought.

You can sell your business through many ways ... the broker, an ad in the paper, networking with others in the business, possibly to an employee (with some assets), or to a competitor. Ideally, you want to "cash out" with this type of sale. If you finance most of the deal, and the buyer is expecting to pay you from their future earnings/cash flow ... you are essentially still in business with your buyer; if they cannot operate the business profitably, then you're looking at being back in the business when they default.

Good luck on building up a business with some real value that you can sell for what it's worth.

[missyM]

That is very good advice. In defense of "buying listings", with a commercial listing especially, if I were the agent, I'd rather start high so as to not leave $$ on the table.
An alternative to cash-out, I would think, is to look at monthly income. Is the profit going to spread as far as a payment to the seller, and profit for the new buyer? If not, then the price is probably too high.