Starting the Next Chapter When You're Good and Ready

November 8, 2010
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We all want to leave a legacy that will live on without us. For those of us who are dyed-in-the-wool entrepreneurs, the focus (and our joy) is on creating a valuable business. Of course, it would be a shallow viewpoint indeed to define anyone’s business (or even worse, their life) only by the amount of money they have piled up. Even so, achieving financial freedom brings exactly that: the freedom to live the rest of your life exactly the way you choose.

Sadly, when retirement looms, many carpet cleaners discover that, while they have always made a good living, their business is not really a saleable entity. In my last two columns I shared six steps to create a “constantly appreciating asset” out of your company:
  1. Determine the current value of your company using an Initial Business Valuation form.
  2. Steadily increase your net profits by a) cutting your overhead, b) getting more efficient, or c) raising your prices. Better still, do all three.
  3. Recruit/develop/keep really good employees.
  4. Build a business infrastructure that will make your employees’ jobs easy.
  5. Create a “beautiful” business that will help your buyer “fall in love.”
  6. Develop a timeline for when you want to sell your business.
Let’s assume you’ve successfully completed all these steps. Congratulations! You now own a smoothly functioning cash flow machine that will be a joy to run. So now you are all dressed up; you simply need to know where to go next.

Gingerly Start the Networking Process

Marketing any small service business is a delicate and, at first glance, contradictory process. On one hand, you want to throw your net as wide as possible to attract the greatest quantity of qualified prospective buyers.

However, remember that, once customers and employees hear your company is up for sale, they will be tempted to desert in droves. So your goal is to maintain confidentiality as long as possible in the sales process, and a third-party broker will help in this.

For selling a cleaning business of any size, I strongly recommend the services of a local business broker. These experts know local market conditions and who might be out searching for a profitable small company your area. And as I explained last month, it is extremely unlikely you will sell your business to another carpet cleaner.

Note: There are a lot of unethical, fly-by-night business brokers out there on the Internet that prey on downtrodden business owners desperate to unload their company. So just like any other big transaction, insist on local references that you personally verify.

The key word here is “local.” Few carpet-cleaning operations are going to be big enough to justify national exposure (one exception to this might be if you live in a very desirable area that would appeal to a down-sized corporate executive looking to “semi-retire.”). Almost always, you will sell to someone who is already established in your area.

A broker will also be able to more accurately value your company than you can. Even better, a local broker will be a third party that can keep things on track and mediate through the often emotional sales/negotiation process. However, you must also bait the hook and…

Develop a Sales Package

People have a hard time buying any service because it is “intangible.” In other words, they cannot pre-experience a service by seeing/tasting/smelling/testing it before the purchase.

Guess what? As a carpet cleaner, you will be selling a service business, and much of the value of your company is based on the intangible services you perform. So any way in which you can make your company “more real” to a prospective buyer will help close the deal.

Do this by preparing a sales manual profiling your company. My sales manual was a three-ring binder almost four inches thick. It contained photos of our people, trucks, office and sample accounts, along with our fast-track training outlines and employee handbook, sample advertising, customer testimonials, accounting procedures and financial reports, and the certified valuation appraisal of my company.

Usually, you and your local broker will market your business with a five-step process that pre-qualifies a business prospect at each stage:
  1. General marketing – Your broker puts the word out that there is a local service business for sale with a long record of increasing profits and a very loyal client base; neither the specific industry nor the business name is mentioned in the very general profile. He or she will pre-screen the prospective purchaser and, if there is serious interest, they will move to a…
  2. Business profile – This is a “business at a glance” outline that maintains your anonymity but shares your general business type/size and financial volume, net profits, owner’s adjusted cash flow along with industry averages. If the prospective purchaser is still interested, the broker will move them to the…
  3. In-depth sales manual, business analysis and appraisal – Before your broker reveals this confidential document, they will request a personal and business credit report on your prospective buyer and also require them to sign a legally binding confidentiality agreement. Your broker will decide if the buyer has the financial clout and skills to buy and run your company. If the decision is yes, your broker will meet with the prospect and review your financials in-depth. At this point, the buyer will likely bring his or her financial and legal advisers into the picture. Once everyone has signed off on the basics, you proceed to the…
  4. Courtship – The “getting to know each other” phase. Buying a small service business is more of an emotional, lifestyle-related decision than a financial one. Your prospect must feel good about the momentous step of “buying your life” and it is your job to make him or her feel good about it! (A note of caution: with all these good feelings ricocheting around it is easy to “gloss over” any problems or issues facing your company. Don’t do it. Failing to disclose things will come back to bite you later, big time!). Even at this late date, it is still possible to maintain confidentiality. For example, when I gave my prospective buyer the grand tour of our company at work I simply introduced him as “a friend of mine from California,” and, by that time, he was. Except for a few managers, we kept the business sale seamless and secret right up ‘till I informed my employees on the afternoon we closed the sale.
  5. Final negotiations – Exactly as it sounds. Just like purchasing a house, the buyer puts down a deposit in certified funds contingent upon specific conditions being met. A good business broker will shepherd the process along, serving as a mediator between all parties concerned. If both sides want the sale to happen, it will. And once everyone is in agreement, there is one more step in the process…
Closing! Also known as freedom! That’s right: this is where you cash out from a lifetime of hard work and start enjoying the well-deserved fruits of your labors. You are closing one chapter of your life and entering another one: congratulations!

You have worked hard, you have played hard and now you are going to clean up big time, because you have built a “constantly appreciating asset” out of your carpet cleaning business!

Author’s Note: My “Initial Business Valuation” form is downloadable at http://tiny.cc/SFSevw

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