Build It For Sale
How would you like to have a garage sale, and find out an old painting you had inherited and stored for years was really a rare masterpiece worth a million dollars? That would be like winning the lottery. Free money - and lots of it.
I am not suggesting you hold a garage sale to discover millions in hidden treasures. However, many of us
have as much value hidden in our businesses without realizing it. Here's an update on my understanding of
the current climate for service businesses. We'll discover what has changed, and what we need to know to take
advantage of these trends.
Changes In The BusinessA few years ago, we never would have guessed that wholesalers and supply houses would be selling to the public. This change has knocked out our advantage in obtaining top quality fixtures and equipment for a wholesale price. No contractor's license required, now our customers can buy the same items at the same price.
If that situation isn't bad enough, who would have imagined that the huge home warehouse stores would be as widespread and successful, or offer merchandise to the public at or below wholesale prices? They didn't stop at selling the materials, now home stores offer installation and other service and repair jobs, too. Their prices are very competitive with extensive exposure in the consumer marketplace - they're everywhere!
Would you have thought that your local public utility would soon be your competitor in the service and repair business? They are. When utilities were deregulated a short time ago many decided to venture into service and repair. After all, they supply the gas or electricity for your appliances, so why not supply and service those appliances, too?
Can you imagine the power your company would have with a utility's access to virtually every household that purchased gas or electric power? In addition, utilities have an instantly recognizable name and reputation to a consumer. That's tough competition.
Worse, there are more contractors in business than in the past. With the economy up, people are buying and fixing up their homes. We are facing new competition every day.
As someone who has had personal experience in dealing with consolidators, I can assure you that even their effect on the marketplace is changing. At first, there were only a few consolidators - some of them failed, and some merged and grew. Now, there are more than 40 consolidation companies buying businesses just like yours. The movement that you have heard me describe is not only continuing to influence the market, it is growing rapidly.
Consolidators affect your business whether you are interested in selling or not. They have the resources to
hire, train and equip the best technicians with the most modern trucks, tools and business systems available.
As competitors, they are formidable. Plus, they start acquiring some of the best businesses in each city. When
they have joined several of the best service companies in any area, they settle into a position to control the
market in that city. This becomes a major challenge for individual companies to face.
Should I Sell?The fact that you may face new competition and a changing marketplace is certainly not reason enough to throw in the towel and quit. However, you may want to look at the way you operate your business and make some changes. To disregard consolidators as a significant force in the marketplace could result in your business getting left behind - or maybe even losing out on millions of dollars.
Let's look at the possibility of selling. People's perspectives on running a service business aren't the same compared to several years ago. Owners just aren't keeping the family business operating as they used to. Today, you can't count on selling the business to employees, or having a son or daughter take over so it continues to grow.
There is one primary advantage to selling - freedom. You can have the freedom to do what you want, when you want. No more daily worries about a million different things: employees, customers, overhead, etc. No more running on a virtual treadmill every day. But many business owners believe their business is not successful enough (or large enough) to be worth any amount of cash. If it's not, it could be.
A properly run business is worth more than you or I would initially guess. The key to value is running the business right. Any business that is not operated effectively, regardless of size, is worth very little.
I have found three, key items that consolidation companies look for: sales, profits and a management system and team. The good news here is that you can make positive changes in all of these categories.
Consolidators don't particularly want you. Yes, they need your expertise and insight to keep your business's momentum going, but that doesn't mean you have to stay around to run the show. A good management system and a good management team can operate the business on a level that is as profitable as it is now, or even at a greater level of profitability.
The consolidation companies have trained people to control expenses and costs. Since they typically
centralize the administrative functions of a business, keeping key personnel for administration is usually not
necessary. For example, one accounting department may be responsible for five or 10 businesses scattered
throughout a few states. The bottom line is you can go home and relax.
PlanningIf there is a four-letter word service business owners avoid it is "plan." Most owners I meet want to act; they'll try new ideas or techniques, but to get them to plan for the future is difficult. Planning is often a low priority item. However, it is necessary if you are going to maximize the value of your business.
Planning should include an exit strategy for your business. When are you going to want out, and how can you maximize the value of the business when you want to leave? Waiting until you are ready to leave is too late to influence the value of the business. Now is the time to start making those plans. The first step is to see what the business is worth, then build from there.
With houses, cars and other readily marketable assets, it is easy to find out what the value of the asset is; there are books and published documents that can quickly tell us what anything is worth. The situation changes, however, when it comes to businesses.
When you apply for a mortgage or a car loan, what do you put down on the financial form for the value for your business? Do you just list the assets and the liabilities? It should be worth more than that.
To determine if you (like the lucky person holding the garage sale) are sitting on millions of dollars, you need to schedule an evaluation. After the past few years of consolidations, there are now businesses that can tell you what your business is worth to a consolidator. Certainly it is worth more than the difference between the assets and liabilities, but you need to know how much more.
From my experience with the consolidation movement, I know how important this process is. I will be glad to refer you to some experts, but determining value is only the first step. Is there any business that cannot be worth more in the future through a little planning and changing in managerial techniques?
It takes about a year to improve your business' marketing focus and implement cost control systems that will maximize the value of a business. To accomplish this second step to success, you can join with other service business owners to see what has worked for them, and attend training sessions to see what you may have overlooked. This success-group approach has helped many owners prepare for the future and choose the right time to hand the business over to someone else.
But I wouldn't delay. You don't want to find out later you were sitting on millions.