At The Count Of 10: Valuing Your Business

1. Timing is everything. The best time to sell your business depends on a variety of factors: market demand, interest rates, current business performance, overall industry performance and your personal reasons for selling what is probably your most valuable asset. While all of these factors influence the market value of your company, the single most important factor is your company’s performance. If your business isn’t operating at its peak, you won’t get a premium price. If your business is operating at its peak, now is a great time to consider selling.

2. Evaluate your business through the eyes of a buyer. Buyers typically have strategic reasons for making acquisitions, such as expanding geographically, increasing market share or consolidating administrative overhead. An astute buyer also has determined the criteria your business needs to meet before he or she buys it. Knowing what those criteria are - and how you stack up against them - can add thousands of dollars to the final selling price of your landscape business.

3. Know what your business is worth before you go to the negotiating table. The average sale price ranges from about four to six times earnings before interest and taxes. The better your company performs when compared to industry standards, the higher the multiple. And increasing that multiple means big money. For instance, a recent valuation I made for a client showed that he could expect anywhere between $1.3 to $1.9 million for his business.

4. Prepare your business for sale before you are ready to sell. Position your business for maximum return and take full advantage of its market potential. Top priorities for buyers include increasing revenue and customer base and earnings increases of at least 20 percent annually before owner’s compensation. Buyers also will expect your business to meet industry guidelines for payroll and have minimal long-term obligations (i.e. Yellow Page advertising, leased office equipment, real estate rentals, etc.).

5. Remember the old saying, “Only a fool represents himself.” You’d never dream of selling a house or car without help from a professional. Selling a business is even more complex. You will absolutely need an accountant and an attorney well versed in transactional contracts - not necessarily the professionals you use for day-to-day assistance. Business brokers and consultants can provide valuation services, help market your business and guide you through the sale on either an hourly or flat-fee basis. Shop carefully for the professional whose services best meet your needs and make sure you have a written contract that details the scope of services and the fee.

6. Every time you open your mouth, it can cost you money. Be aware of your business’s strengths and weaknesses and think through your answer before responding. Full disclosure is crucial, though, because problems are likely to be discovered during due diligence, and a relatively minor problem may become a deal buster if a secret is revealed at the last minute. Minimize answers to personal questions that do not directly relate to the sale of your business. (For more information on due diligence, see sidebar below.)

7. Confidentiality is crucial. If customers and employees learn that your business is for sale before it is actually sold, an atmosphere of unrest and confusion can result. Limit the number of people who know you are selling your landscape business. Require that buyers agree to preliminary criteria before revealing your identity. Ask pre-qualified buyers to sign confidentiality agreements before revealing detailed information. Always remember that your employees and customers are your most important assets. Employee names may be disclosed during due diligence, but do not turn over customer lists until after the closing.

8. If it is not on paper, it doesn’t exist. Don’t take a buyer’s word for any important aspects involved with the sale of your business. Once the business is sold, the written contracts are all that matter.

9. Negotiate with a win-win attitude, but know what’s not negotiable. Be very clear and focused on the fact that your business is your most valuable asset and know what is negotiable and what is not. Be prepared to walk away from a deal that does not meet your criteria. Unless the price and the terms both make economic sense, you need to be ready to pass on the deal.

10. Don’t take your eye off the business during the sales process. I’ve seen many businesses begin to decline at the worst possible time because the owner is so busy selling their company they forget to run it. Sales prices are based on multiples of revenue and customer base. If these two things decline, the value of your business declines, too. Sometimes the drop is drastic enough to kill the deal.