The service industry has a scandalous reputation for being tough to sell a business when it is time to retire. The reason behind this comes from the concept a service business is the simplest to start. Minimum talent is wanted to do the work and for many they think a business is merely the service it provides. With a unskilled work doing the work in many service companies, the market ends up being extremely competitive with low profit markups and a lower ceiling for maximum potential. The concept of entering into this type of business doesn't often excite an investor.
When I talk of service business I mean those that's major product/service needs nominal specialised abilities. Good examples are Moving Companies, Bistros, Grass Care corporations, Painting, and construction. In numerous cases these business are started by folk who have worked for one before or say “I can do that better!” Let's face it everybody can make a better burger then McDonalds, but what McDonalds lacks in quality they make up for in consistency and structure. Where else are you able to get a meal in 1 or 2 minutes and have the same consistent experience wherever in the world you are. The McDonald’s Franchise system is what makes it a big hit not their burgers.
In order for your service business to be sellable you need to work out your processes within the business to be repeatable and accomplishable by anyone. Have executives in place that will run everything and as the owner, make yourself replaceable. If you walked away from the business could it survive or maybe better prosper while you were away? If so then are on the way to a sellable business.
Document your company like a new autos and create an “Owner’s Manual” that outlines the structure of the business and how it operates. Many service firms were made with the concept of “working for themselves” or owning a job, not a business. This implies the company generally requires an overly committed owner who is working 100 hours per week to do everything themselves, or superstar jugglers as worker. To somebody as a point of view business consumer this is a risky investment. It brings to mind the following questions…
Can the business live without the owner?What occurs if key workers leave can we replace them?
In my experience at MovePoint Moving Software I have consulted many firms and found that these issues were deep seeded into the company culture at lots of the smaller corporations who had not seen massive success. Their systems and processes were not well developed, roles and responsibilities were too wide and open, and in most cases the owners put themselves at the centre of everything requiring their input and approval. This is the cause of issues with focus and burnout among the staff and makes transitioning to new owner troublesome. In numerous cases a buyer will walk from the deal when these issues arise or need an earn out, where you've got to work for them for a period of time and achieve certain transition goals for the deal to finish.
If you currently in the service industry and desire to learn lots more about the correct way to structure your business to sell I strongly recommend the book “The E-myth Revisited” by Michael Gerber. In it he'll discuss the idea of growing your business for sale in finer detail.
Scott Bonner Senior Developer MovePoint LLC. Frequent Contributor on Moving Business Network. To find out more about Scott Bonner’s Business and Technology Experience visit www.scottbonner.com