How Much Is Your Remodeling Business Worth?
Want to Sell Your Remodeling Business Someday? Read This First.
“Sometimes the hardest part of running a business is selling it.”
WALL STREET JOURNAL
Remodelers frequently begin to think about the value of their remodeling company when they consider retirement and want the money a sale would generate to help fund their retirement lifestyle. In the majority of cases, this is too late! If you want to sell your business, you need to start early and stay focused!
Some companies are more sell-able than others. Remodeling companies that sell for high value have these things in common:
- A management team of superstars. Top level employees are worth their weight in gold.
- Use of systems in all aspects of their business — so that the owner is not the source of all information.
- Increased bench strength in the sales arena. In other words, there are others selling besides the owner. If the owner is the only source of sales and the owner leaves when the business is sold, there will be a gaping hole in the sales department.
If you have worked hard to build a sell-able company and have these elements in place, the first step in moving forward is to hire a business valuation expert to help you determine the value of your business.
In actuality, there are a number of other occasions that also call for an accurate, objective, third-party evaluation of your company, like:
1. Settling divorce distributions
2. Breaking up a partnership
3. Buying insurance to fund a buy-sell agreement
4. Planning your estate
5. Buying a shareholder’s interest in the company
6. Establishing value in case of disaster
7. Applying for a loan
8. Learning what changes you should make to the company before putting it on the market
Is Selling My Remodeling Company a Viable Goal?
Yes and no. Certainly sales of small companies do happen but they don’t happen frequently or easily. I’ve been in the business for over 20 years and can still count on my fingers the number of remodeling companies that have been sold successfully (I’m not counting family businesses which sell to second or third generations for pennies).
Several years ago, INC. Magazine noted that:
It may be that if, and when, many small companies do sell, the reason is not the state of the economy but the companies’ success in managing to track down a buyer who’s a lot like the seller, with the same goals and interests but just a little more money to invest and a few more years to go until retirement.”
However, by carefully preparing your company for sale, and by understanding the business marketplace, you will increase your chances of selling your company for top dollar.
How Will I Know What the Selling Price Should Be?
Nine hundred ninety-nine remodelers out of one thousand don’t know the worth of their business. If forced to guess, most (if they follow the pattern of entrepreneurs in general) would guess too high and some would guess too low a value. Yet they’ll spend 60 hours a week, 52 weeks a year for 30 years investing money and sweat in the business without thinking whether they are building value for the future. As you begin to think about selling your company, find an objective expert to help you value it. There are many factors and lots of expertise that go into setting a price.
Where Do I Find the Right Valuation Expert?
Valuations have lots of uses including helping you to target weak areas in your company. By making changes to strengthen those weak areas you can add significantly to company value. For this reason experts advise starting to prepare your company for sale 3-5 years before it goes on the market. A major part of this preparation is finding and hiring an expert in valuation to analyze the company and advise you. Start by asking your accountant, banker, and lawyer. They may know an expert with whom they have worked in the past. Look into the organizations that certify Business Valuation experts. Keep searching until you find someone with experience valuing entrepreneurial businesses—preferably remodeling companies!
Can I Value My Company Myself?
Not really. Unless you are very experienced in valuing businesses, we strongly recommend that you use an outside third party to help you maximize the value you will receive.
However, for a fun, totally non-scientific look at the value of your business, download this simplified (in fact dangerously simplified!) worksheet based on methods used by experts. This will give you a very rough idea of the value of your remodeling business.
For another resource, here is a great article from the Wall Street Journal.
Next time, we’ll talk about actions you can take now to add more value—and sell-ability—to your remodeling company.