If it is time to sell your moving company, you want the best price possible. Conventional wisdom is that years of preparation lead to a high-value sale. This is partially true. There are elements of value that take a long time to prepare, but many of the elements of the pricing decision happen during the heat of the sale process.
It is possible to work years and bargain away the work you’ve done. It is also possible to maximize what you have built during a much shorter period and get a great price during the sale negotiation.
Here are fifteen things about your business that will increase its value in the eyes of a buyer during the negotiation.
1. Know How to Show Evidence of Value
The first step is you. You are the key to inspiring confidence in your buyer. You might not be optimizing value if in your first meeting with the buyer you sit with your feet on the desk and your hands in your pants while saying “It’s all good, dude.”
The sale process is a dance. You have to appear professional, but the buyer has to feel that they are more professional than you are. You have to show the buyer opportunities, but she has to feel like she sees more than you are seeing.
You keep your mouth shut most of the time. Don’t show how much you know. Let them explain why they want to buy your company. This is a process of them discovering your business has high value. You are a guide. They have to like what they see and feel comfortable paying top price.
2. Understand All Purchases Are Emotional
Purchases fill an emotional need, even purchases of companies.
The desire to buy a company is rarely solely to get a good financial deal. A person may want to own her own business to avoid working in a corporate environment. A company may need to reignite its growth by expanding through acquisition. A family may want to find a business for their son to run. In the process of filling these needs, there are many logical justifications for the purchase, but the primary driver of the deal is emotional.
Probe to understand the underlying reason for purchasing your business. When you understand this, you can keep the emotional flame burning as you dive into the details.
At the end of the day, all purchases are simply an amount that a person is willing to pay and the seller is willing to accept. If they feel good about the reason they bought the company and the price they paid, its been a good deal.
3. Find Their Method of Valuation
The best negotiating coaches will tell you to negotiate from the viewpoint of your counterpart. What they think about how your business is valued is the only thing that matters.
There are as many methods of valuing a company as there are buyers. Pay attention to how your buyer thinks. If they calculate your company’s value by multiplying your yearly profit by five, show all the profit you can. If they think the value is only worth the book value of the trucks, it’s good to know that early on. If they think the value of the company is derived by paying per nose hair for all the employee nose hairs in the business, line up your employees and ensure you count every nose hair.
How you think business is valued is irrelevant. They have the checkbook. Know how they are valuing your business and respond accordingly.
4. Help Someone Without Experience Get Started
If your buyer has never owned a moving business before, they don’t know what they don’t know.
An experienced moving company owner will know exactly how to expand, and it probably won’t involve overpaying for your business. A new entrant into the market is looking for a place to start and for that start point, you can charge a premium.
To attract the newbie, you have to package your business up so it works for them. Anything involved in preparing will be of high value to them. They are insecure in their knowledge about the industry. If you can show them a path to get them up to speed quickly and safely they will pay you more money.
5. Don’t NEED to Sell
Urgency to sell is not your friend.
If you are working on a sale, have the reason for the sale be a natural life change, not an event that has ticking bomb urgency. The best message is, “I would love to continue to work in and grow this wonderful business, it is just that this one non-business related circumstance makes it smarter to hand this gem to you.”
Talk about your expansion plans. Ensure the buyer knows you own a company that is capable of growth. You are reluctantly moving on. Telling your buyer you are burned out is a fast track to a low price. Don’t be in a hurry. They want to buy a ticket on a moving train.
Urgency, or lack thereof, has a direct impact on how much money you will get for the business.
6. You Be The Bank
Very few people looking to buy a medium sized moving business have a huge bank account from which they are going to write you the big lottery check. Cash deals are hard, and valuations on cash deals are lower. Every penny is counted when they are writing a check.
When you fund all or a portion of the deal it is called “owner carry.” That means you carry the note on the business. And you make the interest on the money you loan the client. Of course, there is risk. The buyer could default. And if they do, you own the company again. But if they don’t default you have increased the amount you make through interest on the credit you have extended. Be the bank.
7. Show Them Your Repeat Business.
Even in a business where people do not often use the product, like moving, repeat business is an important driver of revenue. A buyer with experience in the industry will ask you about your repeat business. A buyer new to the industry can be instructed on it. In either case, you must know how much of your business is from returning customers.
As you know, people have long memories when it comes to their mover. What you are offering the buyer is a busy, ringing phone, and repeat business is a key element of delivering that.
8. Highlight Your Systematic Approach to Professional Referrals
The system of referrals from professionals like Realtors and storage facilities is an ongoing source of business. If the business has had a systematic relationship with the real estate community, show it.
Without a consistent way of building relationships with local professionals, a business is of lesser value.
Real estate agents are at the front line of where the moving experience begins. They are an excellent source of referrals. Though there may be hundreds and hundreds of real estate agents in your market, not all of them actually sell.
Do you know how to tell the difference between a high volume producer and someone with a business card and no portfolio? Show your buyer a systematic way that you target high-volume agents and you will command a higher value for your business.
9. Show How Deep Your Great Reputation Goes
A good reputation in the marketplace will bring more referrals and repeat business. This goes beyond Google reviews. This is the perception of the professional community of the job that is done by the owner and her employees.
To check this, have your buyer connect with local real estate professionals who refer business to you. They can demonstrate the reputation you have in the professional community. The buyer will see that your company’s reputation with these professionals is good and it is likely that the business from such referrals will continue for several years. This stable source of revenue will increase value in the eyes of the buyer.
10. Talk About Your Time in the Market
The number of years that the company has been established will have an impact on the level of repeat business.
People have long memories when it comes to their moves. While you cannot control this, you can highlight it in the discussion of value. With more time in the market, people will assume greater quality and experience. Show how many people have used you multiple times.
11. Have The Marketing Map of Your Territory
You have a strong case that your business has a higher value if you have mapped out the marketing channels that work in your market. This means you have tested every channel and have measured the results.
In every market, channels have varying levels of efficiency. For example, Thumbtack may work well in one city, but it may not work at all in another.
If you have tested 30 or so marketing channels in your area, it will save your buyer time and money having to test them themselves. Better marketing map, higher value.
12. Demonstrate the Operating Systems of the Business Are Teachable
Like marketing channels, the operating system of the business has value for the buyer if you have developed it sufficiently. Having a working operating system will save the buyer from having to learn from hard experience. And hard experience costs money.
If everything is spelled out clearly, a new owner can fall in on the operation and learn more rapidly. They will make fewer mistakes and invest less over time.
When buying a business, the assumption is that there will be no learning curve. This is a false belief. Even learning the basics of a business takes time. If you have no operating system then you have a lower value, as the buyer will see during the sale process that they will have to learn a lot of things from scratch. You can’t just call it turnkey. You have to show it with clearly spelled out procedures and handbooks.
13. Assure Them On Employee Quality and Stability
The perception of employee quality and their potential longevity greatly impacts the business value.
The best case for the buyer is all employees are of good quality and stable in their position. This allows the buyer time to focus on other essentials. If the employees are all ready to walk out on day one, the buyer will have to spend time replacing them. That will cost money. The least desirous scenarios are if the employees are of poor quality and intend on staying. This places the buyer in the position of having to carefully fire bad employees and replace them with newer employees of better quality. This is a long, expensive and risky process.
Familiarizing the buyer with the employees will provide insight and comfort. With an understanding of how likely it is they may have to rebuild the employee pool will impact the value of the company.
14. Your Trucks Can Decrease Value, But Won’t Build Higher Value
Your trucks impact the value of your company in ways that are different than you think. You’ll have trucks, office equipment, dollies, and blankets. You want to assure your buyer that you have everything they will need and they won’t have to spend on equipment in the near future.
Trucks don’t add value. They can only subtract it. If they are failing or problematic additional investment will be required. They don’t add value because they are easily replaced. This is why moving companies place a low value on another moving company’s assets. All moving companies understand how easy it is to grow and replace assets.
Only people who do not understand moving companies will think that having a lot of trucks is a driver of value. Show that you have enough to get the job done and expenditures are not needed right after purchase.
15. Offer a Generous Transition Plan
All business purchases are about risk. The buyer wants to find a return on investment that has as little risk as possible. The largest element of risk for someone new to the business is that period where they are learning the basics. No buyer wants to make critical errors right out of the gate. If you offer them a generous transition that helps them avoid errors during this early period you are reducing risk. Reduced risk for your buyer is increased value for you.
Remember that the value of your company when selling is driven almost entirely by the emotional state of your buyer in the weeks where you are negotiating price. Remove risk, provide confidence and avoid presenting things that reduce value. This will end with a good value for the business and a great outcome for you and your family.