Starting your own business is no simple task and finding success is a significant accomplishment. If you ask five different pest control operators (PCOs) what motivated them to start their own business, there’s a high probability that you’ll get five different responses. They may have started their business with the aim of passing it down as a family business, or perhaps with the ambition of growing it to include multiple locations, or with the intent to one day sell the business itself.
Whether selling the business to a larger buyer was part of the original plan or not, the topic of potentially selling comes up for many successful PCOs sooner or later. Some may have the thought in the back of their mind when making business decisions from the start, while others might one day find themselves fielding calls from interested parties on a regular basis. Whether you started your pest control business with hopes of one day selling or only recently started rolling the idea around in your mind after your business was thoroughly established, considering your options sooner than later is at the key of any pest control business’s successful sale.
Consider your business and take the time to reflect on your plans for the future. Think of where you want your business to be in the next three, five, or seven years, as well as where you want to be yourself on that same timeframe. If you know that your plans on that timeline involve selling your business—or if your plans aren’t built firmly around the idea of not selling your business—then the time to start thinking about that sale is now.
Early Planning Provides an Advantage for Sellers
To put it plainly, the earlier you start viewing your business with that potential sale in mind, the better. Shifting your focus early on allows you to build a more comprehensive picture of your business’s position and strengthen your understanding of what a potential buyer is likely to perceive as the benefits or drawbacks of your business as an asset.
If you begin to look at your business the way a potential buyer would and note areas that could be considered problematic, starting this process early provides you with the time you need to make adjustments that resolve the issue and make your business more attractive for purchase. Having the time to address any shortcomings is crucial when trying to get the best price for your pest control business.
Entering into the planning stages early also enables you to maintain a better sense of control throughout the process. If you enter into the selling process without enough time to gather information, make adjustments, and shop your business around to potential buyers, you run the risk of urgency becoming desperation and shifting the sales process in the buyer’s favor. The sooner you start planning ahead, the better you position yourself to maximize your income from the sale.
Put Your Trust in an Expert
When you begin to think about selling your pest control business in a concrete way, the single most important action you can take to help yourself through the process is to partner with an experienced, quality advisor. More specifically, a professional business broker can provide the insight and guidance you need to properly determine the value of your business, shop your business to qualified buyers, and avoid common pitfalls during the sales process.
If at all possible, seek out a business broker with experience in the pest control industry. A broker who is knowledgeable about the ins and outs of pest control businesses and how they operate can potentially offer advice that’s tailored to your unique situation and how it differs from business sales in other industries.
While pest control experience is a good perk when choosing an advisor, experience in mergers and acquisitions (M&A) is an absolute must. The intricacies of selling your business can vary widely and having an advisor with experience in this area will be your key to navigating those details effectively.
A key element that a quality advisor brings to the table is their objectivity. Even if you tend to focus on facts and figures as a PCO, you can’t fully divorce yourself from your business to evaluate your position objectively. An M&A expert, on the other hand, can view your business without any emotional or personal attachment. This is critical when forming a business valuation.
The Benefits of an Expert Business Valuation
Once you’ve partnered with a trusted professional, you can begin to explore the potential for selling your business by having them perform a business valuation. This deep dive into your business’s assets and liabilities goes beyond balance sheets to form a wider picture of where your business stands.
Business valuations can be carried out in a number of different ways, but it’s important to note that while the methodology may change, the process itself can only be conducted reliably by a professional business broker. Depending on the size of your business, a broker may base their valuation on a number of different factors.
A valuation may be based primarily on annual sales, typically including inventory. Another option, generally considered to be less formal, is to use multiples of the seller’s discretionary earnings (SDE) and inventory. These methods are most common when valuating businesses with gross annual sales of $1 million or less.
For pest control companies with gross annual sales above $1 million, it’s more common to estimate the business’s value using multiples of earnings before interest, taxes, depreciation, and amortization (EBITDA), a common metric used in evaluating a business’s financial health, which describes the amount of cash generated and consumed during a given period.
Another option for businesses of this size is to estimate value using multiples of earnings before interest and taxes (EBIT), a figure similar to EBITDA that speaks to a company’s overall profitability. Using EBIT in this process is a valid approach, but it remains less common than using EBITDA.
An objective, professional valuation of your pest control business will give you a firm understanding of:
- Your business’s market position.
- Your overall financial standing.
- The strengths and weaknesses of your operation.
- The realistic value of your business as it stands.
- The potential value of your business, pending recommended changes.
Armed with this knowledge, you have a much stronger foundation for managing your expectations and structuring your future plans. At this juncture, you’ll likely have a much firmer idea of when, or even if, you want to move forward with selling your business, as well as what steps you need to take to help ensure you get an appropriate purchase price when the time comes.
Taking Taxes Into Consideration
Any significant financial decision has tax implications, and selling your business is no exception. Anticipating your tax liability and being able to plan accordingly is another significant benefit of working with a professional advisor with experience in mergers and acquisitions.
In most cases, the taxable events that result from selling your pest control business will be determined by your business’s status. For S corporations, the sale of the business’s assets usually results in a single taxable event for the business owner, similar to the Schedule K-1 form that S corporations are used to seeing each year.
Selling your business as a C corporation is typically different in that it is likely to trigger two taxable events. The first is tax paid on the sale of corporate assets, while the second is tax paid on the proceeds that go to the owner or owners.
While anticipating the tax implications of selling your business shouldn’t be the sole factor when choosing how to register your business or deciding to reclassify your business, it shouldn’t be overlooked either. As you consider the future of your business and solidify your plans to sell, your best option is to discuss the status of your business and any related tax implications with your CFO or a CPA.
Taking the First Steps
Selling your business means taking a wide variety of moving parts into account, driving home just how important it is to start thinking about the sale well in advance of when you intend to sell. Whether you’re committed to selling or just want to ensure you’re in the right position if you do decide to do so, it’s never too early to address housekeeping issues that can impact a sale down the road.
Consider Any Assets You Plan to Exclude
In a majority of cases, owners intend to maintain possession of certain assets from their business. Keeping a running list of anything you intend to keep can help to ensure you don’t forget to separate these assets or unintentionally sell anything you want to keep. For instance, it’s common for business owners to keep a former work vehicle as their personal vehicle after the sale. In this case, you’ll want to transfer ownership of the vehicle prior to entering the selling stage. Be sure to consult with your business advisor or CPA to ensure the title transfer is documented and reported accordingly.
Similarly, be sure to remove any personal belongings from company offices or vehicles prior to showing your business to any potential buyers. This step serves two important purposes. First, it ensures that a potential buyer doesn’t interpret any of these items as part of the sale. Second, decluttering your office or vehicle can help to boost the business’s appeal by giving it a more attractive, professional look. Think about how you would prepare a used vehicle before showing it to a buyer; if you want top dollar, you’re likely to give the car a wash, and throw away clutter you’ve been ignoring, and remove any personal items so that you don’t accidentally lose them to the car’s next owner.
Scrutinize the Personal Components of Your Business
For many business owners looking to sell their companies, one of the most difficult parts of preparing is having difficult exchanges with employees who are either literal family members or long term employees who have come to feel like family members. While these conversations can often be uncomfortable for all parties involved, they are certainly crucial and are best to address early on in the sale process.
A surprisingly common issue for many family-owned businesses is non-productive payroll. This can take the form of a disconnect between an employee’s position and their salary, or even in the form of keeping family members on payroll for jobs that they aren’t actually performing. In addition to potentially creating problems in their own right, neither of these situations is something that a potential buyer is going to want to see when reviewing your payroll figures down the line. While preparing to sell your business, it’s important to rightsize salaries that aren’t on par for the role being performed by discussing options like compensation adjustment or early retirement.
In addition to your pest control company’s payroll expenses, this is also the time to review other expense habits and restructure those behaviors, if necessary. Scrutinize your business expenses and ensure that anything that’s paid for by the company is truly a valid business expense. Look closely at commonly expensed items like travel, dining, vehicles, mileage, and organization memberships and take the time to determine whether they are valid expenses that benefit your business. In the case that you come to identify business expenses that you—or more importantly, a potential buyer—would consider questionable, take the appropriate steps to begin paying for those costs yourself or to eliminate them altogether.
Shift Your Emotional Perspective for the Future
As a business owner, you’re deeply invested in the success of your business. You may have founded the business yourself and built it from the ground up, or you may have even inherited the business from a previous generation of your own family. In any case, it’s to be expected that you have an emotional investment in your business and how it operates. Selling your company is a business decision above all else, however, and it’s important to view the process as impartially as you can.
While you begin to prepare for the sale, and especially as you take a closer look at the personal relationships and habits that exist within your business, it’s in your best interest to start making your peace with the changes that will inevitably come with selling your company. New owners will almost certainly make changes after the sale is complete, and accepting that this isn’t a personal choice on their part will serve you well.
For larger pest control companies, typically those valued at over $10-15 million, a buyer may intend to leave the business intact. For businesses valued below that range, it’s likely that a buyer intends to rebrand the acquired assets and roll them into their existing outfit as a way to save on labor and resources while expanding into a new area. Being emotionally prepared for this eventuality and recognizing that it’s a choice made for business reasons is nearly as important as having your ducks in a row when it comes to the facts and figures of your business.
Solidify Your Grasp on Your Financials
Speaking of having everything in order regarding your business’s numbers, it’s never too early to dive deep into your financials and ensure you have a solid sense of how your business is operating. If things have been running smoothly, it’s not uncommon for a business owner to become less diligent and let things run on autopilot. When you know a sale may be in your future, though, it’s no time to take a backseat.
Meeting regularly with your financial advisor, whether it’s your CFO or a CPA, is essential to ensuring you have a firm understanding of all the details that could be relevant when putting your business up for sale and navigating the sale process. Reviewing your profit and loss sheet, balance sheet, and accounts receivable on a routine basis will not only allow you to speak accurately to your business’s financial health and processes, but will also give you an opportunity to identify and account for any discrepancies ahead of time so that you can handle them appropriately.
This is also your opportunity to improve your operations ahead of selling your business. If you plan on making any significant purchases, such as new vehicles, operations software, computer systems, or equipment, it’s best to handle them as easily as possible. Most potential buyers will want to avoid purchasing assets that are still being paid for, so any large purchases made after the sale is underway will be seen as red flags.
Rethink Your Service Processes
While there’s no need to completely redefine your operational processes ahead of selling your pest control business, there are steps you can take to shift your service and billing cycles to make your business more profitable and attractive to potential buyers. Separating your service and billing cycles, an easy process with dedicated software like WorkWave PestPac, can help you to avoid extending credit to your customers, eliminate the need to chase them down for payment, and reduce gaps in revenue caused by canceled services.
For instance, changing from a seasonal service schedule with quarterly billing to an annual subscription model with regularly recurring billing can help to reduce winter cancelations from customers in colder climates. As a result, you can improve customer retention for your business and ensure that revenue continues to come in throughout the year. This allows you to better predict future revenue and plan accordingly. Paired with automatic billing, this change can be even smoother.
You’ll also want to properly track any recurring services you offer, such as Sentricon installation and maintenance. Tracking the installation, scheduling, and billing of recurring services makes your business more attractive by driving a steady revenue stream. Staying on top of recurring revenue like this also gives you time to ensure that relevant records, such as new starts and retention rates for the program, show consistency when presented to a potential buyer.
Staying on Top of Your Business While Looking Ahead
Taking stock of your business’s standing can be difficult, but remaining objective and working with a trusted advisor can help you to realistically gauge your pest control company’s performance, along with its strengths and weaknesses, to take stock of where you excel and where you can improve to ensure you are in a good position to sell your business. Keeping the sales process in mind early on and taking the appropriate steps to prepare your business is paramount to ensuring you’re able to show your business in the best light.
As you take steps to polish your operations where necessary and form a strong idea of how your business will look to potential buyers, you can begin to plan out the best way to showcase your company while highlighting the elements that make it most attractive. The sooner you start planning for a potential sale, the better prepared you’ll be when it’s time to take the next step and present your pest control company to potential buyers.