Wednesday 23 May 2012

Why won't my service business sell?

By Scott Bonner


The service industry has a notorious reputation for being hard to sell a business when it's time to retire. The rationale for this stems from the assumption that a service business is the simplest to start. Minimum talent is wanted to do the work and for many they're of the opinion a business is only the service it provides. With a unskilled work doing the work in several service companies, the market finishes up being extremely competitive with low profit margins and a lower ceiling for optimum potential. The concept of entering into this kind of business doesn't often excite a backer.

When I talk of service business I mean those that is major product/service needs minimal specialized skills. Good examples are Moving Corporations, Restaurants, Lawn Care companies, 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 admit it everyone 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 a matter of 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.

For your service business to be sellable you want to work out your processes within the business to be repeatable and accomplishable by anyone. Have managers in place that can run everything and as the owner, make yourself replaceable. If you walked away from the business could it survive or even better flourish while you were away? If so then are on your 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 companies were made with the notion of "working for themselves" or owning a job, not a business. This implies the company typically needs an excessively committed owner who is working 100 hours every week to do everything themselves, or celebrity jugglers as employee. To somebody as a viewpoint business purchaser this is a dangerous investment. It brings to mind the following questions...

Can the business survive without the owner?What occurs if key employees leave can we replace them?

In my prior experience at MovePoint Moving Software I have consulted many firms and found that these issues were deep seeded into the company culture at plenty of the smaller companies who had never seen real success. Their systems and processes weren't well developed, responsibilities and roles were too large and open, and in most cases the owners put themselves at the center of everything requiring their input and approval. This causes issues with focus and burnout among the staff and makes transitioning to new owner troublesome. In several cases a buyer will walk from the deal when these issues arise or need an earn out, where you have to work for them for a period of time and achieve certain transition goals for the deal to complete.

If you currently in the service industry and want to discover 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 is going to discuss the idea of growing your business for sale in finer detail.




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