What will you do when it is time to sell your business? Are you about to stop reading because you are not considering selling your shop?
Less than 85 percent of business owners have a plan in place for when the time comes to exit their businesses. Stay with me, and you will see why you should be thinking about the sale of your business now.
The reality is, one way or another, you will eventually exit your business. The most common way business owners exit is through a sale.
What many sign professionals mistakenly believe is that it will be easy to sell the business when the time comes. However statistics show that over 80 percent of businesses on the market ultimately do not sell.
The key to selling your sign shop—and receiving top dollar for it—lies in executing an intelligent, thorough plan, which involves three concrete steps: prepare, advertise, and close the deal.
Step One—Prepare
The first step in successfully selling your sign business is to prepare for the sale ahead of time; earlier than you may think.
One way you must prepare your business for sale is by creating two crucial documents:
(1.) A written summary of your business, typically ten to forty pages, that gives potential buyers a detailed explanation of your business and operations; and
(2.) A set of clear, normalized financial statements that will show prospective buyers the true profitability of your business after removing any personal expenses you may be running through your company.
Next you need to set an asking price for your business.
As a general rule of thumb, your sign shop is valued at 45 to 50 percent of revenue or two to three times your discretionary cash flow. A formal business valuation is not always necessary; however the advice of an experienced professional is priceless and can give you a good idea of the value of your business.
The time to prepare is now, not when you have decided you are ready to leave the business. Keep in mind that a lack of preparation can not only waste your time, but it can kill a deal that would have otherwise been fruitful.
The more preparation you do up-front, the smoother the rest of the process will be.
Step Two—Advertise
Once you are fully prepared, you can officially put your sign shop on the market!
There are three effective ways to sell a sign business, and choosing which avenue is best for your shop requires determining who your potential buyers are then using the appropriate method to attract those buyers.
Method One: Advertising your business for sale online tends to attract a wide variety of buyers and generates the most exposure in the most efficient way possible, making this method great for franchises and smaller shops that can be sold to a buyer who may be new to the sign industry.
However if your shop is very technical and needs a buyer who is familiar with the industry, this method of advertising is the least effective, and you will be overwhelmed with buyers who are not a right fit for your shop.
Method Two: Advertising to direct competitors is another option. However, when doing this, it is advised that you contact a business broker or a mergers & acquisitions intermediary.
Why? Imagine if your biggest competitor found out you were selling your shop. That information would spread like wildfire to your customers and employees before you had a chance to disclose it on your terms.
To maintain confidentiality of your sale, it is best to have a third-party reach out to potential buyers and inform them that a local sign shop is for sale, without disclosing important details until non-disclosure agreements are entered into.
This is a suitable strategy for a business grossing over five million dollars per year or for highly technical sign businesses (such as those manufacturing electric signs).
Method Three: The third method is placing an ad in a trade publication. This is the perfect way to attract buyers that have direct experience with the sign industry and even competitors’ employees who may be considering starting or buying their own sign shop.
This is a suitable strategy for smaller sign businesses and for shop owners who are not worried about keeping the sale of their shop confidential.
Step Three—Close the Deal
Once you have located a serious buyer for your business, you are now ready to negotiate the key terms of the sale.
Selling a sign shop has challenges that are specific to the sign industry, and key terms should be clearly addressed through the closing documents. For example, the buyer should understand the importance of close customer relationships and a technical work force.
Another thing to consider while negotiating terms is confidentiality of the sale. One way to maintain confidentiality is to receive an earnest money deposit and get a signed Letter of Intent (LOI) or offer to purchase. You should also have a strong non-disclosure agreement signed by the buyer to prevent your customers and employees from learning about the sale.
As I finish discussing this final step, I will leave you with some advice that comes from years of experience buying and selling businesses: Retain the services of an experienced attorney or intermediary to assist with the closing process. Hiring the right professionals will give you the peace of mind that the sale of your sign shop will be done properly.
Conclusion
Selling a sign business will be a much different process than selling any other type of business for three primary reasons.
First most sign shops are highly technical and most highly technical businesses are sold, surprisingly enough, to competitors. Selling to a competitor presents its own challenges, including keeping the sale confidential from your employees and, especially, your customers.
Second it is very important to develop a smooth transition period that will help the buyer retain relationships with your clients.
Third you need a solid plan in place to retain your key staff members after the sale and to protect your business from employees who leave the business after learning of the sale. Once you decide to announce the sale, you should have non-solicitation and non-disclosure agreements signed with all employees.
Even if you think you have loyal employees, protect your business! I have sold sign shops where key employees have unexpectedly left the day before the closing. Without non-solicitation or non-disclosure agreements, those employees could take current customers and open their own sign shop right across the street.
By preparing your sign shop for your eventual exit early on, advertising the sale of your shop properly, and having the right professionals in place to assist with the sale and closing, you can ensure that, when the time comes, the sale of your sign shop will go off without a hitch.
By Jacob Orosz, president of Morgan & Westfield, a nationwide professional services company specializing in the confidential sale and appraisal of small to mid-sized businesses. Jacob can be reached at 888/693-7834, ext. 150 or [email protected].
Photo: Shutterstock.com.
