Even though I’ve known many of you for years, most people don’t know that I was a business broker prior to buying Buckingham Nannies in 1994. For over 10 years I worked as a broker selling hundreds of small businesses. It’s a roller coaster of a profession. I found Buckingham Nannies and purchased it while I was still a broker. I’m writing this article because many APNA agency owners have had their businesses for quite a few years and may be thinking the time is right. I’ve been “accused” of being a “serial” entrepreneur, so I know a bit about buying and selling my own businesses as well as for other people.
Reason for selling
Selling your nanny agency is one of the largest financial and emotional decisions you’ll make in your lifetime. People sell their businesses for many reasons, not only for retirement. Here are some of them:
- Retirement
Prospective buyers love retirement situations because they can understand that it is a legitimate reason to sell.
- The business isn’t doing as well as you would like
You’ve had your business for a few years and it isn’t performing the way you had expected. Will someone really want to buy a business that isn’t making much profit? Maybe.
- You’re burned out
It’s stressful running a nanny agency and it’s understandable that you may need a break after a number of years.
- Another business opportunity arises
This may be combined with feeling burned out and other reasons. When I owned Buckingham Nannies, I began eNannySource.com as a side business because I was burned out. After a couple of years I found I enjoyed the online business, and I saw more growth opportunity there, so I sold the agency.
Your motivation for sale is very important because it will impact your strategy in selling the business, and will also influence the buyer, who will always be on the lookout for getting taken advantage of. They may be able to feel your motivation, even if you aren’t telling them everything. If you’re retiring and are in good health you have no hurry and can take your time to get the right price and buyer for your business. For the other categories, you’re going to want out sooner and that will cost you money. In other words, time generally equals money.
What are you selling?
You’re selling the possibility for the new owner to profit from the business you created. They are buying a “job” since they will most likely have to work the business in order for it to function well. A truly help run business is a highly coveted prize that’s not often found.
A nanny agency is a service business that has few assets other than its goodwill and reputation. This is both a real plus, because the buyer doesn’t have to buy expensive inventory and equipment, and is a negative because of the lack of tangible assets. Not all buyers are comfortable with buying a service business.
At the end of the day, the business is going to be sold based on how much profit goes to the owner(s) and what the likelihood of that income continuing on with the buyer is. Along with profit there are other factors that are also important in the price of a business. Does the business have good long term employees? Is the office attractive and well maintained? Is its technology up to date, or are you still using paper forms? In the end, the selling price of your business is not only its profit, but the sum total of all the pieces that go into the business, including yourself. That’s right, you are part of what they are buying. A positive, upbeat seller who has confidence in herself and her business is going to sell the business for more money, and easier, than someone who doesn’t have these attributes.
Preparing your business for selling
You’ve probably heard about “staging” your home for sale. Well, guess what, you are going to need to stage your business to get it ready for sale.
What does this mean? Primarily it means getting your books and records in order. You’ll need at least 3 years tax returns for the business (not your personal) and a year-to-date profit and loss. Clean up your office. Get your carpets cleaned, paint it, and add a little pizazz to it. It’ll communicate energy and freshness, rather than tiredness! Clean up those messy desktops and maybe buy a couple of new office chairs. What, I’m asking you to invest in the place before you sell it! Yes, I am. Putting just a thousand or two dollars into your office could net you thousands. If your office looks old and tired, that will be read as you’re tired and want out. That will cost you money, unless your business is a gold mine.
Let’s cut to the chase. What’s it worth?
This is the $64 question!
Here’s what buyers are going to be looking at when they evaluate a business to purchase:
- Number of years its been established
- Are the sales going up or down over the past several years
- What’s your competition like
- How important is the owner to the business
- Do you have good long term employees
- Profit, profit, profit
In determining profit you will take your most recent tax return, or profit and loss statement, and add back your personal expenses that are run through the business. I know you don’t do this, but just in case! Things like a car, travel and entertainment expenses, and whatever else there might be. You can also add back depreciation and amortization, if you have any. This gives you your “adjusted net” income.
This is the number you’ll base your sales price on. Most brokers use a multiple of your net income in order to set a sales price. Because of all the variables that go into the price of business that multiple is very wide. For example, let’s say your business is a smaller, 3 year old agency and has yourself and one other employee. Its sales were $100,000 last year and growing. Your adjusted net was $40,000. This is a fine business, but will be limited in price because of the net income, as well as the importance an owner will have, when there are only two people in the business. If your business is grossing $300,000 per year and netting $80,000 with 3 employees plus yourself, this is very different. There are both more employees, limiting the owner’s importance, and there is a much higher net. Often times the buyer will need to get money from a home equity loan or seller financing and there needs to be room to pay the loan back and still have money left over to pay yourself. When you’re looking at the larger agencies that are grossing $500,000 to $1,000,000, or more, you’re looking at a very different picture of both who will buy the business and the price of the business.
Finally, I’m cutting to the chase! Most service business will sell for between 1 and 3 times their adjusted net income. The lower number for smaller, newer businesses with limited profit and the higher number for larger agencies. This will hold true for the vast majority of agencies.
Sell it yourself or higher a broker or advisor?
I’m a firm believer in hiring experts to help me out in whatever area I lack expertise. In addition, the sale of a business is highly emotional and I’ve heard sellers kill a deal with just the slip of a few words. It’s much like buying or selling a house, a broker isn’t just for the MLS. You’re hiring the person for their expertise in knowing the market, as well as their negotiating skills. Selling a business is MANY times more complicated than selling a house.
If you do hire a broker or advisor be sure to look until you find someone that you trust and have faith in. If you’d like to speak to me about any of this, I’ll be glad to talk with you in confidence.