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.
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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
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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.
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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.
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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.
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.
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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.
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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.
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.
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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.
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.
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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
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