Whether you’ve just opened your doors or you see retirement on the horizon, it is never too early to prepare your business for sale. Business owners typically pour everything into growing their businesses, and therefore don’t consider the potential value of those businesses until they are eager to head out the door. At that point, they are disappointed to learn that they’ve missed major opportunity to build value in their businesses, and end up selling for much less than they’d anticipated. Planning for sale ahead of time, however, could allow you to get the maximum valuation for your business.
Approximately 30,000 sign companies are doing business in America today. According to IBIS World, most sign companies have 3-4 employees and employees can bring in an estimated $43,000 each. With a diverse customer base and a relatively low initial investment, usually $100,000 to $200,000, sign companies are a popular choice for entrepreneurs. The report below, from PeerComps, shows statistics from 77 recent sales of sign companies.
While only a professional M&A intermediary, like Sigma Mergers & Acquisitions, can give you an accurate value of your business, this formula can provide you with a general idea of what your business may be worth: 2.81x-4.57x your SDE (the mean is 2.84x). You might think “that’s a big range,” but as you know, there are bad sign companies, good sign companies and excellent sign companies. Consider the following options to increase the value of your sign business and maximize the SDE multiple before you plan to sell.
A strong customer base is essential to increase the value of your business. One key to building your customer base is a strong marketing plan. Even if you’ve already got a plan in place, consider making some strategic additions to the plan. Social media is an extremely cost-effective way to market your business. Direct mail and email marketing services are also successful at bringing in new business. Another practical solution is to wrap your vehicles in the company logo. Your drivers will become your best advertisements as they travel from job to job!
Next, begin to target the right customers. Develop a sales plan to build relationships with larger businesses, where signage may be needed for a variety of different uses inside the company. Consider offering special rates or bundles for recurring customers to set yourself apart from competitors. Use these partnerships to reach even more customers. Ask satisfied customers to review your business online, and post pictures of the successful project on your social media accounts. This will give potential customers a first-hand look at the types of businesses you work with and the quality of work you provide.
Potential buyers also want to see a diversified customer base. If any of your customers account for 25 percent or more of your business, that could be a red flag. Your buyer doesn’t want to fear losing that customer—and a significant amount of sales—when managing the business. While large customers are usually considered a great value to the business, aim for each customer to account for no more than 20 percent of your total sales.
And don’t forget to document your plan. You want to make sure buyers not only see the results of your marketing plan, but that they also know it’s a documented plan that can be conveyed and implemented by them after they own the business.
Make the most out of the products and services you offer. Analyze your current margins. You may want to eliminate small ticket items, especially those that do not generate additional business from a customer. Research the products being offered by the competitors in your region, and consider expanding your product offering to include items with higher margins. If you have not already done so, put a focus on the digital signage component of your business. While traditional signage still accounts for 43.7% of total sales, according to IBIS World, digital signs are not far behind, with 41.9% of sales in 2018. Offering even one additional service can expand your customer base and increase your profits, both of which are very attractive to potential buyers.
Another solution to increase the value of your sign company is to simply increase your service area. Adding just one more county can increase your customer pool significantly. If you’re located in The Woodlands, for instance, consider expanding your service area to the entire Houston area. Announce your expanded service area with a direct mail campaign that drives people directly to your business. With only the cost of the mail campaign and some extra gallons of gas, you could see a large increase in new customers.
A business owner and his or her business are only as strong as the employees behind the scenes. Be sure that your business is staffed with highly qualified employees that need very little guidance to perform their jobs. Have a number of employees cross-trained in other departments as well. Potential buyers understand that there will be a steep learning curve when purchasing your business. Knowing that training employees will not be on their to-do list could be a major benefit.
Many business owners make running the business a family affair. While that has its benefits, it may also be a drawback for future buyers. In most cases, those family members may not stay on with the business once it is sold. If a buyer thinks that a large number of employees, or even a few high-level employees, will be leaving once the business is purchased, this could affect the sale price in a negative way. Consider slowly replacing family members with highly qualified staff that intend to stay with the company after it changes ownership.
In order to increase the value of your sign company before the sale, clean house, both literally and figuratively. Remember those first impressions are lasting impressions. When a buyer visits your business for the first time, you will want him to envision what it could be in the future, not what it was in the past. Think about a simple office makeover. You don’t need to spend a fortune to make a few strategic updates, from a fresh coat of paint to new office furniture. Also, ensure that your workshop is tidy and organized. Buyers that see a laundry list of cosmetic or organizational updates the moment they walk in the door may value your business at a much lower rate than you anticipated.
Lastly, take care of any outstanding administrative business. Fill all open positions, and streamline workflow. Negotiate your lease and any supply contracts you have before you list your business for sale. Ensure that all business vehicles and equipment are in working order. The more turn-key business is, the more a potential buyer may be willing to pay.
Preparing for the sale of your business is more than simply putting a “For Sale” sign in the window. These tips not only increase the value of your business, but they should also increase the profit of the business while it is still under your ownership. Don’t wait until you’ve got one foot out the door to begin thinking about the value of your business to potential buyers. Start today by attracting new customers and increasing your offerings. Focus on hiring highly qualified employees and tie up all loose ends as they arise. Doing these things will increase the value of your business now, and when you plan to sell. Contact Sigma Mergers & Acquisitions today to get a free valuation for your business.