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Tips for Selling Your IT Business for the Best Price

Few industries are more stable than the Information Technology industry.  Our global society is more reliant on technology than ever before, and most small to medium-sized businesses rely heavily on the many services provided by IT firms to stay up and running.  According to IBIS World, more than 450,000 IT businesses, from sole proprietorships to large firms, earned $30.2 billion in profit in 2018.  These numbers reflect that it is a great time to sell an IT business.  If you are considering a sale now or in the future, consider the following tips to sell your IT business for the best price.

Seek Professional Assistance

Most business owners are seen as experts in their industries.  As an information technology service provider, you are likely a leader in providing technical services to businesses.  You’ve no doubt worked with countless owners that have attempted to manage IT on their own, eventually realizing the value in your expertise.  It is no different when selling a business.  An experienced business broker can take the tasks of valuing your business and finding a perfect buyer off your hands, so you can continue to focus on what you do best—running a successful IT company.

Determining the best valuation for your Information Technology firm can be a daunting task for you to take on alone.  M&A professionals are able to draw from a wealth of knowledge and experience to value your unique business.  They know what IT buyers are looking for, and they can expertly market your business to fit those needs.  They will vet prospective buyers and manage all of the details of the sale, all while you continue to manage your business.  Working with a business broker ensures a streamlined, and often shorter, sales process.  You’ll have peace of mind, knowing that the sale of your business is in experienced hands.

Organize Your Financials

When preparing to sell your business, take time to organize and clean up your financial documents.  Your financial records may make sense to you, but they must make sense to prospective buyers as well.  If you aren’t already doing so, consider an easy to understand program, like QuickBooks, to clearly convey financial statements.  Personal expenses should not be run through the business as you prepare for sale, as they can cloud the financial picture for your prospective buyers.

You will typically need to show profit and loss statements from the last three years, in addition to tax returns and balance sheets.  Prospective buyers may want to know how your IT firm compares to the competition, so have key industry numbers and future projections on hand.  In addition, work with your business broker to be able to articulate the value that your business adds to the market.  These factors allow prospective buyers to see that your business is well managed, and this can greatly increase the potential value of your business.

Don’t Center the Business Around Yourself

After investing so much time, energy, and money into growing your IT business, it is understandable that you may want to remain involved in every aspect of the business, even as it grows.  You likely have your hand in solving complicated technical problems, interviewing new staff, building customer relationships, and negotiating contracts.  While this has no doubt led to your success in the industry, it may be seen as a red flag to potential buyers.  They want to be confident that the business will succeed once you are no longer running the show.

If you haven’t already done so, you may want to consider removing yourself from the vast majority of the company’s tasks.  Focus on hiring and training highly qualified staff that is cross-trained in multiple areas.  Begin the process of transferring customer relationships from you to account managers, and design a chain of command that allows managers to handle the bulk of the issues that arise day-to-day.  Potential buyers will recognize your well-trained staff as an asset and will value your business with that in mind.

man-and-woman-shaking-handsProvide Strong Customer Service

In the Information Technology industry, nothing is more important to the bottom line than customer service.  Because your customers are businesses themselves, getting timely assistance is critical not only to your success but to theirs as well.  Institute efficient standard operating procedures, and educate both your employees and your customers on the process to initiate and respond to service requests.  Even your IT support providers should be cross-trained in customer service, as they are often the face of the firm when they are dispatched to clients.

Business owners often depend on word of mouth referrals to find service providers, from insurance agents to accountants and information technology specialists.  Providing high-quality service to your customers can be one of the best ways to market your company to other businesses looking for a better IT experience.  Client retention is also directly linked to customer service.  As your customer base grows, so will the value of your business.

Ready to Start Preparing to Sell Your IT Business?

It is never too early to begin preparing your IT business for sale.  These tips not only increase the value of your business at the time of purchase, they may also increase your profit in the short run, while it is still under your ownership.  Don’t wait until you are ready for retirement to start thinking about the value of your business to prospective buyers.   Focus on providing outstanding customer service to your clients, and train highly qualified employees to do the majority of the business tasks.  Ensure that your financial documents are organized and easy to understand, and contact an M&A advisor to determine the best value for your business.  When the time comes to sell your IT business, you’ll be prepared.

 

 

 

The Do’s and Dont’s of Increasing Value When Selling Your Fence or Deck Company

With property values and residential construction on the rise, it’s a great time to own a fence or decking business.  Low unemployment and rising incomes have led to increased residential spending.  The demand for fence and deck companies is high as homeowners look to install new fences and decks or upgrade existing structures.

Over the past five years, fencing companies have seen uninterrupted growth, according to IBIS World.  Approximately 48,000 businesses employ 80,000 employees.  The annual revenue for fencing companies is $8.2 billion, most of which comes from residential projects, according to IBIS World.  Decking businesses have been slower to expand in recent years, but are still considered stable, with the industry bringing in $700 million in revenue annually.  Based on this information, the time may be right to sell a fence or decking business.  While it is best to let an M&A professional determine the true value of your business, the following formulas may give you a general idea of what your business may be worth:

  • 27x-3.94x SDE (Mean is 2.99)
  • 18x-5.20x EBITDA (Mean is 4.19)

Consider the following do’s and don’ts in building value in your fence or deck business.

Do Offer a Superior Product

Potential business buyers are always looking to see the value that you are adding to a particular industry.  The best way to add value to the fence and decking industry is to offer the superior products that customers are seeking and to stay on top of trends.  If you haven’t already done so, do some research on the Home Owners Associations in your area.  Know what types of fencing are approved for each neighborhood and make it available to your customers.  While many established neighborhood HOA’s may stick to a few pre-approved options, newer neighborhoods may be looking to use newer, on-trend materials.  Businesses are seeing the value of updated fencing as well.  Most still prefer basic, cost-effective chain link, but others are looking for a more stylized product to protect their business.

Not long ago, decks were seen as a functional space for a table and chairs, but today’s homeowners are looking to make the deck an extension of their living space.  Wood is still the preferred choice of material, accounting for 84% of all decks, according to IBIS World, but composite decking is on the rise.  Bench seating and other customized features are also important to homeowners.  You add value to your business and to the customer experience when you can provide design services and custom decking to customers in your area. 

Don’t Stick to Old Marketing Strategies

Having an effective, affordable marketing strategy in place is very appealing to potential buyers.  There was a time when most businesses’ advertising plans consisted only of the yellow pages, but now, plans need to be much more diverse to target and attract the right customers.  Direct mail has been around awhile, but you are now able to be much more selective in who you target.  Focusing on new homes with no fence or deck, or neighborhoods where homes are 10-20 years old, where existing structures need a makeover, may be more profitable than a citywide mailer. 

In today’s online world, social media is often the most cost-effective way to reach a large number of future customers.  You may already have a basic Facebook page with your business information.  That’s a great start, but don’t miss out on the other features social media has to offer.  Customers are visual, so be sure to show them your work by posting completed projects online in real time.  Consider Pinterest to have images of your best work reaching potential customers.  In addition, use your social media platform to showcase reviews from satisfied customers.  Not only will your online presence attract new customers, but it will also serve as an additional insight into your business for prospective buyers. 

Do Prioritize Training and Hiring

Often, when business owners have a plan to sell their business in the near future, they take the focus off of hiring and training employees.  While it’s true that some future buyers prefer to staff their new business themselves, most place value in having experienced employees already in place.  As they learn the new business, they’ll have peace of mind knowing that each position is filled with a highly qualified employee, trained to do his or her best work. 

As you prepare to sell your business, be sure to have no employee position vacancies.  Knowledgeable managers are an asset to any business, especially if they are cross-trained in a variety of areas.  You may also want to consider beginning the process of replacing family members that will not stay on after the sale with employees that plan to stay with the business for the long term.  Buyers may see red flags if they anticipate a mass exodus after the transition of ownership.

Don’t Neglect Equipment

Prospective buyers are often focused on potential profit, not future expenses.  Be prepared to show an organized workshop and tidy office space.  Ensure that all business vehicles are in good condition before you list your business for sale.  Inspect trailers and hitches to confirm they are in working order.  If equipment needs repair, consider doing this as soon as possible.  The investment to take care of these needs now will likely increase the value of your business for future buyers. 

You may also want to invest in new equipment if it’s available.  Modern workshops appeal to buyers that may not want to invest in updates once the business is purchased.  Installers with new tools may also be more efficient in their work, leading to increased productivity and therefore, more sales.  The same concept can be applied to the office as well.  Have a streamlined customer management system in place to show prospective buyers.  Establishing that effective processes are already in place will help them feel confident in a smooth transition. 

It is never too early to think about the value of your business.  Whether you plan to sell this year or many years in the future, put these practices in place to ensure your business is highly valued by prospective buyers.  Reach as many potential customers as possible through effective marketing, and offer products superior to your competitors.  Don’t lose sight of hiring and equipment maintenance, even if you are actively planning your exit.  Offering a strong business with great potential profit will put you in the best position to find the right buyer for your fence or decking company.

 

 

Selling Your FedEx Ground Line Haul Company Starts by Educating Buyers

FedEx Ground contracts are “the best-kept secrets in trucking” – but buyers need to understand why before they’ll pay top-dollar

The U.S. trucking industry is a large, sustained and critically important segment of the U.S. economy. In 2017, the trucking industry generated nearly $700 billion in revenue, and 71% of freight moved in the U.S. touches a truck, according to the American Trucking Association (ATA). While the trucking industry is a massive operation with millions of trucks on the road and millions of drivers employed, the overwhelming majority of trucking companies are small businesses. The ATA estimates that about 97% of these companies operate less than 20 trucks.

Of course, one of the biggest names in trucking and logistics is FedEx. This $50 billion company breaks itself up into four primary business segments – FedEx Express, FedEx Freight, FedEx Service and FedEx Ground. Every one of these segments has its own unique market position and offering, with FedEx Ground providing small package delivery services over the road, and ultimately to homes and businesses. According to a Market Realist report, FedEx Ground accounts for 25% of FedEx’s total revenue, but it has the highest operating margin of any segment in the company.

While most buyers may think FedEx Ground is just another trucking operation, FedEx Ground line haul contractors understand how unique and valuable their businesses really are. So educating buyers about these differences becomes paramount when you’re trying to sell your FedEx Ground line haul business. The first step in this process is to find out how much your business is worth. We have provided some basic formulas you can use to estimate the value of a FedEx Ground line haul business and get a rough idea of where you stand. Keep in mind, however, there is much more to putting an accurate value on your company than these simple guidelines. A professional business broker can analyze your entire operation and give you a true market valuation.

  • 2x-3x SDE (Seller’s Discretionary Earnings), with SDE up to $250,000
  • 3x-4x SDE, with SDE up from $250,000 to $500,000
  • 4x-5x SDE, with SDE above $500,000

While these rules of thumb are helpful to give you a general idea of your business’ value, there are several additional important factors that can significantly impact buyer interest in your business and the final sale price. These key factors can include the number and quality of your dedicated routes, the points you have on each truck, the total number of trucks you’re running, the condition of your trucks and your personal involvement in the business. A professional business broker with experience selling FedEx Ground businesses understands these factors and can provide you with an accurate market valuation of your business. Most buyers don’t understand what makes FedEx Ground different. Our firm has valued and sold numerous FedEx Ground line haul businesses and know what buyers need to understand to truly appreciate and get excited about your business.

Line Haul vs. Home Delivery

You’d be surprised how many buyers interested in FedEx Ground opportunities don’t realize the difference between line haul and home delivery. While that confusion is understandable to someone from the outside, you know how important the difference is between the two – and buyers need to understand that. In our experience, we’ve found that buyers are much more attracted to the operational efficiencies, scheduling ease and cash flow consistency of line haul operations, and those are the traits most buyers expect to see when they look at a FedEx Ground business for sale. Some of them get turned off quickly when they see a home delivery business instead but don’t realize there is a difference. So it’s important to always start at step one with a buyer and make sure they understand the differences in these to segments of FedEx Ground and the benefits of a line haul operation.

Dedicated Routes, Points, and the Open Board

Most buyers looking at a FedEx Ground line haul business for the first time are probably used to a more traditional trucking contractor model and how loads and routes are typically assigned by dispatch. FedEx Ground’s dedicated routes are unique and lucrative, and buyers need to understand the true value of owning these routes. They also need to be educated about the point system. This is one of the harder aspects of the FedEx Ground line haul model for buyers to grasp because they don’t have a feel for the value of a point. Nonetheless, they need to understand how points are earned and ultimately used to improve dedicated routes or obtain new ones. Finally, buyers need to be taught about the open board and how the terminal’s route assignment rotation works. This helps them better understand the value of the dedicated routes and points also.

Deciphering the Settlement Statement

One of the beautiful things about FedEx Ground line haul is the weekly settlement statement. One of the confusing things about FedEx Ground line haul is also the weekly settlement statement. Because so much of the operational financial information needed to run a FedEx Ground line haul business is included in the weekly settlement statement, many owners rely on that reporting to manage their businesses and fail to maintain proper financial books and records. When it comes to selling your business, however, this can create a challenge for a buyer to properly evaluate and understand your business’ financials. So it becomes imperative for you to make sure your business has complete financial records that paint an accurate picture of the entire operation. For example, even though the majority of your fuel is deducted from your settlement, your P&L should still show an expense line for fuel. The settlement statement needs to be used as supporting documentation for your financials, not as your actual financial documentation.

Acquisition Financingfan-of-money-in-hands

Buyers and sellers both need to understand the difficulties in obtaining third-party financing for FedEx Ground acquisitions. Most buyers acquiring businesses priced from $500,000 to $5 million are going to pursue SBA financing, as well they should – for businesses in that price range, SBA financing is a tremendous tool. While we have heard rumors of FedEx Ground deals getting done with SBA loans, we have yet to speak to a lender, buyer or seller directly who managed to actually get an SBA loan approved. Without getting too detailed as to why the SBA avoids FedEx Ground deals, the two primary objections the lenders have are: (i) the businesses only have one customer – FedEx – so there is a tremendous customer concentration risk, and (ii) they do not like to finance deals with rolling stock as collateral. Any FedEx Ground owner and an interested buyer can argue why these two objections should be overcome in the specific instances of a FedEx Ground line haul business, but lenders very rarely deviate from their risk profiles and make exceptions. What this means is that in most cases, owners need to be prepared to seller finance a portion of the sale, and buyers need to be prepared to make a larger down payment than they would with a third party loan.

The Owner’s Role

Buyers must completely understand the owner’s role in a FedEx Ground line haul business. Not only because the buyer needs to make sure he/she feels comfortable assuming the owner’s responsibilities, but also because the buyer ultimately has to be approved by FedEx and the terminal manager to take over that contract. That terminal manager wants to ensure whoever takes over a successfully run operation understands what the current owner is doing and feels confident the buyer can replicate those duties. It doesn’t matter if the owner is a full-time driver or lives in a different state from his/her home terminal and visits quarterly, buyers need to make sure and understand exactly what role and duties they will be responsible for.

Overall, FedEx Ground line haul businesses are tremendously valuable and attractive to buyers – but to successfully locate a buyer, negotiate a deal and manage the operational and financial due diligence process through to closing is a difficult task. For buyers to get and remain excited and motivated, you can’t just assume they understand why they should be excited. Buyers have to be educated about what makes FedEx Ground line haul businesses “the best-kept secret in trucking,” as one contractor put it.

Today’s market conditions for these types of businesses make this a tremendous time to consider selling your FedEx Ground business. Whether that’s in the cards for you today, or you still need some time to get your company ready to sell, a professional business valuation is a great resource to have. That’s why we always offer business owners a no cost, no obligation business valuation before doing anything else. Feel free to contact us today and we can get that process started for you.

 

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Sigma Mergers & Acquisitions LLC: 18170 Dallas Parkway, Suite 203, Dallas, Texas 75287
Dallas Business Broker, Mergers & Acquisitions Dallas / Fort Worth / Texas

214-396-8100 Office
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