If you own a guard service business that has produced steady income over multiple years and/or have growth potential, then you may be able to sell for a substantial amount. This review discusses how guard service business owners can plan and execute their exit strategy and sell for fair market value (FMV) or higher.
About The Security Guard Service Industry
The guard and patrol industry provide security services for individuals, businesses, governmental agencies, and more. The industry has performed well and offers stable and predictable income for established companies. However, there are risks involved, especially for guard and patrol service companies who carry weapons. In this case, a reliable insurance policy is paramount. Companies who have a large amount of their profits (usually 25% or higher) in one client may have a harder time achieving fair market value as well.
You should also check: How to Sell an Electrical Manufacturing Business
Rule of Thumb Data for a Security Guard Service Business
Rule of thumb data is commonly used when determining the value of a guard service business, particularly, with a market approach. This applies your company’s financials (i.e. EBITDA, SDE, and net sales) to the averages for your industry (sales data). The notable rule of thumb data for guard service businesses is as follows:
- Guard service businesses sold between 1.50 and 2.16 times the Seller’s Discretionary Earnings (SDE)
- Guard service businesses sold between 2.54 and 4.59 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Guard service businesses sold between 0.17 and 0.39 times the annual net sales
You should keep in mind that there are many additional factors that may not show up in financial reports that often play a large role in valuations as well. All too often these factors are overlooked by brokers, which leads to sales below fair market value. Specifically, your business broker should take a closer look at your growth potential, the quality of your workforce and reputation, your location, the stability of your clientele, your unique competitive advantage, and your reason for selling.
Sell Your Security Guard Service Business in 5 Steps
You can sell a guard service business in five steps with the assistance of a qualified and experienced business broker who understands your industry well.
The pre-marketing stage of the sales process is important as it makes the later stages much easier. These stages include (but are not necessarily limited to):
- Choosing a business broker – this first step is crucial. You want to find a broker who understands your industry and is willing to see the full value of your company, which may go beyond simply looking at financial reports.
- Business valuation – The broker you choose then provides a business valuation. This is an important first step to determining your sales goals and strategy. If you do not receive the value you desire, then you can plan a way to increase your company’s value and list it for sale at a later time.
- Document preparation – Also, you will need to prepare your legal, financial, and organizational documents. These documents are important for the later stages of the sales process.
The marketing stage is when you will find a buyer for your guard service business. Ideally, this is a buyer who understands the guard service industry and is in a financial position to make an offer for fair market value (or higher). In other words, the buyer should be qualified. Your broker will screen the offers and negotiate on your behalf. Once a deal is reached with terms that allow you to reach (or maximize) your sales goals, your broker can lock the deal in with a signed letter of intent (LOI) that outlines the terms that are to be included in the purchase agreement.
Due Diligence Stage
Due diligence should go smoothly so long as you have your documents prepared and are ready to answer any questions the buyer has about the company. Your broker can also assist with ensuring this process does not last longer than what is necessary, so you can move to closing the sale as soon as possible.
Closing the sale is an exciting (and often nerve-wrecking) time for both the buyer and seller. The goal is to make it through the closing without any delays or major obstacles. Your attorney can assist you through this stage; your broker will assist and may attend as well to ensure a smooth sale process. During closing, you will confirm the payment for the company has been sent. The purchase agreement is first reviewed and signed during closing as well.
You will transfer ownership of your company during (and possibly) after the closing meeting. There are several steps involved with transferring ownership of your guard service business. This includes (but is not limited to):
- Update legal information (i.e. business license)
- Update insurance policy
- Update lease or real estate title
- Transfer ownership of your inventory
- Notify employees and clients
- Provide access to all company facilities
- Provide the buyer with access to online systems
In some cases, the transfer may continue beyond this, and the seller may help the buyer integrate themselves into the company over the course of a week or two. This ensures a smooth transition without any major disruptions in business operations.
Are You Ready to Begin The Sales Journey?
After pouring countless hours into your business and building it into what it has become, has the time finally come to sell and start the next journey in your life? If the answer is yes, then contact the professional and experienced business brokers and consultants at Sigma Mergers and Acquisitions. We can provide a no-cost and no-obligation business valuation and answer any questions you may have during an initial consultation.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!