Do you want to sell your sign shop? This review from a business broker discusses how to value and sell a sign business in a successful and stress-free manner. We also break each stage of the sales process down and provide insights into the role your broker should play throughout the sale of your sign company.
About The Sign Industry
The sign industry is a mature industry with stable profit potential. Companies that have shown an ability to generate consistent revenue and profit are more likely to sell for a favorable value. However, the market of buyers is more selective than other industries. Due to this, it is important to work with a broker who understands the industry well and can find investors with a creative and design-based mindset.
The Sign Manufacturing Industry
The sign manufacturing industry is incredibly large. In fact, there are more than 30,000 sign manufacturing companies in the United States. The industry has remained relatively stable over the past five years with a predicted growth of 0.6% over the next five years. However, the industry is changing as the shift from traditional billboard advertisements to digital signage increases. Although, with the change, comes growth potential for the industry. Sign manufacturing companies generally sell for 45% to 50% of the company’s annual sales plus inventory or 2 to 2.5 times the owner’s SDE.
The FASTSIGNS Franchise
FASTSIGNS is one of the largest providers of advertising services in the United States. There are approximately 670 FASTSIGNS locations within the country. As a general rule of thumb, FASTSIGN companies sell for approximately 42% to 46% of their annual sales plus inventory.
A Market-Based Business Valuation for Sign Businesses (With Rule of Thumb Data)
A market-based business valuation determines your company’s fair market value (FMV). This is the amount you can reasonably expect a qualified buyer to offer for your company on the market. During the valuation stage, your broker will review your financial information and calculate your EBITDA and SDE. This is then applied to rule of thumb data (see below) for your industry. Of course, non-financial factors such as your unique competitive advantage, growth potential, location, and reason for selling may factor into your company’s value as well.
- Sign companies sold between 2.20 and 4.60 times the Seller’s Discretionary Earnings (SDE)
- Sign companies sold between 3.63 and 5.12 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Sign companies sold between 0.53 and 0.62 times the annual net sales
A General Guide to Selling Your Sign Business for Fair Market Value (FMV)
After you determine your sign shop’s value, you can shift your focus to the execution of your exit strategy. The sales process may include the following steps:
- Prepare your legal and financial documents
- Seek a buyer via confidential marketing channels
- Screen offers and negotiate a deal with a qualified buyer
- Allow an opportunity for due diligence and close the sale
- Transfer ownership and start your next journey in life
Of course, the first step is to contact a business broker who has experience with companies in your area and/or within your industry. They can help you put together a more personalized strategy that allows you to best reach your exit strategy goals and timeline.
Step 1: Prepare Your Legal and Financial Documents
Your broker should work with you to develop your sales strategy once you receive your fair market valuation. You will then need to prepare your legal and financial documents that potential buyers may request during negotiations, due diligence, and closing. These documents include (but are not limited to):
- Federal tax returns
- Profit and loss (P&L) statements
- Cash flow statements
- Balance sheets
- Inventory list
- List of employees
- Copy of your insurance policy
- Lease policy (or real estate appraisal)
This is not an all-inclusive list. Your broker (along with your attorney and CPA, if applicable) can help ensure you have all you need to begin the sale. Additionally, you may have already prepared some if not most of the documents on this list during the valuation stage.
Step 2: Seek a Buyer via Confidential Marketing Channels
There are several methods business brokers employ to ensure the confidentiality of the sale is maintained. For example, your broker may find potential buyers via online databases (private) and by leveraging their industry connections and contacts. In some cases, brokers may also utilize blind listings and non-disclosure agreements (NDA).
Step 3: Screen Offers and Negotiate a Deal With a Qualified Buyer
Your broker screens offers as they arrive to ensure the potential buyer is qualified and in a position to purchase your sign company. This is important to ensure potential deals do not fall through later in the process. Additionally, your broker, along with your input and guidance, can handle negotiations and secure you the best deal possible.
Step 4: Allow an Opportunity for Due Diligence and Close The Sale
The buyer you choose will sign a letter of intent (LOI) that locks in their intention to purchase your company after the due diligence process. During due diligence, you may need to complete the following:
- Provide the buyer with a series of documents (see above)
- Answer clarification questions about your company
- Meet with the buyer and/or allow them to visit your store
The buyer has every right to due diligence. However, this does not mean the process should drag on for months without any guidance or structure. Your broker should work on your behalf to ensure a smooth and speedy process, which allows you to close the sale sooner. After due diligence, you can schedule a time to close the sale and receive the payment.
Step 5: Transfer Ownership and Start Your Next Journey in Life
You may start (or complete) the transfer of ownership of your sign company at the closing table. Specifically, you need to notify employees of the sale, update legal information and the company’s commercial insurance policy (or policies), and provide the new owner with full access to the company (keys, online systems, etc.).
Trust The Experienced Business Brokers at Sigma Mergers and Acquisitions
The sales process for sign shop owners does not have to be stressful or riddled with setbacks. Instead, choose a business broker who understands your industry and has experience selling companies for fair market value. Here at Sigma Mergers and Acquisitions, we have helped hundreds of business owners through the sales process. Schedule a consultation today to get started.
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!