After feeling the effects of low crude oil prices over the last five years, the oil and gas industry is again beginning to see some growth. Oil and gas services brought in $74.7 billion dollars last year, according to IBIS World, and growth is projected at 3.5% over the next five years. Because of this growth, it is a great time to consider selling your business. While that may seem like a challenging task, there are some things you can do now to ensure you get the best possible offer on your oil and gas services business. Consider these tips for selling your business for the highest price.
Prospective buyers will always place a higher value on successful, well-managed businesses. Therefore, to secure the highest price for your oil and gas services company, you must put it in the best position to sell. Before you list your oil and gas services business for sale, tackle the projects, big and small, that need to be done. Be sure all your equipment is in working order and handle any outstanding billing issues before you market your business to prospective buyers. The more turn-key the business is, the higher value a buyer may be willing to pay.
Now is the time to organize your financials as well. Buyers typically want to see profit and loss statements from the last three years, along with tax returns and balance sheets. However, they don’t want to see personal expenses run through the business. Clear and concise financials will give buyers the overall impression that the business is well managed, which is key to getting the highest possible value for your business. If you do have personal expenses run through the Profit and Loss statements make sure that you can easily define what would be considered “go-away” expenses. This means expenses that will go away when you sell the business.
As an expert in the oil and gas industry, you understand the value of working with experienced professionals. When it comes to selling your business, the same philosophy holds true. Unlike selling a home or a vehicle, selling a business is a detailed, time-consuming process. Working with an M&A professional that has vast experience in the oil and gas industry will take that task off your hands while you continue to focus on what you do best—running a successful oil and gas services business.
One of the most challenging parts of selling a business is determining the true value of the business. Business owners focus on the strengths of the business and thus tend to value it higher than it should be. Buyers, on the other hand, are looking for a deal. Typically, however, oil and gas services businesses are sold on a blend of Adjusted EBITDA over a three-year timeframe. This is because of the vast fluctuations in the market, and thus dramatic changes to the business’s revenue and profit over that three-year span. A business broker experienced in the oil and gas industry will be able to analyze the company’s financials and determine the best valuation for the business, as well as the timing of the sale. Your M&A professional will also vet potential buyers while maintaining confidentiality through the process. While they work to sell your business, you can have peace of mind that the sale of your oil and gas services business is in very capable hands.
Business owners often overlook potential red flags with the business and assume they can be easily explained away to potential buyers. The problem, however, is that many buyers will not even pursue a purchase if some of these red flags are seen. For the oil and gas services industry, one of the largest concerns for prospective buyers is customer concentrations. While some sales involve other oil and gas services companies looking to acquire more customers through the sale of your business, most buyers are hesitant to transition into a business with only one or two major customers. To get the highest price for your business, and to not raise a red flag to your buyers, you may want to consider selling when you have a larger customer concentration.
Another red flag for prospective buyers is employee vacancies. Fill all vacant positions with highly qualified people, and, because the needs of the oil and gas industry change often, cross train your employees in a variety of positions. If you’ve staffed your business with family members that do not plan to stay on after the sale, it may be time to start replacing them with employees that plan to stay on. If a buyer anticipates a mass exodus once the ownership transition takes place, they may factor that into their offer.
Business owners often ask when it’s the right time to sell. The answer is always to sell when things are going well. While that may seem counterproductive, the truth is that selling a business when things are going great allows the business owner the ability to be patient and wait on the perfect buyer. If you wait until you must sell, you may be in the position to take the first, not the highest offer you receive. Selling when there is no pressure to do so means you have the freedom to wait for the best offer for your oil and gas services business.
The average time it takes to sell a business is around six to nine months. You may be tempted to take the first offer you receive, but keep in mind that it is typical for oil and gas businesses to receive multiple offers, especially in times of industry growth, which could greatly increase your sales price. Your business broker will work with you to determine which offers to pass on and which to ultimately accept. In the meantime, you can continue to build your business and its value while you wait patiently for the best offer.
You’ve worked hard to build and grow your business, and it’s understandable you’d want to sell it for the highest price. Whether you plan to sell your oil and gas services company this year or many years in the future, these practices will ensure your business is highly valued by potential buyers. Begin by preparing your business for sale. Tie up loose ends, repair equipment, and organize your financials. Fill vacant positions with highly qualified employees and maintain a focus of providing necessary training. Next, find a business broker experienced in the oil and gas industry who can determine the best value of your business and begin to market it to prospective buyers. Finally, be patient while you wait for the best offer for your business.