Preparing Your Company For Sale

Selling Your Company

First step to selling your company – Identify your values and focus on fit.

When Jeff Martin thought about the next steps for him and his company, his primary concerns were for his employees, customers, and finding the right business partner. Jeff joined Friendly Group because of their shared values, focused on taking care of the employees, customers, and the local community.

It was a perfect fit. 

Jeff Martin, founder of Day & Night Air Conditioning, Heating & Plumbing, has been in the home services industry for more than 40 years and built a successful company with thousands of loyal customers in Phoenix and the surrounding areas. 

“Without realizing it, every day I was preparing my business for sale by building a strong company culture,” Jeff said. “Day & Night was founded on solid principles like valuing true craftsmanship, taking pride in our work, and caring for people.”

Jeff was not only readying his company for sale, but by focusing on company culture he positioned himself and his company to be able to choose the right buyer – one with values that aligned with their own. 

“Day and Night’s relationships with their customers and community are some of the best I have ever seen,” said Joe Bergman, CEO of Friendly Group. "The people and culture behind that are the reason for the strength of this brand.” 

Jeff’s HVAC and plumbing business had strong year-over-year financials, and they were in the right industry and geographical area where Friendly Group was actively looking. But what piqued Friendly Group’s interest in Day & Night was their reputation, their community involvement, and the quality of their people – they were the right fit. 

“Friendly Group asked us about our brand and our values, and we really got to know each other in the process. They wanted to understand more about our culture and who we are.” Jeff said. “They communicated that they wanted to partner with a company that was ‘doing well by doing good’ and that stuck with me.”

One way or another, everyone exits their trade company. Prepare now. 

Kevin Comerford, president of Service Champions North, has been where a lot of owners in the skilled trades want to be. 

His HVAC business has more than 250 employees in Northern California, and thousands of five-star reviews. And a few weeks ago, he became the flagship location on the West Coast for the Wrench Group after going through the sales process and being acquired. 

Comerford joined a ServiceTitan webinar recently to talk about the process. He was joined by ServiceTitan’s Chris Hunter, whose Hunter Super Techs was recently acquired by Turnpoint Services, and Kyle Berkman and Jeremiah Mann of Intrepid Investment Bankers, based in Los Angeles. 

Hunter started out as a technician in Ardmore, Okla., before building Super Techs with a specific purpose, instilled by mentors: Start with the end in mind. 

“I was thinking, ‘Why in the world would I want to start with the end in mind?’” he says. “And they said, “Well, here's the thing. You're going to exit your business. One way or another you're going to exit it. You might as well prepare for that now.”

Companies can sell a portion or all of their businesses, including customer lists, job and invoice history, equipment lists, and membership lists.  It’s important to be clear on what portion, if not all, you are selling. 

If the sale includes phone numbers in your account, then there will need to be a process to transfer the phones (in the case the purchaser is another ServiceTitan customer) or to port the phone numbers to another business.

But that’s not nearly all business owners need to think about. But the time to think about selling? Now. 

“I'm a believer that no matter what all great things are going to come to an end,” Comerford says. “No matter what, all great things. And so when I read the book, The E Myth, early on in my career, one of the quotes in there that Michael Gerber goes through is the only reason you should be in business is to sell your business.

“And so that over the years has just stayed in my mind. The only reason I should be in business is to sell my business. You don't really understand that at first.”

Comerford has grown his business. From his start in 2003 as a technician starting his own company to today, when he expects to finish with more than $50 million in revenue with between 235 and 250 employees, that has been evident.

And, he says, the company has maintained 15 to 20 percent growth annually for the past three years as an HVAC-only company. 

That only begins to explain why investors were drooling over Service Champions North. 

Here are Comerford’s tips for preparing to sell your business. 

1. Build a sales and marketing company instead of a trade company.  

Comerford says his company grew from one truck in 2003 to $15 million in revenue in four years. “We were a sales and marketing machine,” he says. “Never be ashamed. These businesses are sales and marketing machines, and that's the driver. And we just happened to be in the heating and air conditioning business. I never put the trade in front of the sales and marketing piece.” 

2. Decide when the timing is right. 

This is largely dependent on your personal plans, but give yourself a sufficient runway. Leave time for your business to be prepared for market to ensure a successful process. “For a lot of entrepreneurs, the right time to sell is a very personal decision,” Mann, managing director of Intrepid, says. “And it's based on what your goals are in life, what's going on outside of the business.”

3. Build a plan and a timeframe for your goal.

Comerford says he had a three-year plan. “And by creating that plan, and just in my mind, knowing where I wanted to be at $65 million in three years,” he says, “the universe just kind of put all these things together.” 

Sometimes, it goes more quickly than expected. “About 12 months into my three-year plan, that's when I got connected with Jeremiah and Kyle, and then it really accelerated for that six months,” he says. “And by 18 months into my plan, I had sold my business.”

4. Don’t be distracted by the process. 

Comerford said some of the best advice he got was to keep running, and growing, his business and let the investment bankers handle the details. “The best thing you can do is run your business,” he says. “You can't get distracted because you're going to be valued all the way up until the point where you sell this thing. They're watching all along and your value can change if they see you dip.”

5. Hire an investment banker. 

Comerford says he was “a little bit unsure at first” about this step, because of the cost. That, he says, was wrong. “Bottom line, it is worth every single penny for two reasons,” he says. “No. 1, it allows you to stay focused on your business. No. 2, these guys are pros. They know what they're doing with regards to getting you the most value for your business. … 

“They're the value builders for our clients to be able to pay a higher value for my business, for our product. They cost a lot of money. But by the same token, it is worth it, over and over again.”

6. Keep the process confidential to all except a small number of people. 

Comerford involved his controller, chief operating officer, marketing person and, later, the head of human resources in the process. He encourages owners to keep the group small.

“The last thing you want is for it to get out in the marketplace, as you can imagine, or even get inside your own company, which is worse, that you're looking at doing this,” he says. 

7. Bring in an investment banker.

Kyle Berkman, vice president of Intrepid Investment Bankers, helped Comerford through the sales process, providing a different kind of expertise—contacts with private equity, experience structuring deals, and skill in the value documentation potential buyers need. 

“It's one thing to build a great business for decades or with lots of desirable characteristics and value attributes,” Berkman says. “We have tremendous respect for entrepreneurs that have climbed that entrepreneurial mountain like Chris and Kevin, and to really make things happen.

“Conveying those value attributes to investors is a different skill set than building a company. Telling that story is all we do, day-in and day-out. We're translators who speak the same language as investors, but we also speak the same language as business owners and superstar CEOs like Kevin.”

8. Leave some meat on the bone.

What you don’t want, Mann says, is to sell as things are leveling off in your business. The valuation a buyer pays is a multiple of your EBITDA, based on historical growth and expected future growth. 

“A buyer is going to pay a higher multiple if we can tell a really compelling growth story than if everybody is kind of gassed after this long run and you start flattened out,” Mann says. “When to sell is personal, but it's also looking at the track record of the business and making sure you've got a good year or two of additional high growth years ahead of you.”

9. Get your management team in order.

When buyers purchase a company, what they're really buying is the team. If that team is largely the owner, buyers won’t be as excited. 

“If you have a team that has a good operations person, a good salesperson, a good marketing person, really all the key players, as the company grows you can be focused on strategy rather than having to worry about every little detail of the day-to-day operations,” Mann says. 

That will also clarify who should step into the owner’s shoes, if the owner won’t be involved as Comerford is, once the company changes hands. 

10. Hire the help you need, even if it’s temporary.

Mann suggests hiring a temporary CFO or controller if a strong one isn’t already in place, and get legal counsel experienced in these sales. An estate planning attorney could also be helpful. 

“Typically, our clients before going through a process have been working with a general counsel,” Mann says. “Maybe it's a small firm or a one-man shop who's probably done a great job for general contract and lease review but doesn't have the sophistication to run a process.”

11. Get your processes, data and financials in order.

Buyers will ask lots of questions and dig deep into financials. It’s important to separate out personal expenses going to the business, for example, because that’s common in privately held businesses. For some companies, audited or reviewed financials lend credibility and aid the buyer in their analysis. 

A robust business software package such as ServiceTitan can help here, Mann says. The cloud-based system makes scalable, repeatable processes and robust data reporting easier.

“Are you tracking the right KPIs? Do you have dashboard and reporting packages going out to the key managers in your organization so they can manage effectively?” Mann asks. “Quite frankly, in this industry, it's things like, are you on ServiceTitan? 

“Because Kevin was on ServiceTitan when we were working with the Wrench Group (which also uses ServiceTitan), rather than having the Wrench Group give Kevin a list of 50 different reports they want, Kevin was able to actually download his ServiceTitan database onto their platform and let them slice and dice everything exactly the way they wanted it.

“In this industry, I would certainly recommend looking at that as a key value driver and certainly something that will make diligence easier if you're looking at selling in the next few years.”