Last time we talked about all the reasons you might have for selling your business. Even if you are not there yet, NOW is a good time to put plans and structure in place. The time comes for everyone at some point when removing yourself from your business will be a reality. Sometimes we execute a carefully planned exit, things go smoothly and we walk away with retirement or fun money and sometimes, the choice to leave is not ours to make, it is made for us because of health or personal reasons. In whichever set of circumstances you find yourself, early preparation can save a lot of disappointment and lost income potential when getting ready to sell.

We discussed the SOS plan that you need to have in place to get your business ready for the "marketplace". Systems, Operations and Structure. Systems include marketing, hiring, training and accounting. Operations include employee handbooks, company policy manuals, signed contracts and financial statements. And finally Structures, which would include company history, operational charts and backgrounds on all employees. When these elements are in place, your opportunity for a lucrative sale increases.

How much is my business worth? In order to answer that question, there are a few facts you must understand:

Sellers do not control the timing of a sale! That's right. The market and prospective buyers control when a business will sell. The market timing is a critical factor in deciding when to put your business on up for sale. When the economic climate is strong, your ability to raise your price is greater. When the economy is weakened and you feel desperation to sell, your price must be reduced in order to bring any prospective buyers to look.

Be prepared! Achieving maximum value for your business requires the owner to be mentally and emotionally prepared and "deal-ready" at any given time. (SOS)

What's it worth?

The worst thing you can do as a business owner is financially value the business yourself. The next worst thing is to have your accountant value the business. Why? Sellers historically overvalue their businesses. Buyers will always value a business lower than the seller. Accountants will likely side with their clients (you) and both will come in with valuations that are unrealistic and sometimes off the charts. When that happens, you will drive prospective buyers from even investigating your business.

Two cleaning companies that have similar revenue and profits in the same town, can be miles apart in valuation. Many variables like staff, systems, organizational structure, and potential growth all can affect the value of a business.

Rule #1: Get a professional business broker to place a value on your business. If you are curious (and I know we all want to know), contact a business broker or appraiser in your area. Set up a meeting and ask for a realistic evaluation of your business. Do not use a commercial real estate broker. They are used to selling buildings not businesses. Unless you own the commercial property in which your business is located, the best person to contact is a business broker, with experience in selling service businesses.

After interviewing several brokers recently, I have compiled a list of items that they will look at to determine a fair market price for your business:

• Gross Sales: What are your provable annual revenues and have they grown?
• Net Profit: What returns are you getting from the sales?
• Geographic location: Is it conducive to future growth? Are the demographics right for expansion?
• Comparable businesses for sale: What's your competition to attract buyers? What structure do you have in place that the competition does not?
• Proven owner add back: What are you taking out of the business in perks, compensation and benefits?
• Documentation of systems: Do you have written systems in place? Operations manuals? Accounting and Inventory? Timekeeping systems? Employee Handbooks?
• Longevity of clients: Do you have customers that have been with you for a long time or do you turn over customers quickly?
• Pricing Structure: Is your service priced to attract high, mid, or low level clients?
• Written service agreements: Do you have these in place? They are a determining factor in the value of your business
• Future of the industry: What does the future hold for the industry? A short write up by you or industry experts will help convince a prospective buyer that this is a good business in which to invest time and money.

After review and discussion of the above factors and input from you, a business broker will put together a "business valuation" for your company. You may or may not like the results, but it will give you guidance to the things you need to change or implement before you are ready to initiate a sale.

There are several other ways to determine the value of a business. Here's how you can get a snapshot of what your business might be worth. Keep in mind that the value is always personal and a buyer has to determine what it is worth to him/her.

Owner add back: This includes any monies and benefits plus profit paid to the owner. The average multiplier to use is 1.5-2.5 times owner add back. For example: If you take a salary of $30,000 from your business and the company pays your vehicle costs of $5000 a year + gas of $3000 + insurance of $1000 you are taking out approximately $39,000 a year which is called the owner add back. If we multiple this by 2.0, we could say that this particular business might be worth $78,000. You can see that keeping track of everything you take out of the business is important for future selling.

Liquidity valuation: This is commonly used for larger businesses that have equipment or real estate to include in the sale. If you had to liquidate all assets in a short period of time; what would that be worth?

Asset valuation: is the value of all the assets of the company. Supplies, equipment, office furniture and equipment, bank accounts and receivables would be included in this type of valuation.

The most common method for small businesses is the Owner Add Back and that is something you can calculate immediately. Once you have done the calculation, it is easy to see why complete records and accounting are necessary for the future. If your records are incomplete, start today so you will be ready when the time is right to sell.

Have an evaluation done so you know where your business is from a marketability stand point or ask a local broker for service business listings. All the information we have discussed is available to you. You may find it interesting enough to put it on the market now or you may find you have work to do before it is ready to sell and bring you the profits and future you have been working towards.

Sharon L. Cowan is the former CEO of a multimillion dollar regional commercial and residential cleaning company. A 25 year veteran of the industry, Sharon is a popular speaker and workshop leader. She has been a guest speaker and seminar leader for BSCAI and ARCSI and a two time award winner from the BSCAI. Sharon holds workshops throughout the country for cleaning business owners. She is a designated Industry Expert for The Janitorial Store and has written industry eBooks and white papers. Sharon conducts seminars for Jon Don Stores, is on staff at Indian River State College and a Board member for Cleaning For A Reason. Sharon can be reached at 772-563-7320 or www.cleaningbusinessconsultinggroup.com" target="_blank" rel="noopener">www.cleaningbusinessconsultinggroup.com Email: Sharon@cleaningbusinessconsultinggroup