Running a service business is both rewarding and taxing, posing a unique set of challenges on top of those inherent to business operations in general. It follows quite naturally that selling a service business also entails a variety of particular considerations, such as understanding what type of buyer is the best commercial and cultural fit, or how to value a company with little to no physical assets.
With an unassailable track record of 39 years and a long list of recent, successful closings of service business sale transactions, Turner Butler (TB) knows these issues, and more importantly, how to handle them, better than the vast majority of business brokers and other intermediaries in the UK and outside of it.
Recent Service Sector Businesses Sold by Turner Butler
- Gemini Events – Events company specializing in motor vehicle events
- UK Fire & Security– One-stop-shop for CCTV and alarm.
- Ecole de Pole– Dance school and fitness club
- JE Curties Painters and Decorators – Painting contractor
- Edge Outdoor Activity- Outdoor activity centre
- Medscope – Medical equipment supplier
- Dreamboys -World famous male revue
The Ins and Outs of Selling a Service Business
Unlike companies fully or partially backed by assets (physical or intellectual), if we strip away a service business, we are left with an existing cash flow and expected cash flow in the form of an order book. This, of course, is simply stated and valued. However, it is everything that we peeled away that needs to be addressed to conclude a successful sale of a service business. These include:
- People, a service business’s most important asset
Service businesses are all about people. It is the skills and capabilities of the company’s employees that generate revenue for the business; to grow, the business needs to hire additional employees; and it is the business’s ability to retain its human capital and make good hires that ensure its continuity.
The TB take: As a service business ourselves, we understand the importance of people, and account for this in every stage of the transaction, from keeping the potential sale in utter confidence so as not to “rock the boat”, to helping existing and new owners guide the staff through the transition and making sure that the new owner is a good match for the existing organizational culture.
- Current owners, the key to a smooth transition
Service business buyers need to know that everything will continue to run smoothly without the involvement of the existing owners, especially as such owners are quite often the company’s beating heart. It is therefore vital to understand the owner’s involvement in the business and carefully plan the handover to the new owners.
The TB take: At TB we spend much time on shifting control of a service business from one owner to the next, including accounting for training, working out a transition period in which the owner continues to work at the company in some capacity and helping to draft non-compete agreements.
- Unraveling complex commercial environments
With service businesses often being knowledge heavy, reliant on complex pricing schemes and having a multitude of revenue streams, transparency is paramount to a successful closing.
The TB take: There is, perhaps, no broker in the UK with more experience in selling service businesses. This means that we are familiar with almost all service environments, with mavens in most verticals on staff, that we follow industry and market trends, that weinstruct our clients to be transparent throughout the due-diligence and negotiation process and that we are well-versed in all of the contractual and legal aspects of such transactions.
- Buyer fit and aligning expectations
We have already discussed the importance of buyer cultural compatibility, but the buyer needs to be an all around good fit, including:
- The acquired business must suit the buyer’s existing operations and strategy.
- Synergistic benefits should be obvious, e.g. opportunities for cost reduction, cross and up-selling, networking, etc.
- The acquired business should yield the investor a fair ROI in a reasonable amount of time (payback).
- The buyer should understand the business’s potential and how to achieve it.
The TB take: TB actively maintains a large pool of potential buyers whose profile is well known to us, allowing us to quickly find a robust group of candidates for each transaction. In addition, we help our seller clients position their companies (including making actual changes) to attract the right buyers.
Putting it all Together – the Valuation
All of these factors and more, converge in the company valuation, and at TB we have developed a notable proficiency in accounting for the special aspects of service businesses to maximize their valuation while still remaining satisfactory from buyer perspectives. We look beyond assets and liabilities, incorporating cash flow, employee and customer retention indicators, client concentration, acceptable industry multiples, seller discretionary income and a variety of qualitative factors. Our success with selling service businesses is a testament to the validity of our methods and the quality of our team.