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- Building Service Contractors Must First Get Their House In Order
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Value Based Purchasing-网曝门 Services-Commercial Cleaning In Corning, NY 14830. Go to for free reports.
When BSCs seek out a sale, the first item up for examination is their service contracts. A buyer will use these documents to evaluate everything from a BSC鈥檚 client mix, to contract length and terms, and profitability. They will also weigh a BSC鈥檚 profit and loss statements.听鈥淲hen you鈥檙e selling your business, those contracts are your assets,鈥� says Herbick. 鈥淵our value is based on those assets.鈥澨齏hen evaluating contracts, Graddon says his firm is looking at three things: cash flow, profit reliability and growth potential.听听Fast collections means a company doesn鈥檛 have to rely so heavily on working capital. And contracts that span one to two years, rather than month to month, reassure buyers that there will be recurring revenue in their future.听However, low customer satisfaction rates, expired contracts or a narrow client mix could easily make a sale a no-go. If a BSC offers a diverse range of services 鈥� or specializes in segments such as environmental services 鈥� buyers are more willing to put a value on growth potential. In some instances, buyers will request proof that specific customer relationships are solid.听鈥淚f you鈥檙e going to put all of your eggs in a basket, they better be concrete,鈥� says Herbick.听Another red flag is when BSCs are too involved in the janitorial company鈥檚 day-to-day operations.鈥淥ne of the biggest drivers [in a sale] is who holds the key relationships,鈥� says Herbick. 鈥淭here is no value if the owner is the only one with relationships. You want to transition those relationships to your employees.鈥滻f a BSC holds key relationships with clients, he or she threatens the viability of the business following their departure.鈥淥ur objective is to make companies more valuable, scalable and transferable,鈥� says Graddon. 鈥淪o that a potential buyer could come in and look at their nationwide enterprise and want to implement [a BSC鈥檚] platform. The more confidence they have, the higher they are going to pay for it.鈥澨鼳lthough broadening one鈥檚 customer base or fostering employee-client relationships is no easy quick fix, getting an honest gauge of the business allows BSCs to identify areas that may need work, so they can revisit selling the business later on down the line.听听
Get Business Practices In Order
In most cases, BSCs need ample time to clean up their financial operations. Herbick says some BSCs use their businesses like 鈥渁 personal checkbook鈥� to finance vacations, pay for meals, purchase vehicles, put family members on the payroll and other expenses. Although he says there is nothing wrong in doing so, especially in terms of tax benefits, he suggests halting these activities ahead of a sale.鈥淲hen a buyer walks into the business that, at face value, the financials look very different on a recast basis, their antennae is going to go way up,鈥� says Herbick. 鈥淲e鈥檒l tell the business owner to quit doing all that. Bite the bullet and pay the taxes, and you鈥檒l have a much smoother buying process.鈥漈hat鈥檚 because buyers will often request a 12 to 36 month 鈥渓ook back鈥� at a BSC鈥檚 financials.鈥淚f you just started making changes last month, you鈥檙e going to have an uphill battle,鈥� says Herbick.Other areas to look over include employee verification processes, hiring and recruiting, timekeeping, equipment and labor costs, marketing and advertising, staff safety and training 鈥� basically any and every facet that touches the business. All of these areas play into a company鈥檚 ability to spur business value enhancement.听M&A firms use a variety of rating systems and evaluations to help BSCs determine where they stand with the competition, and create a detailed plan to help them make the most of their businesses.鈥淵ou see the business through the lens you built it in,鈥� says Herbick. 鈥淭hat鈥檚 not the same lens the industry sees your business through. It鈥檚 all about optimizing your business.鈥�
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