When you started your business, did you ever consider if and when you would sell it? If selling your business is a potential consideration for you, be sure you’re prepared — even if the plan to sell isn’t for years down the road. You’ll have to ask yourself a number of questions, some of which may be hard to answer. You’ll need to assess the state of your business and determine a value for it.
Cloister Wash & Lube founder Mike Mountz had been thinking about selling for a couple years. “After 30 years, I was getting really tired,” he said. “I really didn’t have any structure in place — no end plan. I thought, ‘Geez, what am I going to do?’ I didn’t want something to happen to me and then my wife would have to deal with it. I wanted it settled before it became something that wouldn’t sell.”
In 2012, Mountz sold the entire business — which included pet washes, motorcycle washes and lube shops — to Mister Car Wash, a Tucson-based chain with locations across the country. “I knew there was a Mister Car Wash and that it was growing,” Mountz said. “I also knew Ron Peterson, their chairman, pretty well. He’s just an upstanding guy, and that made me feel very, very comfortable about selling.”
For too many business owners, selling the business is only a consideration after a serious injury, illness or market change. In an interview with Inc., author Michelle Seiler-Tucker said, “The best time to sell a business is when your business is doing well.” However, that’s not when most owners go to sell. “Unfortunately many business owners wait until a catastrophic event has occurred to sell their business and when that usually happens, the business is typically trending downward,” said Seiler-Tucker.
If you’re on the fence about whether to sell, there are a number of factors to consider that might help you make that decision. Ask yourself these questions.
How is your business doing? Take a look at your business. Are you at the top of your game? If so, your business will be more attractive to potential buyers.
Your business needs to be “in shape” when you decide to sell. In a recent interview with Entrepreneur, Curtis Kroeker, group general manager for BizBuySell.com and BizQuest.com, said, “You can’t start putting things together the month before you sell.” Kroeker recommends two years of preparation. This means compiling your tax returns, profit and loss statements, and balance sheets. Seiler-Tucker also recommends tracking all your sales and marketing expenses as well. You’ll want to know if your ads are paying off, and so will prospective buyers.
Note that when you provide your financial documentation to prospective buyers, they might ask you who prepared the data. Hiring an independent firm to prepare or review your financial documents could increase the value of the business for prospective buyers. If you prefer to prepare the statements yourself, one way to put serious buyers at ease is by showing your corporate or personal tax returns to help substantiate your business’ profitability.
You’ll also want to consider what’s happening in the market. If the current market conditions in your industry are good, you might see a better return now than a few years down the road when conditions might have changed.
Do you need help to sell your business? If you’re serious about selling, it might be worth your time and money to invest in a team to help you sell: an experienced business broker, accountant and attorney.
• A business broker acts similarly to a real estate agent. Brokers, especially those specialized in the car wash industry, may have useful contacts throughout the industry who could be potential buyers. Also, some prospective buyers will be more comfortable working with a broker rather than interacting directly with the seller.
• An attorney can help with the initial preparation of your business’ financial statements and also the purchase or sales agreement. You can also ask your attorney to review your statements and documents and make recommendations about verbiage. This can help prevent legal issues in the future.
• An accountant will help ensure all your financial documents are in order and accurate. Having these done by an independent professional helps put buyers’ concerns at ease and provides you with a full picture of your business. Accountants can also assist with the potential tax implications of the sale.
Can you keep up with technology changes? New technology is a given in the car wash industry. Will you be able to keep up with those changes as they come? If not, selling your business now, before it’s outdated, might make a difference in your sale price.
Would you stay on if the buyer wants you to? In some situations, a purchasing company may ask you to stay on in a consulting role or some other function. Be prepared to have an answer: Would you like to stay on full-time, part-time, temporarily, etc.? Maybe you’re ready to retire. If you’re interested in staying involved, be sure to get an agreement in writing so that both parties are aware of the terms.
Do you want to sell your entire business or just a piece of it? If your business is a multi-service company, you should consider which portions you’d like to sell, if not all. If you do decide to make a partial sale, you’ll need to break out the financial information separately. This is where hiring an accountant could be helpful.
Probably the most important aspect of selling your business is determining how much your company is worth.
Brokers can help with this. A broker with experience in the car wash industry should be able to provide information about the valuation models buyers will use. If you’re able to talk to a number of brokers, you might get an idea of benchmark metrics for the car wash industry. Knowing these trends will help during negotiations with buyers.
If your business is a family business, look into what expenses are running through the business. If your business has a number of tax write-offs, it can make the business look less profitable, which results in a devalued business.
When Mountz was considering selling Cloister Wash & Lube, Mister Car Wash chairman Ron Peterson spent three days with Mountz, visiting the Cloister facilities. At the end of the three days, both Mountz and Peterson proposed what they believed the business to be worth. Both numbers were very similar, and a deal was made.
If Mountz could offer one piece of advice to those considering selling all or a portion of their business, it would be to invest wisely. “I had beautiful facilities — I felt as though that helped draw customers,” Mountz said. “In the back of my mind, I thought, ‘These facilities will bring more money at the time of sale.’ But the bottom line is that what dictates value of the business is EBITDA: earnings before interest, taxes, depreciation and amortization. The money and earnings are what matter — it doesn’t matter if it’s being done in what looks like a cardboard box. If you’re going to sell, be smart on the money you’re spending.”
Mountz also advised anyone considering selling their business, especially one they had built and grown themselves, to think hard about the decision.
“When Ron was visiting me, he warned me about how hard it was to sell; emotionally hard,” Mountz said. “He sat down in our house with me and my wife and told us to give the possibility of selling a lot of thought.”
Mountz said it was like trying to tell someone how hard it is being pregnant — you can share all the gory details, but you really won’t know what it’s like until you are in it. Mountz woke up in the middle of the night the evening after the sale. He said that after 30 years of washing cars with a great team, great customers and great vendors, he felt like he had suddenly lost everything and had no purpose. Within a month of the sale, both Mountz and his wife suffered major heart attacks. While both are doing well now, Mountz said that selling truly was one of the hardest things he’s ever had to do.
“I would advise anyone considering to sell to try to think what it would be like to be pregnant,” Mountz said.