Andrew Usher, Director at Catand Advisory, shares an essential checklist for anyone considering selling their pest management business in the near future.
Quite often a business owner is ready to sell their business, but may not have all their ducks in a row. Emotionally they may be ready, but whether the business is ready, especially to attract the best possible valuation, is another matter.
If we think about it simply, getting ready to sell a business can be thought of as a checklist.
Whilst a list may seem simple – and in a number of cases, it is – preparing for the sale may require a change of internal processes for the business, which will take some time to settle into a routine. Getting a business ready to sell can take time, so the earlier you start the better.
Let’s take a look at the checklist of what you should consider when preparing for a sale.
Financial documents
Simply put, messy books are a disaster. No acquirer wants to have to sift through a complex financial situation (even though you may be very profitable). Items to consider and start correcting could include stopping running cash income through the business and banking it, and removing all personal costs from the business.
You would need to put yourself in the mindset of how a new owner would run the business. More importantly, how do you prove the real revenue and profit and gain trust in an interested party? This would typically need to be done for at least 12 months to allow a ‘clean’ financial year to be prepared and presented by your accountants.
Just as importantly, all BAS returns, bank statements, and tax returns need to correlate to your financial statements as should any booking system you may be using. The more comfort an acquirer can have that the figures all correlate the better, and the quicker trust builds in the process.
Having a budget or targets are important to show what the financial ambitions are for you and your team. I’ve had a client who had a budget and a ‘BHAG’ – Big Hairy Ambitious Goal – which was higher than the budget, but which the team was committed to achieving. The acquirer at that time loved this as it showed unity within the team, with everyone working together to be successful.
Operational records
Typically, a professional pest organisation will be running a known and respected software database to manage their jobs (and potentially revenue), but certainly client data as well. These records should include how you schedule in jobs, how technicians’ daily runs are planned (route optimisation) and whether you bill from the system or from a separate accounting system. Either way is fine, but it’s important to have visibility on how you manage your debtors and whether your clients pay you on time.
Furthermore, you need to also factor in physical assets such as vehicles, tools and equipment. Can you show and prove that you maintain your vehicles correctly? Is there a procedure for equipment maintenance and a record of this? It’s good to show that care is being taken of technicians’ safety.
Another way of proving you run a professional pest organisation is through your compliance documents. This would include standard operating procedures (SOPs) and policy documents that you have prepared and may use with tenders, large contracts or even onboarding new staff. This could further extend to training records of staff members, including records of toolbox talks, seminar attendances, etc.
Customer and revenue proof
As stated above, the ability to verify your financials is important, as is the ability to show that you run a professional and structured business. The days of pest control businesses being run by the old card system are well and truly over, as it takes an immense amount of energy to transfer all that data into a database system – which for any acquirer means additional cost and risk of errors. No-one really wants to do this.
Most databases hold solid customer information, are easily accessible and allow this information to be extracted easily. It also allows an acquirer to evaluate key performance indicators, such as revenue per technician, job per technician, job per day, length of time allocated to specific jobs, how job revenue is split (termite vs general pest or commercial vs residential).
Having a structured process means accurate client records. This means you will be able to prove your client retention and that customers have a solid recurring service relationship with you as opposed to booking one-off services. Again, these factors are critical to an acquirer looking at your business.
It goes without saying that the quality of your client data should be top-notch. Typically this means including the full name, address, email, mobile number, and history of services for each customer. Any additional facts relating to jobs completed (in as much detail as possible) makes a transition as smooth as possible.
Legal and compliance
I touched on a bit of compliance above, however this can go a lot further. You will likely get asked whether you have had any legal issues in the past and if so what they were. This is easily identifiable as you may have legal expenses on your P&L sheet – so make sure you answer this honestly and provide proof that any issues were resolved.
Do your employment contracts comply with Fair Work and the terms set out in the Award?
Employment contracts are critical documents as without them, any dispute can become a matter of he said/she said. Staff may be unhappy in a new environment when something they have been promised is no longer made available to them.
Your compliance records should be up to date. This means having copies of employees’ drivers licences, pest licences, insurances, certificates for working with children or police checks, maybe even medical checks. Although this may be deemed as personal information, it is important to have this documentation as it shows you do not have a technician out there unlicensed and bringing potential risk to your business and brand. Just as important is how you control this i.e. the procedures you have in place to ensure these documents are current and not out of date.
There are a large number of moving parts to any business, but if you put yourself in the place of a potential acquirer you will understand that your word, whilst valuable, will not suffice – documented proof is important and will be required. Working through the above checklist is a good place to start to get your business in order.
At the end of the day, to gain maximum value, an acquirer is looking for an organisation that runs a tight ship and does things right!
Andrew Usher, Director, Catand Advisory
