One of the biggest issues remodelers face is how to value and sell their business. Initial response—it’s not easy. Secondary response—it can be done. There are myriad issues here, but with the appropriate planning and team of advisers, you can work toward creating a business model that will have value when you decide to exit the business and transfer ownership.
I recently spoke with Jeff Kraai, the president of Exit Strategies Inc., a company that assists contractors in the insurance restoration industry with preparing their companies for sale, and eventually offering consulting services for an ownership transition. While Jeff works in the insurance restoration industry, the very same principles apply to the sale or transfer of a remodeling company.
We started at the beginning:
- Whom do I talk to?
- Where do I start?
He pointed out that while many people invest in stocks and bonds, a remodeling company owner has the majority of their funds invested in one thing—their business. The question is how to convert this lifetime of work into a successful retirement (whatever that might look like).
Succession Planning
Succession planning starts with the hard questions about your business, such as:
- Is it best to sell my business, or transition to family members or key employees?
- How do I sell my business and to whom?
- How do I prepare my business for sale?
- When is the best time to sell?
- What is my business worth?
One of the most significant questions larger remodelers face regarding the decision to sell or transfer their business is wealth preservation—the process of converting their life’s work into a solid, future cash flow. To do this successfully, estate planning is mandatory. Most remodelers don’t understand detailed tax laws, so plan on working with a competent estate planner who can begin to highlight the transfer of wealth in the most appropriate and tax-efficient strategy. With the balance of your wealth at risk, understanding how to protect and preserve it is time well spent.
Most Businesses Lack a Succession Plan
Despite the growing awareness that designing an exit strategy is an essential process with numerous benefits, a recent study titled “Effective Succession Management” found that only 1 percent of surveyed business owners rated their succession plans as “excellent.” Sadly, more than 60 percent of owners described their succession plans as “nonexistent or poor.”
Business owners take calculated risks on a regular basis and have spent thousands of hours building and managing their business, but these same owners are spending little time designing an effective exit plan. Finding the handful of hours necessary to preserve the wealth they have created is falling to the bottom of their “to-do” list.
This is not a time to be the Lone Ranger. You will need to build a “transition team” that includes:
- ACPA
- Estate and financial planning
- A business transaction attorney
- A business broker or acquisition adviser
Working in harmony with your skilled advocates, your team members will have two priorities:
- Maximizing financial and emotional yield
- Minimizing your risk, both at the point of sale and into retirement
Ideally, this planning process starts three-to-four years before your retirement. This way, you have the ability to manage key value-drivers:
- Dedicated client list—a “book” of clients whom you work with on a regular basis
- Owner involvement—an owner working 20 hours instead of 70 hours a week
- Recurring revenue—your book of clients creating recurring revenue
- Management capacity—having the right people in the right seats
Unfortunately, for some contractors this planning begins less than a year in advance, and happens as a result of illness or disability. This “forced sale” is the worst possible outcome and can leave you with nothing to show for your lifetime of work. Alternately, the best-case scenario is creating an effective plan that protects you, your family, and your employees. A good plan protects the quality of your future. Protect your assets. Assemble the team who can assist you in creating a plan that does so.
Jeff Kraai is offering a free educational article titled, “Preparing Your Remediation Company for Sale.” Though industry specific, you’ll find an exact parallel to readers wanting to know more about building equity and transitioning their remodeling businesses.
Please email me at David@RemodelForce.com with the word ‘article’ in the subject line; I’ll then forward the article for your convenience. PR
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David Lupberger has been in the remodeling industry for more than 20 years and is author of “Managing the Emotional Homeowner,” “The Remodelers Turnkey Program,” and “The Home Asset Management Plan.” You can reach him at david@davidlupberger.com, or at 303.442.3702.
Only 1 percent of surveyed business owners rated their successions plans as “excellent.”