How to Overcome Challenges When Selling Your Business Services Company in California
Business is strong in California. Unemployment is low, and companies that provide services to other businesses are thriving. The market is wide open to those who are selling these types of businesses, but there may be challenges you should know about and know how to deal with.
Doing business in California is different than in other states, and potential buyers want to know about those challenges before they decide to buy and operate a business here. Here are some of the unique challenges the business service industry faces, and how you can help your buyer (and your business) overcome them.
What industries are a part of the business services industry?
The business services industry is made up of a variety of businesses. They include employment services, services to buildings, security, travel arrangement, waste management, and environmental remediation.
Many businesses fall under this category, and some provide services to residential buildings as well, such as landscapers, pest control companies, waste management, and even in some cases janitorial services. The largest category nationwide is employment services, with 30% of the market.
Why are business services doing so well?
One of the reasons these industries are doing so well is the low unemployment rate. While some larger companies like to move business services in-house instead of contracting them out to another company, in times of low unemployment, finding qualified workers takes time, energy, and expense they often don’t want to endure.
Demand is also driven by new business growth and increases in disposable income by businesses and individuals. In other words, when the economy is good, as it is in California, business is good as well.
What are some common barriers to entry for buyers?
This is a complex question, as there are so many different industries in this sector, but here are a few of the general ones buyers are concerned with and how to deal with them:
New Technology: New technology has changed the way many companies in this industry are doing business. For example, in the security sector, remote monitors and cameras allow remote monitoring of several locations at once, decreasing the need for as many on-site personnel. This means they are more profitable long term.
The Technology Cure: Make sure your business is up to date with the latest tech before you try to sell. If that isn’t possible or it’s something you just don’t want to tackle on your own, explain to a buyer what they will need to do early in the purchasing process.
Licensing and Regulation: Many businesses in this sector require special licensing and permitting at both the state and local level. For example, pest control services need special certification because they handle potentially hazardous chemicals. Your buyer will need to have or be able to get the necessary certifications.
The Licensing Cure: In the recent successful sale of a tree and landscaping business, Rogerson Business Services was able to find a buyer who had a general contractor’s license and one of several licenses he would need to buy the business. Because he already had his contractor’s license, getting other certifications was easier. The buyer was also able to qualify for an SBA loan because he held the licenses he needed. Encourage your buyer to have the licenses they need before they start the buying process to make things easier and faster.
Competition from Large Companies: Large business services companies have a certain amount of leverage for landing national contracts with other large companies. This means that the competition for these lucrative contracts is stiff and significant.
The Competition Cure: While large companies do get larger contracts, there are plenty of other companies out there. The industry overall is fractured, with the top 50 companies only holding 25% of the overall revenue in this industry. Localization and specialization are the cure, and if you have those, you’re ready to delight your potential buyers with the good news about your company’s earning potential.
These are just a few of the most common barriers to entry for buyers looking to get into the business services industry. Here are some more general tips when you are selling:
- Keep things positive. If you focus on the negatives of your business and the possible downsides and challenges, your buyer will too. Focus on the good things and describe ways to approach challenges that are positive.
- Be honest. If you have a typical down season where things are slower, explain that to a buyer, and tell them how you address it. If some key employees really make your company, share that as well, and what you have done to keep that group of employees satisfied. If there is anything wrong with your business, don’t cover it up.
- Answer questions, but don’t volunteer too much. This is a tough one. While you want to be honest and straight with your buyer, you also don’t want to reveal certain trade secrets and other vital information until the sale is final. Remember to keep confidential information confidential until you need to reveal it.
Remember that selling a business takes time and is about finding the right qualified buyer at the right time. Just because someone shows an interest in your company does not mean they are the right buyer for you.
Other Issues to Discuss
There are other issues your buyer should know about when they are looking at your business and getting into the business services industry in California.
- Taxation: California has unique taxation laws that affect the way you should structure a business. Talk to your buyer about these things if they don’t live in California currently.
- Escrow: Buying and selling a business in California demands a unique escrow process, and your buyer should have realistic expectations of how this works and what will be required.
- Financing: This is a discussion you should have early, in order to determine if the buyer needs an SBA loan and if you might have to carry part of the financing yourself to make the deal work.
Selling a business is probably the biggest financial event of your life, but buying one is also a huge deal for your buyer.
The Best Way to Sell a Business in California
The very best way to sell a business in California is by using the services of a Certified Business Broker. Their job is to find you the right buyer at the right time and help you through every part of the process of selling your business, from a business valuation so that you know what your business is worth to escrow and closing.
At Rogerson Business Services, with our extensive experience, we’ve probably sold a business a lot like yours. Still, every business is unique, and we would love to be your business broker. Contact us today to get the process started.