Electrical Contractor business for sale

Planning a Successful Exit Strategy

Many small business owners have up to 90% of their net worth tied to their business, yet when it comes time to sell, they don't know where to begin. Rather than placing an ad in a local newspaper, calling other contractors in the area to let them know they're interested in selling their business, or sticking a “For Sale” sign in the front lawn of their building, owners of electrical contracting firms need to confidentially present their business to serious and financially qualified buyers, says Mike Ertel, a certified business intermediary with the Bradway Group, a Tampa, Fla.-based business brokerage firm.

Preparing a business for sale can be a time consuming and confusing process for owners, he says. If the word gets around that a business is up for sale, the electrical contracting firm can risk losing sales, key customers, or top performing employees. Therefore it's critical that you spend a lot of time preparing for the day when you do sell your business. Here are four steps to selling high and retiring rich.

Start early. You may decide to get out of the contracting business due to poor health, retirement, or financial problems. While some of you may pass the business on to your children or sell it to a trusted executive, others may need to actively seek a buyer for their business.

Regardless of why owners are putting their businesses up for sale, they must spend at least a decade in advance preparing to sell their company, says Kerri Sullivan-Kreiss, president of SullivanKreiss Financial, a Northborough, Mass.-based financial planning firm. By allowing as much time as possible before the actual sale, a business owner will be able to implement well thought out strategies over the long term. “The last thing you want to do is leave yourself a six-month or one-year window because these transitions often take a few years to put together, ” says Sullivan-Kreiss, a certified financial planner. “The danger of a last-minute, eleventh-hour strategy is that you might not get the value you were looking for from your company.”

When business owners only have five years or less to prepare for the sale of their company, they can cut some of their options short, Sullivan-Kreiss says. By looking ahead, you can position your businesses effectively and ultimately get optimum market value for the company. And if you're working within a 10-year timeframe, you also have the luxury of engaging in strategic planning in order to save enough money for retirement. To get your business to a certain value in the open market, you can bring in a salesperson to attract new clientele, jump into a new market niche, cut down on your overhead, or acquire another company.

“Business owners pour their heart, soul, and every resource they have into growing their business, and a lot of times, their company is going to be their biggest retirement asset, ” Sullivan-Kreiss says. “Planning is absolutely paramount for long-term financial security.”

You should also make decisions that will make the business more attractive to potential buyers and minimize capital expenditures. For example, rather than moving to an expensive new office building, it may be more beneficial and cost-effective to keep the operation in its current location.

Determine the net worth of your business. The value of an electrical contracting business extends well beyond net sales, says Dana Barfield, registered investment advisor for the Barfield Group, a Richardson, Texas-based firm that specializes in providing financial advice to entrepreneurial and family-owned businesses, including electrical contractors. Many owners start their business from scratch and work for 25 or 30 years to establish a successful operation. As a result, they need to do everything they can to protect the value of their business and take care of their longstanding relationships with their customers, he says.

Sullivan-Kreiss says the value of an electrical contracting business is based on a variety of factors that are often difficult to quantify. Your company's reputation, employees' capabilities and qualifications, and past performance all come into play. You also need to evaluate what markets your electrical contracting firm serve and in what regions, and identify your key advantages over your competitors. You then need to figure out how much it would cost your competitors to steal away your large clients or break into your hot market segment in terms of travel, training, and capital expenditures, and then incorporate that amount into the overall sale price of the firm.

Contracting firms turn profits based on services rendered, and as a result, they may have an attractive cash flow but a minimum amount of hard assets. Unlike other businesses, it can be tricky to determine the exact value of an electrical contracting business, Ertel says. “Electrical contractors are profitable in terms of the cash flow that they generate, but the problem that they face is that it can be extremely difficult for a bank to finance them, ” he says. “This hurts the price that a private investor can pay.”

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