Top 10 Reasons why NOW may be the best time to sell your company
1. Taxes on a sale are low now, but soon will be much higher
Whether you’re a Republican or a Democrat, like it or not, one thing is almost certain; taxes are going up, way up, in the next few years. President Obama has clearly stated his desire to raise taxes on upper income Americans and politicians in all levels of government are looking for ways to increase revenue. Increased taxes on the rich are a sure thing in the next year or so. If you are close to retirement or think you may want to sell your alarm company or accounts anytime in the next 10 years, you need to take a close look at your options now. You may think that only the rich “fat cats” will be affected, but think again. In the year that you sell, you will probably be one of those “fat cats.”
Federal tax rates are at historically low levels but are already scheduled to rise next year. “Tax the Rich” is becoming a popular cry. What does it all mean to you, especially if you’re not really ready to sell out? You need to reconsider your plans for the next 10 years. If they include continuing to build your company for a few more years and then selling, you may want to take another look. Talk to your tax advisor and compare what you might realize from a sale now at today’s low tax rates to what you might realize later from your potentially larger account base but with a higher tax rate. You may well find that there is nothing to be gained from waiting and, quite possibly, the return later would be less than today. This may also be a good time to be looking to your financial advisors for alternate investment vehicles for the proceeds from a sale. Again the potential returns could be far greater than continuing to build your company and account base for sale later.
Also consider the potential impact of more and more companies trying to sell their accounts as they all begin to realize the impact of the looming tax increases. Supply and demand dictates that a surplus of available accounts for sale will tend to drive multiples lower as buyers have more opportunities from which to choose. Remember also, the potential for a sweeping technological change that may adversely affect account multiples and values. Finally, don’t let the unexpected happen to you. Multiples are currently high, perhaps not at record levels, but still pretty good and not likely to go any higher for a long time.
2. Multiples are high right now
Multiples are as high as they have been in recent years but some industry experts are seeing them inching their way down! More importantly, there is little expectation that they will increase beyond today’s range. Trying to “time” multiples is like trying to time the stock market. How many people get burned every time a bubble bursts? When prices are high, there is a tendency to wait for them to rise even more, until it’s too late. The time to sell is when you can get a good price, even if it may not be the best price you’ll ever see. We believe right now is a good time to get a good price.
3. Quality buyers still have credit lines and cash
In every part of the country there are large companies with good credit lines and track records of acquisitions. Despite the bad economy, deals are being done with attractive seller terms. “Cash is king” for many sellers and it’s still possible to do a cash deal. On the other hand, if you’re looking for a non-cash deal, perhaps for personal financial or tax reasons, you have many options. One thing is certain, the financial strength and integrity of the buyer is critical. If you’re being paid over many months or even years, you want to be confident that the buyer will be there for the duration. Now more than ever, finding that “best fit” buyer is of the highest importance and it’s not necessarily who you may think it is.
4. The future is unpredictable
We’ve seen too many cases of unplanned sales due to unexpected events. Serious health issues affecting the principal or a close family member are by far the most common. Can your company continue to operate without your full-time involvement? What about the loss of a key employee or several? We’ve also seen serious financial problems due to internal theft or embezzlement by a trusted employee.
Perhaps your local government will provide monitoring. Back in the “old days” of direct wire monitoring, before digital communicators, many local police agencies provided monitoring in their dispatch centers. Back then the charges were minimal, but in government’s never-ending quest for revenue, many municipalities might see alarm monitoring revenue as a potential pot of gold.
Or, maybe the Cable TV provider or your local phone company will try again to provide alarm monitoring “bundled” into their overall communications service. They tried it years ago and were unsuccessful, but the communications industry has changed dramatically in recent years and so has their business model.
The digital communicator revolutionized the alarm business for the good; will the digital & internet revolution be as beneficial? Look at the digital photography revolution and what it did to Polaroid and Kodak. Aren’t you glad you’re not selling camera film or processing?
You know what your company is worth right now but there’s no way to know what the value will be in the future. We believe now is the time to act.
5. There may be attractive investment opportunities for the sale proceeds
Talk to your financial advisor, we don’t give financial advice, but right now there could be many alternatives for the proceeds from a sale, that both have the potential for locking in the current value of your company and offering the opportunity for significant gains over the next few years.
6. Non-response or verified response could reduce account values
Communities and Police agencies all over the country are experiencing extreme budgetary crises. They’re cutting back on staff and services. We’ve all heard the statistics quoted: “99% of all alarms are false, therefore it’s a waste of police time and budgets to respond”. Whether true or not, many people believe it, and when faced with the realities of limited resources, non-response to alarms seems like a reasonable thing to many municipalities and police departments. If your city or county stops responding to burglar alarms, what will that do to the value of your company? Can you afford to provide private alarm response? How many customers might cancel their monitoring if the police won’t respond?
7. Every dealer reaches a point where growth plateaus and stops
Remember when you first started your company? A small entrepreneurial company may seem like it’s growing rapidly in the beginning, probably adding a couple hundred accounts each year. As time passes, growth begins to slow as attrition of old accounts gradually rises. Eventually you reach a point where you need to substantially grow the company in order to sustain the growth. This often happens around 1500 accounts. Does this sound familiar?
Growing your company to the next level can be a daunting undertaking. The entrepreneurial skills that got you to where you are may not be adequate to get you to where you think you want to go. Growth often doesn’t work and you may risk losing it all. Ask yourself these questions. Do you want to take on the risks and problems that accompany that sort of expansion? Can you manage the new employees effectively? Are you prepared to delegate the responsibilities to others. Do you have the financial resources? Are you prepared to risk what you have already built in order to grow it to a potentially higher value? Do you really need the additional value that the growth is intended to bring in order to meet your ultimate goals?
8. The Digital Revolution has a steep and expensive learning curve
If you’ve been around for more than a few years, chances are, you were installing alarm systems back when the technology was pretty basic. Just a couple of wires to any device and any kind of wire would do. Some relays, a key-switch and some lights was about all the technology you needed to know about. It’s not that way anymore. The digital revolution has invaded just about every aspect of the business and will continue to do so. If you haven’t kept up with technology you may find the new IP equipment both intimidating and a little baffling. Are you relying on your technicians for your computer literacy? Not a good place to be and it’s only going to get worse. Just keeping up with technological innovations has, by itself, become a full time job. Staying current is both time consuming and expensive. Are you up to the challenge?
9. Avoid increasingly stringent licensing, code and regulatory issues
There’s no doubt about it; this industry is becoming increasingly more regulated. The cost of licensing and compliance continues to grow as more and more facets of our businesses come under some sort of regulation. And it’s not just the cost of the licenses and permits themselves, it’s also the hidden costs of compliance. Somebody has to be responsible for the licenses and, in most cases, there must be a “qualifying person” who maintains the experience and qualification credentials. If it’s the owner who is the “qualifying person” (as it should be), do you have the time, experience, and technical capability to qualify for and maintain all the required licenses. Can you afford to take the time away from day to day operations to obtain the ongoing update training that is often required to maintain licensing? If you are relying on one or more employees to maintain the licenses, what happens when they leave you?
10. You’re just getting tired of the grind
It’s just not much fun anymore. There’s never quite enough free cash to make the investments that you know need to be made. Just when you get a really good employee fully trained and productive, he leaves to go work for a competitor. Your best salesman and technician just quit last week and are opening a competing business across town. This morning, your primary supplier called to let you know that you’re over your credit limit and they can’t release your order until you bring your balance down. Those are the parts you need for the big job that starts today, for that big new account that you really wanted to impress. Your lead technician just called to inform you that the electricians union won’t let your guys onto a jobsite and your attorney sent you a note that your employee policy manual is out of date and needs to be updated at a cost of $5000. A customer who stayed home from work today is upset that the service technician just blew off a service appointment without even calling to reschedule. You just discovered that the sales manager has an alcohol problem and just smashed up his company car. It can seem like a never ending struggle. It may have been fun once, but is it really still what you look forward to every day? Perhaps it’s time to move on. (The author experienced all of these things first hand).
11. Bonus! Sometimes it's OK to sit back and enjoy the fruits of your efforts. Is this the time for you?
What’s your exit strategy? You’ve worked hard all your life and have built up a company that you’re proud of, and with good reason. You’ve “paid your dues”. Is it time to move on and fulfill other dreams? Do you even have a dream for retirement? Many small business owners have a hard time moving beyond the business that they’ve build from years of sweat and hard work.
Whether it’s travel, more time for a hobby, volunteer work or just kicking back to relax, it really is OK to sit back and enjoy the fruits of your efforts.p>
The bottom line: This may be the last, best time to sell that we will see for many years.
Don’t put it off any longer. Do your homework, evaluate your situation and, most importantly, talk to your tax, financial and legal advisors about your options. The rewards could be huge.
If you are ready to seriously look at selling, or just want to know what your company is worth, give the Graybeards a call. We’ve been helping hundreds of other dealers like you achieve their dreams for years. We want to help you get highest possible price for your company when you sell. Getting you the best deal is our only job. Our proven process works!