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transitioning Service-Based business

The Complexities of Transitioning a Service-Based Business

As a transition point in most service-business owners’ lives, exiting their business can be quite an endeavor.

Whether it’s “pounding the pavement” in the financial services industry or actually pounding the pavement as a General Contractor, these business owners form a special bond with their companies, clients and nature of their service. Imagine, an owner has worked for years if not decades growing, adapting, evolving and nurturing their business enterprise.  They’ve made huge sacrifices, including personally and with their family, and have put their blood, sweat and tears into this dream. Although the emotional nature of a service-based business sale can be extremely difficult to manage and is filled with uncertainty and fear, the reality is that there are many other practical hurdles and pitfalls that must be overcome in order to complete the sale of a business and do so optimally. You’ve got one shot at making a successful exit. Doing it on the cheap will not serve you and money will be left on the table….yours!

Arguably, a business is the most important and valuable asset in an owner’s life.  When they come to the realization that they are ready to sell, most often owners discover that they are not prepared for complex intricacies associated with the selling process. Some choose to get the help of professionals and continue to concentrate on their business.  Others decide to go it alone and think that they will save money by doing so. However we caution that more often than not, success is elusive and if a transaction is completed, net proceeds are less. Unfortunately, most owners spend more time planning a vacation than they do in planning their business exit.

Successfully transitioning out of a service-based business and getting its full value is not an easy task!

Let’s discuss a sampling of the practical challenges that one will face as they proceed through a business transition process:

DISTRACTION:  Selling a service business requires a significant commitment of the owner’s time and resources and as a result, represents a huge distraction from the operation of their current business – which, by the way, is the primary way they make money.  As they shift their focus to the daunting sales process and confront the level of commitment that it requires, owners can often lose their competitive edge, lose market share, diminish profitability, neglect their client base or fail altogether.

UNDERSTANDING VALUE:  Upon the initiation of the sales process, most owners begin with an inflated sense of value for their business and rightfully so; in the case of service-oriented businesses, these owners have built their bag of business, fostered relationships, and grew accounts into marvelous partnerships.  This has been their baby for many years and much hard work has been put into it.  However, in most cases, such a lofty valuation is not indicative of the real marketplace.  Should they go out to market with an unrealistic asking price, they are really doing a disservice to themselves and sabotaging their potential success.

CONFIDENTIALITY For an existing and operating service business, maintaining maximum confidentiality is pivotal to the success of the business and transaction.  Unfortunately, this creates a conundrum and limits the marketing of the business.  Unlike selling a typical asset such as a house, a car, product or service, selling a business requires complete confidentiality.  You are burdened with the task of selling a valuable asset, without being able to advertise it for sale or allow it to become public knowledge.  If not confidential, people associated with your business, including customers, employees, suppliers and financiers, become unsettled.  You risk affecting your current business volume, client base, employee retention, competitor bad mouthing and strategies, and ultimately, your profitability.

MARKETING:  There are many requirements and obstacles that must be contemplated when seeking to market a service business yourself. As explained above, all marketing activities must be done in complete confidentiality. Additionally, a marketing package must be assembled that presents the highlights of the business and includes all pertinent information that a buyer will need to make an assessment of their interest. With selling service business, this can be a particularly-difficult task. You have only so much to offer and cannot offer yourself as part of the sale. Physical assets, book of business, profitability mechanisms, technology and human resources are all marketable factors in a service business. Most owners are blindsided by the enormous commitment that is required and many are unable to take on this challenge while still operating their business.

MANAGEMENT:  Should the owner of a service-based business succeed in navigating through the above issues and receive an offer to purchase their company, a new set of challenges will await them. They will face the complexities of deal structure, negotiations, legal issues, due diligence, contingencies, timeframes and the management of many documents to name a few.  The process includes a huge series of tasks, deadlines, paperwork and professionals to manage all the way through to closing.  There are all kinds of ways for a deal to fall through or get caught up. Professional and thorough oversight is paramount to lessen this risk.

As you can see, selling a service business is a complex and difficult process that requires a diverse skill set as well as strategic planning, expertise, market intelligence and absolute commitment. KeyeStrategies helps owners navigate this complex process and achieve maximum profitability while reducing the strain on already-busy owners.

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Julie Keyes
Julie Keyes

Founder & Owner at KeyeStrategies, LLC

Julie is a Certified Exit Planning Adviser and Value Growth Advisor with 30+ years of experience. She works with business owners who seek to understand and maximize their exit and critical transition options.