Service

Service company owners who plan to sell their enterprise to an outside, third-party must take a hybrid approach in their strategic exit plan. In combination with mapping the value of the entity, or benchmarking, an owner must ascertain other aspects of the business that differentiate it from the pool of existing participants.

Depending on the nature of the service, service companies tend to have a weak balance sheet, therefore developing and maintaining intangible value drivers are critical to the success of a profitable ownership transfer. However, all service companies are dependent on the goodwill created from the very service offered and many are acquired by competitors seeking to expand services or market area. Some are acquired at a premium to decrease the pool of competitors.

  • Bonding: Does the company qualify for sufficient bonding? Is the company required to be bonded for the service provided and as a bonded provider, does the company gain contracts competitors may not?
  • Certification of personnel: Are employees certified and/or credentialed in the company’s service offering?
  • Clientele, repeat clientele and diversity: Who is it comprised of (government, commercial, residential) and is it transferable? Repeat clientele are essential value drivers and a high volume of referred clientele signals efficient operations management and a core position within the community and industry at large. A diverse base enhances intangible value.
  • Competition: Are services priced competitively? How does the company offer competitive prices and still maintain high-quality, timely services?
  • Contracts: Do they exist and are they transferable to an unrelated new owner?
  • Employee retention: What is the turnover rate and how does the company retain productive, reliable employees?
  • EPA, EEOC and workers’ compensation claims: Has the company experienced any significant litigious claims/issues?
  • Longevity in industry: How long has the company operated in the industry and is the name well-respected and recognized in the community as well?
  • Marketing and sales techniques: How is new business generated and how are existing clients retained?
  • Union affiliated: In some regions and industry sub-categories, union affiliation drives value down.
  • Working capital: Does the company maintain a sufficient ratio of sales to working capital? Sufficient working capital implies effective operations management and an adequate turnover of receivables.