How Would Outsourcing Affect My Long-term Value?

Q: I’m considering outsourcing a couple services, how would this affect my long-term value?  

JT says: First, business value is driven primarily by your Adjusted EBITDA (total financial benefit).  Thus, if outsourcing delivers the following, value increases:  

• Greater Efficiencies
• Lower Costs
• Same or Better Quality

Second, this demanding industry often necessitates owners wearing many hats- all at once.  However, just because an owner can do something, doesn’t mean they should. 

Outsourcing possibilities include- Estimating, Recruiting, HR, Answering Service, Accounts Receivable, Online Marketing and Social Media.  Many vendors can prove higher quality at a lower cost (and faster turn-around times), a solid combination.

Third, added benefits of outsourced professionals include reduced stress/headaches, along with a better work-life balance as you’re able to remove some of these hats.  Please play some defense to protect your time and energy!

Lastly, as this trend is here to stay, it may be a terrific way to streamline operations, free up some time and energy, while adding value to your business.  

Get Answers + Get Prepared = Get Retired

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

Is the Market Still Strong Despite the Interest Rates & Tentative Economy?

Q: Interest rates are up, we’re in a tentative economy, and heading into an election year- is the market still strong? 

JT says: Since 2007 I’ve specialized nationally in restoration companies.  Over these 16 years there’s been a recession, 4 elections and a pandemic.  The industry has remained strong through it all.   

Currently however, elevated interest rates have taken a real toll on businesses below the SBA threshold of $5M in Value.  (Many buyers simply aren’t willing to pay variable rates currently reaching 10.5%.)  

Businesses from $6M – $100M in value, ideal targets for industry strategics and Private Equity, have not been affected.  In fact, as the supply of privately held independents begin to diminish, both prices and multiples are climbing.  Buyers in this range are still very hungry.  

The timing of a sale is often very personal to you and your family, rarely should it be dictated by external events.  If curious, receiving answers early will help ensure your best possible future, exit and timing.  

Get Answers + Get Prepared = Get Retired

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

Why is ‘Quality of Earnings’ Important When Selling a Restoration Company?

Q: Recently I heard the term ‘Quality of Earnings’, why is it important when selling a restoration company?    

JT says: Every restoration owner should understand this- your numbers and accounting practices will be scrutinized when selling.  

What-  Quality of Earnings (QE) is a forensic accounting process (by buyer) to verify accuracy of the numbers.  

Why-  Controller and CPA methods vary widely for:  revenue recognition, WIP, revenue/expenses alignment, large loss and CAT accounting practices, etc.  Thus, restoration numbers can be confusing as GAAP accounting is difficult to achieve (Generally Accepted Accounting Principles).

Who-  Most buyers retain a 3^rd party forensic accounting firm offering QE services.  

When-  Occurs in due diligence after an accepted LOI and takes 4-5 weeks.  

QE efforts always uncover irregularities. Some are small, others are deal-breakers (leading to renegotiations). As a result, there’s a trend for sellers to conduct ‘sell-side QE’s’. The benefits are numerous-

• Aligns value expectations early & accurately
• Increases confidence in buyers & lenders
• Helps ensure a smooth due diligence & successful sale

Get Answers + Get Prepared = Get Retired

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

Please Clarify the Basic Elements of a Deal Structure when Selling a Restoration Business?

Q: Please clarify the basic elements of a deal structure when selling a restoration business?  

JT says: Based on seller’s preferences, requirements, transaction size, financial trends and perceived risk (by buyer), deal structures may contain some/all of the following:  

Cash:  Funds received at the closing table.  

Fixed Notes:  Referred to as a Seller Carry-Back Note (SCBN), these are guaranteed fixed payments (including interest) over a certain number of months/years.  

Earnouts:  Agreements allowing the Seller to receive additional payments if the business achieves certain financial goals in the near future.   

Holdbacks:  A portion of the purchase price not paid at the closing table, but ‘held’ (short-term) in escrow to ensure there are no skeletons in the closet so to speak. 

Roll-Over Equity:  A portion of the Seller’s ownership stake getting ‘rolled over’ or invested into the acquiring company. (Can be very profitable investments.)  

Every deal is unique, yours will be as well.  If additional clarifications are needed for your specific situation, please reach out at any time. 

Get Answers + Get Prepared = Get Retired

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

When Considering a Sale, How ‘Clean’ Do My Numbers Have to Be?

Q: When considering a sale, how ‘clean’ do my numbers have to be?  

JT says: The definition of ‘clean’ takes many forms, allow me to substitute ‘defensible’.  Defensible means, ‘can we prove the numbers are what they appear to be’?  Initial responses are ‘of course’.  However, our industry has unique challenges surrounding consistent accounting methods, revenue recognition (correct time periods), WIP adjustments, collections, overhead allocations, etc.  Add-in large loss / CAT work, accounting gets tricky.  

After an accepted offer and in due diligence, buyers will conduct a Quality of Earnings (QE).  This forensic accounting process answers the ‘prove the numbers’ question above.  The result?  In most instances there are adjustments.  (i.e.- Your definition of ‘clean’ differs from buyers / lenders.) 

The best ‘defense’ is when sellers conduct their own ‘sell-side QE’.  Buyers are then approached with vetted and proven numbers, removing the likelihood of downward adjustments in Adj. EBITDA and business value.  When applicable, a QE helps ensure success with both your sale and retirement.  

Get Answers + Get Prepared = Get Retired

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

What Does a Valuation & Analysis for Restoration Co. Owners Entail?

Q: On a podcast you mentioned taking restoration co. owners through a Valuation & Analysis, what does that entail?  

JT says: Restoration contractors call me when they’re thinking of selling.  They have many questions but few answers. An insightful and educational tool, the Valuation & Analysis first looks at the numbers, then 12-15 intangible variables effecting the value of every restoration company.  

The process answers dozens of questions and offers numerous insights for the road ahead, allowing you to plan and make decisions with confidence:  

• What’s my business worth, and why?  
• Where can I easily add value in the next 2-3 years?  
• What’s the best deal structure, and why?  
• What should I do (and don’t do) 2-3 years prior to a sale?
• Who are the best buyers, and why?  
• When is the best time to sell, and why?  
• What will my taxes be? 
• How do I best preserve my wealth for retirement? 

The quality of your exit strategy and retirement deserve answers.  Every owner should start from a knowledgeable position.  

Get Answers + Get Prepared = Get Retired

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

How Do I Negotiate Effectively When Selling My Restoration Company?  

Q: How do I negotiate effectively when selling my restoration company?  

JT says: Please know the best negotiations start well before buyers are ever approached.  It’s most effective to first get your business in a solid and defensible position- resolve variables that lessen value, receive answers in advance for likely outcomes and scenarios, and gain clarity on financeability, deal structures, AR’s, WIP, Working Capital, taxes, and wealth preservation.  

With clarity the best buyers can be identified (and why), for both the business ‘transaction’ and your personal ‘transition’.  You then negotiate from a position of strength, not emotional reactions to buyer requests.

Ultimately, clarity and answers offer control over many buyer objections and eliminate costly surprises. This is the foundation of effective negotiating. 

Get Answers + Get Prepared = Get Retired

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

What are the 2 most common pieces of advice for those who are within a few years of selling?

Q: What are the 2 most common pieces of advice for those who are within a few years of selling? 

JT says: First, I’ve heard this phrase well over 100 times the last 20 years, “I should’ve reached out 2-3 years ago when the thought of selling first crossed my mind.” When answers are received late, it can simply be too late to effect positive outcomes or make changes. Early answers resolve many obstacles.  

Second, ensure your books are clean. (From a buyer’s perspective, not yours.) Not only misclassifications and ‘miscellaneous’ accounts, but tracking WIP, Aging AR, etc.  ‘Financial cleanliness’ is essential as it effects the Quality of Earnings and resulting value. A little effort here goes a long way.  

Together, these will offer crucial peace of mind for the road ahead.

Get Answers + Get Prepared = Get Retired

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

You just sold a $12M Business For a Friend of Mine, Why Would He Stay and Work For 2 More Years After Selling?

Q: You just sold a $12M business for a friend of mine, why would he stay and work for 2 more years after selling?  

JT says: Great question, one that is often misunderstood.  

‘Selling’ and ‘retiring’ are not the same thing. Many owners are not ready to retire but simply tired of being responsible for the day-to-day operations and related liability.  

Some buyers ask owners to ‘roll-over’ equity (10% – 30%) post sale, then let the seller focus on what they like best (i.e.- Biz development, large loss, or CAT). There are various combinations to selling then working, but owners can take some chips off the table, secure their retirements, yet still contribute. This leads to a more enjoyable work experience and work/life balance.  

Many view this as a nice half-step between ‘owning’ and full-on retirement.

Get Answers + Get Prepared = Get Retired

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

What are the 2-3 Most Common Hurdles When Selling a Restoration Business?

Q: What are the 2-3 most common hurdles when selling a restoration business?

JT says: Restoration businesses vary widely in size, services, accounting methods, cultures, owner involvement and more.  Considering this variety, the following typically gives buyers and lenders the most heartburn:

Inconsistent Sales:  Likely resulting from a large weather event, LL/CAT project, it creates uncertainty when determining an accurate Adjusted EBITDA/Cash Flow.

Improper Accounting:  Possibly ‘kitchen table’ accounting, or more complex issues- Timing of revenue recognition, WIP adjustments, overhead allocations, etc.  

Owner Involvement:  Owners of smaller companies (often husband/wife teams) wear many hats, replacing their knowledgebase, skillsets and responsibilities can be daunting.

The above issues do not automatically mean a business is not saleable.  Extra planning is simply needed for the best possible outcome.  

Get Answers + Get Prepared = Get Retired

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

As I Think About Selling, Are There Key Numbers I Should Focus On?

Q: As I think about selling, are there key numbers I should focus on?

JT says: Absolutely. Here are 4 numbers most consider essential for the best decisions:

1. Adjusted EBITDA: THE number driving value. Keeping sales, AR’s & margins healthy is essential.
2. Business Value: Largely determined by valuation methods and an array of industry multiples, all stemming from your Adj. EBITDA.
3. Pre-Tax Yield: This is the Business Value plus balance sheet adjustments: Cash, AR’s, Working Capital, Liabilities and closing related expenses.
4. Post-Tax Yield: Commonly known as ‘walk-away’ money. When it’s all said and done (and taxes paid), it’s what you get to walk-away with.

These numbers are not difficult to obtain. Once received, you’re well on your way to a successful plan.

Get Answers + Get Prepared = Get Retired

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

I’m Thinking About an Exit Plan, What Should It Include?

Q: I’m thinking about an exit plan, what should it include?

JT says: A basic exit plan should not be complicated. Key answers should include:

• What is my business worth?
• When is the best time to sell?
• Who should help?
• How will a sale likely be structured?
• What is my after-tax yield?
• How do I preserve those funds for my best retirement?

Obviously, there can be dozens more surrounding real estate, key employees, buyer types, confidentiality, finer points surrounding deal structures, the possibility of working after a sale, non-competes, etc.… including asking yourself “What comes next?” Everybody’s need for information is different. Please know answers to the ‘Big 6’ above are readily available, acting as a foundation for every other question that follows.

Get Answers + Get Prepared = Get Retired

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

How Critical are Industry-Specific Advisors in M&A?

Q: How critical are industry-specific advisors as I develop my ‘exit plan’?

JT says: Great question. Many advisors will say they’re able to assist. However, as you know, the restoration industry has many unique challenges. We essentially speak our own language. Thus, three reasons why industry advisors are best:

1. Industry advisors and consultants are well-versed in best practices, helping you perfectly prepare and maximize value.
2. An experienced industry M&A advisor knows the best buyers, both industry and Private Equity, creating speed and efficiency during the sales/negotiations process. (*Not ‘any’ buyers, the ‘best’ buyers.)
3. Negotiations and due diligence are much easier as you’re precisely and confidently prepped for the road ahead. From start to finish an industry advisor is the solid choice.

Get Answers + Get Prepared = Get Retired

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

What Should I Be Thinking About While Planning My Exit?

Q: All I’m hearing lately is M&A activity and multiples.  What else should I be thinking about while planning my exit? 

JT says: A few key questions will offer some insight.  First, do you want to sell and retire completely, or sell and then work a few more years for the buyer?  Fundamentally different answers, but central to your planning.  Second, are you feeling burned out, or actually ready to sell?  Some restoration owners call wanting to sell, but learn they’re simply tired.  We then refer support to create a sustainable work/life balance.  Third, a surprisingly simple yet complex question, do you know who you are without your business?  Answering is a struggle for some.  Ultimately, there’s a personal transition alongside the business transaction.  Awareness of both is valuable for your best outcome.

Get Answers + Get Prepared = Get Retired

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

How Do I Avoid Botching the Sale of my Business?

Q: It’s been on my mind to sell- how do I avoid botching the sale of my business?

JT says: With so much at stake, it’s a common fear.  After guiding hundreds of restoration owners through this process, I can say with confidence most wait far too long to ask questions.  Asking at the 11th hour offers little or no time to make key decisions or add business value.  Often, I hear some version of, “I really should have called you 2-3 years ago when selling first crossed my mind.”  Thus, ask questions and ask them early.  Solid answers lead to a smooth sale by taking simple, intentional and foundational steps for the road ahead.  It also supports this proven formula…

Get Answers + Get Prepared = Get Retired

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

I’ll be selling in 4-5 years. My GM and lead estimator just asked for a small piece of equity, good idea?

What are My Options if a Key Employee with Limited Funds Wants to Buy My Business?

Q: A key employee wants to buy my business but doesn’t have that kind of money.  Any good options?

JT says: Yes, options exist.  With solid financials, many SBA-backed lenders will accept a 5% down payment from a key employee.  If they’re already a partial owner, they may even qualify for 0% down with 100% financing.  Depending on your situation, it might be the perfect solution for transactions up to $5M.  Plus, you benefit by receiving your sale proceeds up-front with a nominal (or non-existent) carry-back note.  

Additionally, options may include a Stock Redemption Plan or an array of Phantom Stock structures.  Both can be tailored to your specific needs and timelines.  

When considering a sale or transition, these options deserve a closer look when there’s a willing key employee.

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

How should I respond to inquiries about buying my business?

Q: I get 1-2 inquiries a month to buy my business, what’s the best way to respond? 

JT says: Your response depends on what you want. A recent poll indicated more than 80% of restoration companies have been approached, likely including you. Your response could range from not interested, to jumping right into negotiations, with many options in between.

It boils down to your motivation to engage in a discussion. Has selling been on your radar? Taken any steps toward the possibility? Or, not for sale, but interested if a buyer paid a premium?

Motivation aside, without answers (and a process to stay in control) engaging in discussions is worrisome. Don’t simply react, maintain control of the communication and process. Your peace of mind and retirement will thank you.

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

When is the right time to sell my restoration business?

Q: Industry consolidation has me thinking about selling. How will I know when the time is right? 

JT says: There are two key factors: you personally and the business itself. Personally, are you financially and emotionally able to retire? (Very different questions.) Many owners are financially able, but not ready emotionally. Some want to sell and ‘retire’ from owning but still work 2-3 years. This can be a nice half-step toward full retirement.

Regarding the business, what is it worth now? How about in 3-4 years? Are there simple ways to add value in the short-term? After the sale, what will you net? These answers are not as obvious, but essential to ensure solid decisions now. 

In short, solid answers breed good decisions… and the best timing.

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.