After attending the Closets Conference & Expo in June and the Closet Institute of America Summit in October, I realized that there are many people who started their closet business in the 1990s and early 2000s. Many of those businesses are now 20-30 years old, and the owners are wondering:

• Can I sell my business?

• How do I go about selling my business?

• What do I need to do to get ready to sell my business?

• What will potential buyers expect of me?

• How much is my business worth?

• How fast can I sell my business?

I have heard these questions, and many others, that most of us have not thought about. What we have been thinking about was the next design appointment, or the next installation, maybe the need to hire a new employee to replace one that is leaving, or the repairs needed on a machine or a truck. Many of us “work in the business” rather than “work on the business”.

Thinking about your “Exit Plan,” whether it is to a family member, key employee, or selling it to someone you don’t yet know, takes planning. Otherwise, with no planning, small business owners risk being overwhelmed by the task and all its unknowns, and many end up just shuttering the doors after all those years.

Every company has a value. Finding out what that worth is can be both emotionally and intellectually intimidating, eye-opening, and frustrating.

First, what creates the value is what a buyer is willing to pay, and what a seller is willing to sell for. We have seen real estate, cars, and businesses sell for way more than we thought they were worth, as well as for way less. As you begin to think about selling your business, you need to talk to yourself and those who are close to you about how you will feel once the sale has been completed.

• What will you do?

• Do you want to stay involved in the business for 30-90 days, or maybe even 1 or 2 years?

After all the years of hard work, what amount of money will allow you, as the seller, to feel that you were treated fairly? What will the buyer, who may not have the emotional attachment that the seller has, feel is a fair purchase? The value of your business is determined by many factors: 

• EBITDA (Net Profit+/-)

• Customer data-CRM

• Accounting data-correct chart of accounts-QuickBooks, etc. 

• Processes like how to conduct a design appointment or enter a sold job

• Systems like how to purchase material, load a truck, process payroll

• Assets like trucks and machines

• Employees

• Jobs under contract or repeating business, like builders or interior designers

Arch Bhise from ClosetCRM, who sold the business he developed while in college, had a few insights and observations in his recent seminar at the Closet Summit. First, he emphasized, the buyer looks at a business without knowing or imposing an emotional value on the business. Rather, determining the value is just simple math.

The value of your business is first calculated on your EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). If your company made $100,000 last year in EBITDA, then the value of your company would be 2x this amount, or $200,000.

The higher your EBITDA, the greater the value. As your EBITDA rises, so does the multiplier. If a $100,000 EBITDA has a 2x multiplier, a $300,000 EBITDA might have a 3x multiplier, or a $500,000 EBITDA might have a 4x multiplier, etc.

The value can be increased or decreased depending on the accuracy of your data for both your customers and your financial processes.

Do you have a CRM (Customer Relationship Manager) that you use and keep current? If yes, you can add value to your business. If not, then deduct value.

Do you have an accounting system that you use and keep accurate (everything is entered into the system and it is not just used to create invoices)? If yes, you can add value to your business. If not, then take value away.

The value can be increased or decreased if your business has processes or systems, commonly known as SOPs (Standard Operating Procedures). Even if the process is “your way” of doing business, it is still a process and has greater value than no processes. However, “your way” process is valuable only if it is written down and repeatable by someone in the company who stays after the sale.

If you are the only one who can do things, then the value of the business goes down because you will not be there when you sell. Arch made an insightful and critical comment in his seminar: If, in your due diligence, you find that the owner of the business does not take many days off or rarely takes a vacation, that is a telltale sign that the business will have a hard time in the future without the owner. It tells the potential buyer that it will require them to work a lot harder to keep the business moving forward.

Think about how you make an auto purchase. It’s a significant investment that you hope to have for many years. There are many dealers to choose from. You research various makes and models that meet your needs, their value, their maintenance history, recalls and problems that have been documented, and then you make your selection. Someone who wants to buy a business will look for a business that meets their needs. This could be by industry, by location, by EBITDA-Profit, and other factors. How does your business compare to all of the other options a buyer has?

As always, many thanks to those who follow my column. I am grateful for your comments and feedback. Please feel free to reach out any time with thoughts or questions.

If you would like to receive my checklist for things to know when Selling Your Business, please email me at [email protected].

In the next issue of Closets & Organized Storage Magazine, Selling Your Business - Part 2, I will share some things that you should do now to prepare both yourself and your business for sale in the next 3-5 years. Yes, if you are thinking about selling your business, you need to think 3-5 years ahead of time. 

Editor's Note:  Tim Coleman, founder of CCCG, with 35 years of experience in owning and operating several closet companies, created Coleman Collaborations Consulting Group to help small business owners and managers. Contact Tim at 630-989-1417 or [email protected] to schedule a free 30-minute discovery call to see if he can help with your business.