July 17, 2019
This article first appeared in Wedding Planner Magazine Winter 2018/2019 Issue.
You’ve had your specialty or vintage rental business for a while now and have been contemplating selling. Long days, no weekends, and a constant churn and burn with employees leaves you considering other options. But where do you begin and what exactly do you need to do to prepare to sell? I’ll break down some keys areas to consider when prepping to sell your specialty rental business.
The best time to sell a business is when the business is thriving. This can make it hard because that’s usually the time you don’t want to sell because things are going really good. If you have even the slightest thought that selling your rental business is something worth pursuing, start planning now. A typical business sale can take an average of 6-8 months. However, it can take as long as a year or as short as a couple of months. So knowing the health of your business and understanding your cash flow can have an effect on your sale price.
When you work with a business broker, they’ll know the proper valuation model for your type of business. This can vary business to business: some may be a multiple of profit, revenue and/or cash flow. In the case of my specialty rental company, Something Borrowed Portland, the valuation was based solely on assets and our customer lists. While we may think our brand has a large say in a company valuation, this isn’t always true. Unless you have a brand as big as Nike or Coca Cola, don’t spin your wheels trying to put a value on what you think your brand is worth as you’ll be disappointed.
One of the most important things to do is to have up to date financial records. Whether you’re working with a business broker or selling your rental business on your own, the first item a potential buyer is going to ask for is your financial records. This is typically the last 3 years of your profit and loss statements as well as a current balance sheet. Tax returns may also be requested, so be prepared to provide those as well.
If you’ve not processed receipts hanging out in a paper bag at the bottom of your file cabinet, now is the time to start entering them (or hire a bookkeeper). In fact, I’d highly recommend you have an audit of your books by a certified accountant. This will give your buyer assurance and confidence knowing your financials are in order.
Items such as client and vendor contracts, patents and trademarks, leases, vehicle titles, and any other agreements should be organized and readily available. You’ll also want to start gathering a list of all your vendors and have access to your email list (which can sometimes increase the value of your business if your list is large).
I also kept a spreadsheet of all active liabilities and expense accounts with login and password details. While not necessary, it will save you time in the long run as you’ll be able to identify which expenses are integral to the health of the business, and which accounts have little return on investment and can potentially be closed/discontinued. Plus, once you’ve sold your rental business, if the buyer is assuming responsibility of those liabilities, they’ll want access to update contact information. One good way to do this is to look at your expenses over the past 3 months for recurring expenses, but also any yearly expenses such as website hosting or domain registrations.
If you’ve acquired assets while in business, you’ll also want to make sure your list is current. Assets may be any office furniture, computers or company vehicles. This is especially true owning a rental company as most business valuations for rental companies are priced based on your assets. This may be as simple as running a report from Quickbooks (or other accounting software) or another third party inventory tracking program (see related article).
If you have employees, you’ll want to provide a year-to-date payroll report broken down by employee, job role and wages. Take it a step further by outlining the roles and responsibilities of each employee, including a current job description for each. If you’re not on payroll, you’ll also want to share what your owner draws have been. You’ll also want to include details on any independent contractors you work with.
As you’re prepping to sell your specialty rental business, everything will be looked at under a fine-tooth comb, and especially your financials. Be prepared to answer questions on spending. Most of us likely have non-operational expenses such as continuing education, memberships and travel. These help lower your bottom line but should be excluded from the buyer’s analysis of your cash flow.
Most buyers will want to see your operations, especially if you have leased space as was the case with my rental company. Make sure your operations look as good in person as they do on paper and online. Buyers will take note of chaos and are looking for a well-oiled machine that’s orderly and efficient.
As you can see, there’s quite a bit that goes into prepping to sell your specialty rental business. Take these tips into consideration if you’ve been thinking of selling. It’s an emotional experience to go through, and may even take you several months if not upwards of a year to even decide.
There’s a lot to think about if you’ve been considering selling your rental business. Sometimes it helps to bounce your thoughts off of someone who’s gone through the process. Learn more about how I can help you with your process via 1:1 mentoring, scheduling a 2-hour strategy call, or arranging a website diagnostics review. Contact me via email or call 619.577.3117 to inquire and get more details.