How much can you sell your trade business for?
How much can you sell a trade business for?
When you’ve had enough working, the thought of selling your business for a nice payout is reasonably appealing, isn’t it? Who wouldn’t like that? Of course, you would.
And the answer to the question of ‘how much can you sell a trade business for?’ is it depends.
The general rule goes something like this:
So if it’s just you or just you and a couple of others but everything’s in your head, including your customer relationships and you get most of your business from word-of-mouth, you don’t have much to sell – maybe some equipment, tools, and vehicles and things like that.
You only really have tangible assets and the goodwill of the business, which might not be worth very much.
But if you’ve invested in systems to run the business and do the work, systems to manage the money, systems to find customers – win them and keep them, and systems to look after your important people, then you’re in good shape.
You’ve got something to sell and the value of your business is going to be much higher.
Quite often people value a business at three times the net profit after everyone’s had a salary. So if we pay you a fair market salary, multiply what’s left by three and that’s generally what people will pay.
Then it comes down if you don’t have systems and it goes up if you have strong systems. It goes up if you’ve got locked-in contracts and things like that.
The more confident a buyer is – that when you step out, and they step in they can keep the revenue and the profits that you have shown, the more they’ll pay.
Recommended Reading: Know Your Value Series
That something will be worth more – the more buyers feel confident that those systems will return value in terms of secure profitability, the more secure it is the better.
Chat with Matt Jones from Tradie Web Guys
I’ll be talking with Matt Jones as I may have mentioned.
We’ve been comparing notes and we’ve been comparing the advice we give about marketing for your trade business and also about building value into your business so it’s worth more when you come to sell it.
Matt is a fan of having a CRM, that’s a Customer Relationship Management database or software.
He’s a fan of using it to collect your customers information and market to them over the long term hoping to get repeat business from them. You get repeat business at a reasonably low cost and you build value into your business by having this database and evidence of how much business it brings in and that makes a lot of sense, doesn’t it?
You can show a potential buyer a database of 5,000 residential customers spending an average of $500 a year. That’s something they can look over and think that’s an asset.
I’ve previously been of the opinion that a CRM, an email marketing is too much investment for a trade business or particularly, for a maintenance trade business and their small trade business.
I’m starting to come around. Matt tells me it’s not as expensive or as fiddly as I thought, not so difficult to produce, and you could hire marketing managers to do the work for you.
I thought it was too much expense for the size of customers until you’re a bigger size of a trade business.
It’s cheaper than I thought, easier than I thought, so maybe I’m changing my mind.
Matt and I are going to co-host a webinar. I’m going to interview Matt for a bit and see if he can persuade me to change my advice.
As you can see I’m starting to shift. We’re going to decide if it’s worth investing in a database for your customers and in email marketing.
You make money from it in the short term, he believes. when you sell stuff to your customers. And you’ll make money from it in the longer term when you sell your business and you’ve built this asset into your business.
So we’re going to talk about how you should market your trades business to people you’ve sold stuff to before, not just about acquiring new customers.
We’re going to compare our two approaches. They’re quite closely aligned already, but we do differ on some aspects, so we’re going to look where we differ. You’re going to come away with a clear idea of what you should be doing to market your business then grow it and build an asset into your business, when you eventually sell it.
So click the link – tradiewebguys.com.au/smallfish, book yourself on to the podcast, they’ll send you a notification when the interview comes out and you can watch it.
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3. Attend my next Tools Down workshop.
See you later.