A Guide To Selling Your Company In The Security Industry

Over the next decade, six out of ten U.S. business owners plan to sell their companies, a noticeable increase over previous years. Many of these owners are baby-boomers with an eye on selling their businesses to fund their retirement.  As a result, sale preparation and exit strategy are high priorities for these owners. If you are one of these business owners who is thinking about selling your company, start taking steps today to prepare your business for sale.  Doing so will help to maximize long-term value and create a more profitable company.

In addition to retirement, there are several other reasons that you may be considering selling your company. Those reasons can range from insufficient earnings or working capital, to just wanting a change in professional direction.  But whatever the reason, preparing to sell means building upon your company’s strengths and fixing any weaknesses in order to secure the best possible purchase price.  Above all, adequate preparation can make this very complicated process much easier on you as the seller, as well as any potential buyers.

How To Plan For Selling Your Company 

When selling your security company, you should start with being honest about your motives, managing your expectations, and also expecting some challenges along the way. Additionally, make sure that you identify common buyer desires and concerns, while also maintaing an open-mind about the process. Taking these basic steps will ultimately put potential buyers at ease when making decisions about their purchase.

Planning for a sale should also include tightening your operating income by, as an example, minimizing your overtime payroll and negotiating possible rate increases with your clients. Reducing overhead expenses to the lowest possible level is also key.  There are additional steps that you should also be taking in the overall planning effort, such as:

  1. Make sure that your books and records are clean and up-to-date and that you meet with your CPA, attorney, or tax advisor to review the tax implications of the sale.
  2. Contact your insurance broker to discuss your company’s loss history and current status.
  3. Review any senior debt agreements for a requirement to obtain written permission from the lender prior to selling any assets.
  4. Locate and review all of your company’s legal documents:
    • Vehicle, equipment, and office leases
    • Loan documents
    • Insurance policies and reports
    • Board minutes
    • Shareholder agreements

Valuation Of Your Company

Although in the security industry a buyer’s offer is often put in terms of a multiple of monthly revenue, the dollar offer as a whole is most likely driven by the cash flow that the buyer can confidently expect to earn post-closing.  But there are many other quantitative, as well as qualitative, factors that a buyer considers in determining a valuation.  Among them are the length of time you have been in business, the quality of the client base and current management, the percent of contracts with Standard Service Agreements, and the average account size in weekly hours.

Valuations also look at your client concentration (one or two clients representing a high percentage of the business), the percent of low bid business versus “relationship-based” contracts, and the physical assets that are required for each contract (i.e. vehicles, security guard management software, etc.).

What To Expect When Selling Your Company

Most offers today include a cash component to the seller at closing, with the remainder held back for some set period of time as insurance for the buyer that the revenue base remains. Normally, the “Hold Back” amount will be diminished for any loss of revenue unless that loss was a result of the buyer’s actions.

The length of the Hold Back period may be determined by several factors including but not limited to: 1) The willingness of the seller to remain with the organization throughout the period; 2) Contracts that may be in jeopardy at the time of the closing; and 3) The amount of time remaining on current contracts before their renewal dates.

Prior to the closing, be prepared to undergo a rigorous “due diligence” process.  If this process sounds daunting to you, but you are considering selling your company and would like some assistance, please feel free to post your questions about the process below.  You can also contact Keith Oringer of Security ProAdvisors at 908-470-0027 or koringer@securityproadvisors.com for more information.

 

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About Keith Oringer

selling-your-company-keith-oringer-security-proadvisorsKeith Oringer is a security executive with 24-years of experience in the contract security industry.  He has extensive experience in the acquisition of security guard companies and their valuations. He was the 3rd employee of a national company and was instrumental in growing the company to more than a billion dollars in annual revenue and 46,000 employees. Keith’s key operational roles during his tenure with the company included Vice President, and then President, overseeing a Business Unit with 3,000 employees and approximately $100 million in revenue.  His unit lead the way in profitability, client retention, sales, and receivables. Keith holds both a CPA and MBA in finance.

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