It’s sad to say but many services that wish to sell are in dire straits. Many services have old, outdated equipment, pricing that is below industry standards, are not HIPAA compliant and are heavily in debt. One thought you should always keep in the forefront of your mind is; when I do something to enhance my service, how is that going to affect the outcome of an eventual sale?
Here are a few suggestions to keep in mind when getting your business ready to sell:
If you were six months away from selling your service then don’t purchase new equipment or upgrade your software. You will not recoup your investment in that short period of time. If you sell, the buyer may also prefer a different brand of equipment or may buy only your accounts. You would then have to sell your equipment on the used market, which usually brings only pennies on the dollar. If you are two to three years from selling and have old equipment, then by all means consider either hosting or buying newer equipment. This enables you to keep up with technology and your competition by offering the same or more enhanced services.
2. Rate Increase
Annual rate increases are recommended. One of the most important formulas I use in evaluating a business is determining profitability, which comes down to your rate structure. I recently sold a medical service for over 14 times monthly billing and the reason it sold for that multiple was the way the services were priced. It was very profitable averaging $365 per client. The service had only 140 accounts but billed over $50K per month producing a net profit margin of over 38%. Do not increase your rates just before selling your business to boost your monthly billing. A potential buyer will want to see a reasonable conversion history for the rate increase. I would also recommend going to a 28-day billing structure. This will give you an additional one months billing per year, which should increase cash flow and your annual revenue.
The biggest expense in the telephone answering service business in labor. Automating some of the functions required in the taking/delivering process can ultimately reduce your costs. Automating the messages delivery via email, fax, voice mail, text or cell phone will free up labor. You might also want to consider offering an automated attendant to increase call efficiency.
4. Cut the Fat
Get your business lean and mean. Cut out all frivolous expenses and release the dead wood clients. Any clients that are non-payers do not produce profit for your company – get rid of them.
5. Financial Record Keeping
Buyers are interested in businesses with a good profit margin of at least 25% or better, that have advanced equipment with updated software, management in place and a history of growth. One of the first items buyers ask for after reviewing your listing information is a current financial statement along with at least one previous years financials. Financials show historical growth as well as future potential.
6. Clear Title
Make sure you clear titles on your equipment, client base, etc., and that all your federal and state taxes are paid as well as being current on your payroll tax deposits. Buyers will do lien searches on you and your business, so if you have any skeletons in your closets – clean them up before placing your business on the market.
Of course location, cleanliness of the operation, a reliable, well trained staff, etc. all have something to do with how salable your telephone answering service is, but the above points are key in the process of getting your business ready to sell.