You may have decided this is the year you want to sell your fire or security business. But maybe your finances aren’t in the best shape. For many business owners in your position, the idea of selling with debt can be a daunting prospect. Did you know that many businesses hold debt at the time of sale? If you are in that position, you are not the first. Having debt doesn’t mean you have to wait to sell. You can still receive good offers for your business, but there are a few things to consider if you are in this position.
In this blog post, we will delve into the topic of selling a business with debt and discuss how to do so effectively. We will explore how much debt is acceptable for a business and how to fix up your business before selling to increase your offers.
Yes, You Can Sell a Business with Debt! Here’s What You Need to Know
If your fire protection business is carrying a little debt, you will be happy to hear that you can still sell it. While it is ideal to sell a business without debt, it is not always possible or practical. In some cases, it may be necessary to incur debt to finance the growth of the business or to cover operating expenses. This is especially true in the commercial fire and life safety space. If you want to expand your service offerings or build a bigger team, the equipment and training necessary can be very expensive. But if your investment in that growth pays off, your business’s success could be enough to attract buyers anyway.
A buyer may be willing to purchase a business with debt if he believes it is manageable and the business has a strong potential for growth. However, it is important to assess the level of debt and determine how it will impact the sale.
How Much Debt is Acceptable for a Business?
The amount of debt that is acceptable for your business will depend on a few things. The reason for the debt, the type of debt it is, and how it is impacting your business will all determine if it is considered a risk to buyers. To quote an article from Business.com,
“A ‘healthy’ debt amount will vary depending on your situation. Instead of reaching for a defined number, view healthy debt as debt tied to specific growth plans and strategies for your business.”
In the fire and security world, your business could be carrying “healthy debt” because you financed the integration of your services, purchased new vehicles, or needed to update your testing and maintenance equipment. Having clear paperwork on hand that outlines the debts you have, how much they are, and outlines how you expect them to serve the business will help you defend this debt when negotiating.
Buyers will be cautious about taking on a business with high levels of debt, as it could impact its cash flow and profitability. However, if your business has a manageable level of debt and a solid business model, you will still be in the running!
How to Fix Up Your Business Before Selling to Increase Your Offers
Whether your fire protection business has a significant amount of debt or not, it’s a good idea to prepare your business before you take it to market. Fixing it up before you try to sell it will increase your initial offers. This process may include organizing your financial statements and making sure you have all the data you need to showcase the MRR your business generates. Other things you can do to fix up your business before selling include:
- Clean up your warehouses and service vehicles. Take care of any outstanding repairs.
- Improve your AR aging report by doubling down on collecting payments.
- Clarify the terms of any existing contracts so you can accurately explain them to potential buyers.
- Assess your profit margin and look for ways to cut costs or streamline systems.
- Replace any employees who are not performing strongly or who hurt your business image.
It is important to look at your business through the eyes of potential buyers instead of your own. Buyers don’t know your story or reasons for doing things a certain way. They just want to find businesses that have strong outlooks for growth and profitability. By addressing these issues before the sale, you can increase the value of your business and potentially receive higher offers.
Honesty is Always the Best Policy, Especially If You Want to Sell Your Business Quickly
When it comes to selling a business with debt, it is essential to be transparent with potential buyers about the level of debt and the terms of the debt. Buyers will want to know how much debt the business has and how it impacts the long-term value of your company. They will also want to know how the debt will be managed after the sale.
Being open and honest about the debt can help to build trust and increase the chances of a successful sale. It can also help you set your expectations correctly and make changes if necessary. If you try to hide the true financial state of your business in early conversations, you set yourself up for false hope about the offers you could receive. Investors will not buy until they see all the financials, so it’s better to be upfront and proactive. They will be more willing to keep working with you to buy if they know what they’re getting into from the beginning.
Sell for the Right Price, at the Right Time with AFS! Start Today
Selling a business with debt can be challenging, but it is possible! By assessing the level of debt, fixing up the business before the sale, and being transparent with potential buyers, a business owner can increase the chances of selling for a great price.
To navigate these things in a way that maximizes your potential offers, it is a good idea to work with an experienced broker. A broker with industry experience can accurately weigh the specific complexities of your fire protection business and its current financial state to provide you with a proper business valuation. He can then help you showcase your business’s selling points in conversations with investors.
Rory Russell, managing owner of AFS, has over three decades of experience as a fire and security business broker. He has helped owners with a wide variety of financial circumstances receive solid offers for their businesses.
With the right preparation and approach, you can sell your business and achieve your financial goals, debt or not! Call Rory today to learn more and start preparing your business for a successful sale: 800-354-3863.