Sorry To Burst Your Bubble… But Your Business Is Not Worth What You Think Is – by Gannon Mahaffay

I bet you wont like what I’m about to say, but you need to hear it and fix this problem:  50% of pest control businesses have little or no value outside of the real estate. There are basically 3 reasons for this:

1) The business cannot effectively and/or profitably operate without the owner

2) The owners take from the business is not any better than a standard job salary

3) Most of the revenue from the business is a one-off or one-time service and there is very little contracted reoccurring revenue.

Who would pay you $500,000 for a business with very little contracted reoccurring revenue to get a $70,000 a year job? The buyer could easily get a $70,000 a year job for $0. And the buyer would not have to work 60 hours per week either.

The only way to make your business worth the money it should be worth is to get into a position where it makes a significant amount of money without your direct daily input as well as generating substantial contracted reoccurring revenue. So what I’m saying to you is put systems in place so that you can get off the truck, get out of the office, and only sell service with contracts. You can call them agreements if you want to, but everybody signs one.

Let’s have some fun here. Let’s say I represent a national pest-control company with millions of dollars to invest. Today I am interested in investing in your business. I want to buy it. How much do I pay you? Don’t read ahead. Think of your answer. Write it down. So, I go ahead and write you a check. You party like it’s 1999 and everything is great. Three days from now, I’ll come to you and say,

 —  Hey, we were excited about taking the business to another level, and we had a plan and a team in place to do it, but our upper management decided to go another way and no longer want to invest in your business. Now, I certainly don’t expect you to give me my money back. However, I would like it if you would buy it back for a fair price.         

So, what’s the price going to be?

What is the first number that comes out of your head?

Was it the same number you sold it for?

I already know the answer to that: it wasn’t. You already know where I’m going with this. It’s worth the lower number, it always is.

I’ve had some interesting conversations during this exercise in the past. I did this exercise with a guy in Dallas Texas. His sale price was 5 million. His buyback price was 1 million. In another situation, the guy told me it would take $10 million to buy his business. When I asked him how much he would buy it back for, he said, hey, a deal is a deal. He would not even buy the thing back.

Situational Example:

Mike ran a termite and pest control company for almost 20 years. Mike decided it was time to retire. When I asked, how much do you think the business is worth? He answered, $1 million. I challenged him: he could not afford to pay himself more than $70,000 per year. The business was breaking even, and larger national companies were moving into the area and stealing his clients… And key long-term employees had already checked out, which caused a lot of churn within the business. They Basically we’re losing a ton of clients.

When Mike asked what I thought he could get for the business, he did not like my answer. I felt no one would buy a $70,000 job for any price especially in this case, because most of the reoccurring revenue was no longer under contract. You see Mike‘s right hand man convinced him that the best way to get new clients, was to sell pest control without a contract. This was a bubble-headed move because buyers buy contracts.  Fortunately, all of Mike’s termite business was under contract so there was some value there.

The best course of action at this point was to systematically liquidate their $300,000 or so worth of vehicles and equipment they owned free and clear and to get as much as they could for the contracted pest control and  termite business. There was $130,000 worth of annual contracted business. On his short timetable this was his best option. Definitely not a million bucks!

Action Solution:

All right, the truth is a no brainer... Your business is only worth what someone else will pay for it. The best tactic for selling your pest control business is to have it run well and profitably without your direct involvement. Not only does it need to run without you efficiently, but every client needs to be under contract/agreement.  I’m assuming you already know this, but probably haven’t done much about it. So, I’ll leave it here. Take a look at the ninja kick bellow and make a bet on yourself. You need to be accountable and be brave enough to hold yourself to high standards that will get you great results. 

 Ninja Kick:

 I realize that removing yourself from the day to day operations is difficult. I realize that things don’t go right when you are not involved. I also realize that putting everyone on a contract will take some effort by every member of your staff. However, you are selling yourself short by doing day-to-day tasks that don’t move your business forward, but only keep it from moving backward. You can do better than that, but you must do what I call making a bet on yourself. Most of the time, getting yourself out of these tasks involves spending money, perhaps buying automation or hiring help. Either way, you have to reach in your wallet and say: I can add more value to the business by spending this money to get my time back.

Now raise your right hand and repeat after me: I will not sell one-time past control… I will train my staff how to properly sell reoccurring service agreements…  And I will create the systems that will allow me to get off the truck and work on my business rather than in my business day after day.