So, you've made the decision. You’ve put in the time, built a successful business over a number of years and now you want to go in a different direction. It's time to sell your cleaning company. But you want to ensure a smooth succession, whether it's selling to another company or handing over the reins to a family member.

Many people in this position turn to consultants, and there are several with experience in the building services contractor industry specifically. One such pro is Gary Penrod of Gary Penrod and Associates Inc., in South Carolina. "The transition of a business from one group to another is multi-faceted, but primary is having both groups — acting in concert — develop a transition plan that has the goal of making the two groups one," he says. "Any time there is a transition of any sort, it has to be done legally and both parties need counsel. So many times I see, 'Well, I'm going to turn the business over to my son or my daughter.'  Or, 'I'm going to sell to this larger competitor.' Those are situations that have to be dealt with effectively and precisely."

Mark Herbick, CEO of Pursant LLC, also weighs in. "To attract the most potential buyers and attain a better valuation and optimal deal structure," he says, "a business owner needs to demonstrate that a business is sustainable in the absence of the owner.  … Also, due to their entrepreneurial qualities, many owners don't make good employees and ultimately end up separating from the business post-sale. Good succession planning can help make that separation event less of an issue."

Both men agree the pitfalls are numerous. Penrod remarks, "For the buyer, it's thinking that once the deal is closed, good things will follow without planning, goal setting and execution. For the seller, a pitfall — especially if part of the price is in retained equity or earn out — is not tracking the progress of the business with regard to retaining customers, talented management and profit, all of which will influence the retained equity or earn out."

A seamless transition thus becomes imperative. Sometimes, but not always, it is important for the seller to initially stay involved, gradually letting go after six months or so, and making sure that everything is on track and the new ownership is functioning well. Herbick comments, "An owner should always plan for a transition period post-close. This transition period can range from a few months to up to a year.

The fact of the matter is that regardless of an owner's day-to-day involvement, they are the leader that people have looked to during the highs and lows of a business."

He continues, "As for whether it is best for owners to stay in the leadership position post-close, assuming there is a position, this varies from owner to owner. Again, some owners are simply not good 'employee' material. If they are, it often serves both parties — buyer and seller — very well, in that the buyer gets leadership talent in the deal, which is hard to come by, and the seller gets an opportunity to continue leading the business they owned and continued personal cash flow."

Penrod speaks with some authority on such matters. After all, years ago, he started a cleaning company and subsequently sold it. "I've experienced it," he says, chuckling at the memory, "and I knew I wouldn't be a good employee! So, consequently, I signed on with the parent company to help them with mergers and acquisitions. That was my role, but I no longer had anything to do with the company that I had sold to them."

Also speaking with authority on such matters is Peter Holton, Managing Director of Caber Hill Advisors. He advises, "I would always recommend having a professional evaluation done of the business from someone that is not attached to the business. The attorney or the CPA who is representing the company are always going to give what they feel the owner wants. Having someone objective who has no affiliation with the business, who's in the janitorial space, knows the industry, and is going to be objective is the best way."

He adds, "I always tell owners, 'There are plenty of people out there. You just have to ask.' Ask your peer group, ask people within [BSCAI] that you're not direct competitors with. It's very important to have an independent evaluation."

Every case is different, of course. As a consultant, Penrod recalls selling one cleaning company about a decade ago where there was a seven-year earn out. There were two partners, a father and a son. When the company was sold, the dad took the cash portion and the son took the earn out.  "He also assumed a role of CEO of the company," Penrod notes, "and he did quite well. His proceeds came from the earn out."

Holton states, "If said buyer is in the local area of said seller, you don't necessarily need to have the owner stick around. They can integrate pretty quickly. However, if the business has been dependent on the seller as the key sales person or the key operations person, then you would have to have some type of transition. That's where the deal terms and conditions would be structured as such."

Looking ahead, Penrod is especially hopeful regarding the second half of this year and into 2019 for our industry. "As far as the buyers, there are strategic buyers — people who are already in the industry — and there are investment buyers," he says. "Those are usually private equity firms. I think in 2018 and into 2019, we’ll see a rich climate for continued M&A activity. However, it should be noted that in this very large industry, there will always be M&A activity — more when there is a strong USA-world economic climate and less during recessionary periods."

Both he and Herbick concurred that BSCAI can be a good resource for members looking to sell their firm and ensure a smooth succession. Chiefly, the organization has learning sessions about selling a business each year at its annual conference. Herbick concluded, "All business owners should attend these learning sessions, as the day of divesting yourself from your business will come in some way shape or form. It's not a matter of if this separation will come. It’s a matter of when."

At this year’s BSCAI Contracting Success Conference, Mark Herbick, founder and CEO of Pursant, LLC, will give a breakout session titled, “Best Practices for Negotiating a Successful M&A Transaction. Join us in Dallas, Texas, from Oct. 31-Nov. 2 for sessions like his and more. Registration for the conference is open, with early bird savings available through Aug. 31. Learn more here.