“Whether you're being tested by the market or being tested by a competitor, if you have a playbook, and you’ve rehearsed that playbook, and you know exactly how to execute that playbook, that's going to help you be successful.” — Marcus Wagner, CPA, Partner at Baker Tilly
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Do you hope to sell your home services business one day? If so, the right time to start planning for that is five years before you want to do it, according to Marcus Wagner, who recently sold his business, AcctTwo, to Baker Tilly.
“A lot of selling your business is just telling a story,” he says. “And you’re going to be telling a story about the future, because that’s what the investor is investing in, but you’re going to be supporting the story by pointing to the past and saying, look at our track record.”
He recently spoke on the topic with Wrench Group CIO Rob Sheesley and Apex Service Partners President Will Matson at Pantheon 2022, ServiceTitan’s annual conference for the trades.
Here are the key takeaways.
Value of a Finance and Accounting Playbook
Wagner notes a playbook serves as an action plan to help you achieve your goals.
“Whether you’re being tested by the market or being tested by a competitor, if you have a playbook and you’ve rehearsed that playbook, and you know exactly how to execute that playbook, that’s going to help you be successful,” he says.
While many home services businesses are operator-led by owners who came up through the trades, Wagner says, at a certain size and scale, financing and accounting become crucial.
Learn about the five components of a finance and accounting playbook for selling your business, all of which Wagner says should be underpinned with a scalable infrastructure:
Proactive planning
Sound transaction management
Responsible cash management
Timely reporting and analytics
Funding and exit readiness
1. Proactive Planning
Wagner explains that proactive planning requires visualizing where you want to go as an organization and getting a budget and systems in place to monitor your progress toward that goal.
“You need to have the right systems and processes in place to measure those actual results against your plan on a real-time basis,” he says. “That allows you to adjust when needed.”
2. Sound Transaction Management
For sound transaction management, Wagner advises automating your processes to capture an up-to-date chart of accounts.
Sheesley recommends companies track lagging and leading indicators in four categories, as outlined by the Kaplan-Norton balanced scorecard:
Financial: return on capital, cash flow, project profitability, reliability of performance
Customer operations: value for money, competitive price, innovation
Internal: quality service, safety/loss control, superior project management
Growth: empowered workforce, product and service innovation, continuous improvement
“When you get in the market, and you’re talking to dozens of prospective investors or prospective buyers, the data requests are going to come at you like a tidal wave,” Wagner says.
Beyond just collecting the data, Matson stresses the importance of being able to explain it to potential buyers.
3. Responsible Cash Management
Responsible cash management requires knowing cash requirements and conducting a cash-flow forecast.
“Every year there's a certain month or period of time when we may be dipping pretty low into our cash,” Wagner notes.
He recommends forecasting how much of a reserve your business requires to maintain operations through that period, and saving that money.
“How many payrolls do you need to have in the bank?” he asks. “Some of you might be comfortable running that a little bit lean; others might like to have a little bit more cushion.”
In addition, he explains every business should look into a couple types of financing: a line of credit (for a rainy day fund) and a term loan (for funding growth).
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4. Timely Reporting and Analytics
“When you start talking to banks, you’re going to start seeing some of the same requirements you’ll see if you’re moving to an exit,” Wagner says. “They’re going to want gap financial statements. They may want an audit. And they want that information in a timely manner. That is where a lot of the payoff of getting systems and processes in place is going to occur.”
5. Funding and Exit Readiness
When it comes to exit readiness, Sheesley says to “begin with the end in mind, and be realistic about what the timeframe looks like.”
This requires reverse engineering from your end goal and setting benchmarks to achieve along the way.
Matson stresses the value of finding the right partner.
“When business owners trip on themselves is when they’re saying what they think the buyer wants to hear without being authentic or true,” he says. “Start with ‘What does hitting it out of the park look like for you?’ There’s no right answer, and there are different partners or buyers out there that fit all those different needs.”
You have to feel comfortable leaving your team in the new owners’ hands.
“This is the prologue to a very long book for all those people who’ve helped you get where you are,” Matson says. “I would encourage you to ask, ‘What are really their [buyers’] intentions for the business? And do you believe them? Do you trust them?’ Because you’re handing over a lot of your people and their futures to a new partner.”
Prospective buyers will conduct their due diligence on your business, so Wagner notes it’s essential to figure out and remedy any gaps or risks.
“Start by identifying what you have and what you don't have,” he explains. “And what I mean by that is, prospective buyers are going to do a lot of due diligence on you. They're going to ask you for your company operating agreement, contracts, and payroll files. And guess what? No business has all that stuff just neatly lying around in a file, because you're not spending your time doing that, you're spending your time selling and growing.”
To assess risk when selling AcctTwo to Baker Tilly, Wagner hired an outside firm to conduct an audit. They found sales tax exposure in several states.
“So we filed some voluntary disclosure agreements with the states so that we could avoid taxes and penalties, and we paid up a lot of money,” he says. “But then when we went into the process to sell and they [buyers] started doing their sales tax due diligence, we said, ‘No worries there, because we covered that.’ So what are the examples of that in your business? Get started on that early.”
Sheesley adds that you need a succession plan to present to potential buyers. And if that sounds like a lot, hire help.
“The No. 1 mistake I see people make is trying to do it on their own,” Wagner says. “We got advisers involved early [when selling AcctTwo], and I’m really glad we did, because they brought a lot of expertise to the table that we didn’t have.”
While hiring brokers, investment bakers, lawyers, or accountants comes with a significant cost, Wagner says it’s money well spent.
“Not doing that stuff can destroy enterprise value, and it could cost you a million dollars or more,” he says.
Lastly, prepare yourself for a graceful transition or exit. That involves making decisions about whether you’d like to stay in the business and how you want that to look.
“You probably don't have the tax advisers and the financial advisers in your back pocket today, so start talking to advisers,” Wagner says. “Most tax planning is stuff that has to be done well in advance of when you do a transaction. You can’t go back and put white-out on the deal later and change how it was structured.”
>>Find more from Pantheon 2022
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