By Ron Edmonds, The Principium Group
Is it better to sell during the season or the off-season? This is a question we are often asked by green industry business owners.
For many reasons, green industry business owners often prefer to think about selling during the off-season. This is true for many reasons, but probably the most significant reason is that they do not actually have the time to think about it during the hustle of the season. The idea of extensive discussions with brokers, accountants, attorneys and potential buyers during the busy time is more than many business owners can handle.
There are other practical reasons why business owners prefer to sell during the off-season:
- Business owners in seasonal businesses tend to think of seasons discreetly and it just makes sense to them to sell between seasons.
- It is physically difficult to ensure the confidentiality of the process during the season while for many it becomes easier in the off-season when fewer employees may be around.
- Because some sort of annual sales process is usually involved in seasonal businesses, the owner may believe that selling at the end of the season will allow him to more nearly retain the fruits of that sales effort.
- In businesses that solicit annual prepayments (like many fertilization and weed control companies and some maintenance companies), there is added complexity. Owners feel flush with cash, pay their debts down, and then realize that if they sell the business, the prepayments would, at least indirectly, belong to the buyer, resulting in lower proceeds from the sale. (I do not find that this argument makes much sense, but I hear it all the time.)
There are a variety of reasons that potential buyers are likely to see things quite differently. Buyers are motivated by expanding their businesses and adding revenues. They often have both long-term and short-term reasons for pursuing acquisitions. Adding revenue in the current season is often a very strong motivating factor and the farther it goes in the season, the less immediate value the acquisition may have to the buyer. While they may retain an interest in the acquisition, they are quite likely to prioritize an acquisition that adds current year revenue higher than one that does not.
Another important reason that buyers often prefer to make acquisitions of seasonal businesses “during the season” is that they believe that doing so will improve the likelihood of retaining both customers and employees.
Certainly, any business sale creates a risk that customers will defect – for a variety of reasons. However, that risk is lessened when a sale takes place in season and is professionally handled. When the business transitions mid-season, most customers will not make an immediate move to change service providers. If the buyer has the opportunity to service the customers for even a few visits, it is likely the customer will become familiar with and comfortable with the buyer’s services and the chance of cancellation will be lessened.
On the other hand, if a sale is consummated during the off-season, when cancellations are high anyway and annual renewals are in progress, the chance of cancellation or nonrenewal at the time of an acquisition increases significantly.
Looking at the subject of prepayments from the buyer’s perspective, a customer who has already prepaid for the year is least likely to cancel and therefore, the buyer has a longer opportunity to earn the acquired customer’s loyalty.
Maintaining the sales effort during the off-season when you are planning to sell is very difficult. Expenditures you would normally make without much thought somehow become discretionary.
One factor that really is the same for both buyers and sellers is that transactions tend to progress much more quickly in-season. There are multiple reasons for this. For one, the participants are usually busy and have less time to devote to the process. In addition, the buyer really controls the tempo of the process. During the season, the buyer is usually motivated to get the transaction completed as soon as possible, to generate as much revenue as possible that year.
In the off season, the buyer may even be motivated to move slowly – to delay the process in order to avoid incurring “off-season” costs.
Particularly in a soft market like the one caused by the current economic environment, if a seller is considering selling, it may not be wise to delay until the offseason. On top of all the other factors we have discussed, if you have an offer for your business now, you can never be sure that offer will still be there during the off-season.
While there may be compelling reasons in some cases to sell in the off-season, in our experience, the results are often better, for all parties, are initiated and completed during the season.