Selling A Service Business
Whenever you sell a business there are many questions you should ask including important issues such as sales trends, net profit margins and their trends, management depth, legal and environmental issues, concentration of business with a few clients, and strength of competition. There are however, specific issues that selling a service business has, that selling a manufacturing business, and selling a distribution business do not have. Service businesses often have outstanding margins because there is little or no raw material or inventory cost, unlike the manufacturing and distribution business segments. However, the return on book value is often exceptionally high when selling a service business. The asset side of the service business' balance sheet is normally very low since there is insignificant inventory and very little expensive equipment. In view of the fact that the most important component to valuing a profitable business is its cash flow not its balance sheet the business' sale price as a multiple of book value is very high. This can make the acquisition financing more complicated.
Examples of service businesses that The Montana Group has sold: