How Do I Sell My Architectural Firm?
HOW TO SELL YOUR ARCHITECTURAL FIRM
There are a variety of buyers on the market at any given time who want to purchase an architectural firm. These include construction companies, interior designers, private equity groups, larger architectural firms, and engineering firms. Each industry will have different reasons for wanting to buy an architectural firm so understanding the buyer and seller’s needs is important during this process.
Construction and engineering firms will want to purchase an architectural firm to help bolster the services they already provide to their clients and sell new services to the architectural firm’s existing client’s. Large architectural firms will purchase other firms to help grow their area of operations to bring on new clients. Having your business in order financially, being able to provide equipment and having a team already in place can be beneficial in getting a premium price for your business.
STEPS TO SELLING YOUR ARCHITECTURAL FIRM
Plan your exit 2 to 3 years in advance while continuously growing your firm. Contacting a broker to discuss your options is important during this time. Business owners may think this is too early to reach out to a broker for advice, but a reputable business broker will appreciate your planning.
When you decide to sell your architectural firm, you will probably look at what similar firms have sold for recently. Just because another company sold for a certain amount does not mean you will get the same value.
A few things to consider that will assist you in achieving your goal are having a gross revenue with positive year-over-year trends. Trending positively for multiple years will help attract more buyers to your firm. Also, having a customer who provides a steady income to your business is a positive. Each customer should not provide more than 10 percent of your total revenue as this can be concerning to buyers. Lowering your customer concentration can alleviate many buyers’ concerns.
DETERMINING SALES PRICE
There are several variables that brokers look at when determining the sales price of a business. These variables include but are not limited to financials, experience of management, asset quality, how the business is trending year-over-year and the owner’s role in the business.
Having at least the last 3 years of income statements, corresponding tax returns and balance sheets is critical for the buyer. They will look at this information to determine if the firm is profitable and to validate the performance of the business.
A profitable business will be valued on the seller’s discretionary earnings. These are the pre-interest and pre-tax profits before non-cash expenses, non-related income expenses and one-time investments. Having detailed records of discretionary earnings is important in receiving a fair price for your architectural firm.
MAINTAIN YOUR EQUIPMENT
Maintaining high standards is essential during the selling process to receive the proper value for your business. When selling your firm, you want to include all the equipment necessary for the business to operate without any delays. A potential buyer can be turned off by your business if you haven’t maintained your offices or equipment.
If you have equipment that is broken, fix it before showing your business. You may not need to invest in new equipment however you need to make sure the equipment you do have is functioning properly. If you have equipment about to break, disclose this to the buyer so no issues arise after closing.