Selling a Service Contracting Business
10 November 2025: Selling a Service Contracting Business
Selling your business is one of the most important and potentially lucrative decisions you will make in your entrepreneurial journey. For many business owners – especially contractors such as HVAC, landscaping, electric, plumbing, etc. – private equity (PE) has become the exit route of choice, often resulting in substantial financial rewards.
In fact, the Wall Street Journal recently noted that an increasing number of business owners have become multi-millionaires after selling to private equity firms. However, as appealing as this route can be, it’s essential to understand that selling a business is far more than just finding a buyer—it’s about making sure both your business and yourself are ready for the transition.
Understanding Private Equity’s Focus
When private equity firms look to acquire a business, they are primarily interested in the future potential of that company, not necessarily its past or present. While a history of success can be helpful, PE firms are focused on future profitability. They evaluate the business based on projected earnings, growth potential, and scalability. Therefore, the time to sell is often dictated by whether your business is poised for future growth, not just the strength of its historical performance.
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A PE firm doesn’t just want to buy a company with a good track record; they are seeking a business that can continue to thrive, expand, and generate returns. If your business is currently stagnant, struggling, or facing industry challenges, it may not be the best time to sell. If your business’s trajectory is downward or even flat, a PE firm may predict ongoing declines, and this will negatively impact your valuation.
However, if your business has been growing consistently, with rising earnings before interest, taxes, depreciation, and amortization (EBITDA), the valuation will likely increase as well. The general rule of thumb is that the best time to sell your business is when your company is on an upward trajectory, with each year performing better than the last. A series of strong years not only boosts your company’s valuation but also positions you as a desirable candidate for PE firms looking for high-performing businesses to invest in.
Preparing Your Business for Sale
To get the best value for your business, you must prepare it for the scrutiny it’ll receive from buyers. Here’s a check list for this phase of the preparation process.
Know Where You Are: If you don’t know what your business is worth, if an unsolicited offer comes in, you’ll have no idea whether an offer is good or bad. This is exactly what happened to me back in the mid-’90s. But knowing what your business is worth is just as important when you’re readying your business for market. If you establish a number that is too low, you’ll leave money on the table. Conversely, establishing a number that’s too high and your business will never sell.
Assess Your Financial Performance: The first step in preparing your business for sale is to evaluate its financial health. PE firms rely heavily on financial metrics to assess the profitability and potential growth of a company. Therefore, it’s essential to ensure that your financial records are in top shape, with clear documentation of revenue, expenses, and profits.
Streamline Operations and Systems: PE firms are looking for businesses that are well-run, scalable, and easy to integrate into a larger portfolio. If your business operates with outdated or inefficient systems, this can be a red flag for potential buyers. A business that is overly dependent on one person (you, the owner) or has ineffective processes will be viewed as risky.
Before selling, invest time in documenting your processes, training key employees to handle day-to-day operations, and modernizing your technology infrastructure if necessary. You should aim for a business that can continue to run smoothly without your constant involvement, which will make it more attractive to a potential buyer. The goal is to show that your business is not just a personal asset but a robust and scalable entity that can thrive without the owner’s hands-on management.
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Create a Strong Leadership Team: If your business relies too heavily on you, the owner, it may be seen as a “key man risk” by potential buyers. Buyers want to know that, after the sale, the business can continue to operate effectively without disruption. This is why having a strong leadership team in place is critical.
Before considering a sale, work to build and develop a leadership team that can manage the company’s day-to-day operations. This team should include key personnel who can take over your responsibilities and maintain the business’s momentum. A strong, experienced management team will increase the perceived value of your business and give the PE firm confidence in the company’s long-term potential.
Tidy Up Legal and Operational Documents: Another crucial step in preparing your business for sale is ensuring that all legal and operational documentation is in order. PE firms will conduct extensive due diligence before agreeing to a deal, and any discrepancies or missing documents could raise red flags.
Ensure that contracts with employees, suppliers, and customers are up to date and clearly defined. This includes everything from employee agreements to supplier contracts and customer service terms. Any pending legal issues, disputes, or unresolved contracts should be addressed well in advance of any sale negotiations.
Stabilize Customer and Supplier Relationships A stable customer base and strong relationships with suppliers are vital to the success of any business. A PE firm will want to see that your revenue streams are consistent and that there are no risks of losing major customers or vendors after the sale.
Take steps to solidify these relationships before initiating the sale. This could include renegotiating contracts with key clients or suppliers to ensure longer-term agreements. Additionally, diversifying your customer base or supplier network can help mitigate risks that might make your business less attractive to a PE firm.
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Preparing Yourself for the Sale
While preparing your business for sale is essential, it’s equally important to prepare yourself mentally, emotionally, and financially for the transition. The decision to sell your business is a significant one, and it often comes with mixed feelings of excitement, fear, and uncertainty.
Embrace the Transition: For many business owners, the thought of selling their business can be emotional. After years (or decades) of hard work and personal investment, letting go can be difficult. However, it’s important to embrace the transition and view it as an opportunity for growth, both personally and financially.
Selling a business often allows the owner to step into new ventures or explore other interests that may have been put on hold. Before selling, take some time to reflect on your long-term goals and consider what you want to do after the sale. This will help you make a more informed decision about whether selling is the right move and what life will look like post-sale.
Prepare for Post-Sale Life: Once the sale is complete, your role in the business will likely change. While some owners opt for a transition period where they continue to be involved in the business for a time, others may choose to step away entirely. Either way, it’s essential to plan for what comes next.
This is where personal financial planning comes into play. With the sale of your business, you may be looking at a significant influx of cash. Make sure you have a solid financial plan in place for managing your wealth and ensuring your financial security post-sale. Consulting with a financial advisor can help you navigate this process and maximize your financial outcome.
Understand the Tax Implications: The sale of a business can have significant tax implications. Capital gains taxes, potential penalties, and other considerations can impact the amount you ultimately take home from the sale. To mitigate any surprises, it’s advisable to work with a tax advisor to understand the tax consequences and explore strategies to minimize your liability. This will help you make the most of the sale and protect your financial future.
The Bottom Line
The process of preparing your business for sale to private equity requires careful consideration of both your company’s performance and your own readiness for the transition. The key is to focus on the future potential of your business, ensuring that it is positioned for growth and that it operates efficiently without heavy reliance on you as the owner.
At the same time, it’s important to be prepared emotionally and financially for the changes that come with selling your business. By taking the right steps to prepare your business and yourself, you can ensure that your exit is a smooth and successful one, leading to the financial freedom and new opportunities that come with it.
Interested in learning what a business is worth? Check out this 6-part video series, “How Much is My Business Worth“on our YouTube channel.
“There are no secrets to success. It is the result of preparation, hard work and learning from failure.“
– Colin Powell
If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
Joe
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The author is the founder, in 2001, of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 1,000 in the world. He can be reached at jo*@*******************og.com