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75 2019 INDUSTRY RESOURCE DIRECTORY Buying or Selling a Portable Sanitation Business • Post-closing income—for example, real estate which you would continue to own and is lease to the buyer after closing. • Tax effects—these can vary widely depending on the structure of the deal, such as assets vs. equity or cash vs. installments. Valuing your business. After making preliminary decisions regarding the previously raised issues, but before spending a great deal of time and money preparing your business for sale or contacting brokers and potential buyers, contact your accountant or a business valuation consultant, and get a realistic assessment of what your business is worth. It makes no sense to spend valuable resources pursuing an unattainable target. What is "attainable" depends to some degree on the current state of the market, your location(s), your asset ages and values, and your business prospects. Experts on rental valuation suggest that most private, non-public equipment rental businesses have generally proven to be worth somewhere between 4.0 and 6.5 times earnings before interest, taxes, depreciation and amortization (EBITDA), which often works out to somewhere around 1.0 to 1.2 times annual revenues. Valuation experts may argue about this, and they sometimes manipulate the numbers to get closer or further away from it, but this is a good place to start if what you need is a general idea of what your business is likely to be worth. Take your last three years' net earnings and add back any "extras" like salaries, bonuses, perquisites and perhaps rent you paid yourself and/or your family members that are, in fairness, more than you'd pay to third-party employees in the same roles. Then, also add to that number the interest, taxes, depreciation and amortization you took. Divide the total by three, multiply the quotient by 5.25 and compare it to your average total annual revenues for those three years. If the two numbers are very different—by more than about 25 percent—stop and contact a business valuation professional before proceeding further. If they're fairly close, this is a reasonable starting point for assessing the likely sale value of your business. Take your time and take care of business. If, based on your initial valuation, you decide to proceed, do so with the knowledge that only a small part of the work has been done and that the "due diligence" process—the potential buyer's investigation of your business—may substantially affect the final purchase price. Consequently, some early preparation can add a great deal to your ultimate sale price. Remember, at a five multiple, $200,000 in expense reductions will yield $1 million in additional sale proceeds, other things being equal. With that in mind, here are some steps to take to prepare your business for a sale: • Remove real property and assets used primarily for personal use from the business. Purchase personally used assets, such as cars, computers and more, from the business at book value. • Consider transferring out of the rental business any real property and putting it into an LLP or LLC, so it will not be included in the sale. Real property often can be leased to the buyer, thereby providing an ongoing revenue stream after closing. It also can be invaluable as leverage in the event of a post-closing payment default by the buyer, not to mention as a jumping off point if you ever buy/take the business back. • Discontinue running personal expenses through the business. • Clean up the business, physically and figuratively. Discard scrapped equipment and clean, service, and update your records on all remaining equipment. • Make certain all usable assets appear on your books. • Make certain all licenses and permits are up to date. Before you get close to selling, it is important to do some thinking, research and planning so that you can enter any potential sales discussion with your eyes wide open. Better worksites. Better weekends. Better world. EXCLUSIVE MEMBERS-ONLY CONTENT REDACTED Join us now at www.psai.org for access to this valuable information.