Damon Powell from FMC Advisors - the Insider's Guide to Selling Your Sanitation Company for Top Dollar

Pete: 00:00:17

Hello and welcome to Get Flushed, the world's favourite sanitation podcast. I'm Pete. When I started this podcast, my intention was to help operators improve the standard of service that they provide to their restroom users.

And to that end, I've spoken a lot about how to improve, build and grow your restroom business.

Although my experience tells me that people typically stay in the industry for a long time, there will inevitably come a point when you as an operator decide that you want to do something else.

You may have reached the age where you want to retire, you may have made enough money, you may need a different challenge, or you may just be plain old tired. If you're an employee, it's easy enough to step down and walk away, especially if you've already found another job.

But when you're the business owner, you can't just close the door. And the bigger the business, the harder it can be to find the right time and the right way to exit.

Over the next few weeks, I'm going to think about the options that exist when you, as the business owner, decide you want out. And I'm going to start by asking how you can find an accurate value for your business.

I'll start by saying that I know the pandemic has left many operators busier than ever.

Demand for restrooms and wash stands has been incredibly high, and although the events market isn't yet back up to speed, many pros are renting out more units and performing more cleans than ever before.

Now that should be a good thing, but I'm not sure it always translates into higher profits, especially when the industry has often been regarded as providing a low priced service, and even more so when the cost of restrooms, fuel and pretty much everything else has gone through the roof. Despite that, there's no doubt that the industry is seen as a good bet and it continues to attract new entrants.

So with that in mind, now might actually be a great time to sell. To help me work out how best to value your business, I caught up with Damon Powell from FMC Advisors.

Damon has spent 20 years in the sanitation and waste industries, and he was previously the mergers and acquisitions manager for United Site Services, probably the largest restroom operator in the US. During his career, Damon has negotiated dozens and dozens of business sales. Here's what we discussed.

I'm joined today by Damon Powell over in Florida. So Damon, welcome to Get Flushed.

Damon: 00:02:26

Pete, thank you very much. It's my pleasure to be with you here today.

Pete: 00:02:30

We've been working on this episode behind the scenes for quite a while. I'm really excited that you're here today, but perhaps we'll start.

If you could just give us a quick overview about your career and your experience in the portable sanitation industry.

Damon: 00:02:42

Absolutely, Pete. I'd be happy to. So, you know, I've spent over 20 years in the solid wasteland and sanitation industries.

Started out with Waste Management, and I was in the sales and sales operations.

And my first foray into portable sanitation was as the general manager for the portable sanitation division of waste management in the state of Florida. So that's where I kind of cut my teeth, learned the industry, and managed a multi site location there for waste management.

Shortly thereafter, I moved to United Site Services, where I was the vice president of sales for the southeast region. I did that for a few years with United.

I then moved into the mergers and acquisition department, where I was one of two gentlemen that went around the country looking for acquisitions, building relationships with sellers across the country, and then negotiating those acquisitions. And then my last role at United was running their solid waste division across the country, their Rohloff trash division.

Because of my previous experience at waste management, about 20 months ago, I left United site because I really had a passion for helping business owners prepare and sell their companies and educating kind of those folks that were looking to do that. So I started Infinity Consulting and advisory group to help folks across the country prepare their companies for sale.

And then just in February of this year, my former colleague ed Medvik and myself launched FMC advisors, which we work with sellers only in preparing their companies for sale, finding the right buyers, and managing the sale process for them.

Pete: 00:04:32

That's the reason why I got in touch and why we're here today, Damon, because I think you're probably one of the leading figures in terms of acquisitions and sales of restroom companies in the United States and probably globally. I'm picking the number of deals that you've been involved in is quite staggering.

Damon: 00:04:49

Well, I appreciate that. Thank you. Yeah. Between Ed and myself, we've closed roughly 130 transactions worth somewhere in the neighborhood of $600 million.

So bigger isn't always better. But I think experience matters in these cases when you have a business to sell only one time. So I do appreciate that. Thank you. Pete.

Pete: 00:05:10

A question was raised on one of the Internet forums by an operator about when's the right time to sell my business and how do I go about starting the business. And I've been working on this episode and perhaps maybe a series of episodes behind the scenes, but I've never bought or sold a restroom company.

It's not my expertise so I'm really pleased that I've managed to find an expert who's viable and credible and can hopefully shed some light on what is, as you say, a written fund for a lot of operators. Damon.

Damon: 00:05:38

Yeah, you've got it right.

My goal today, Pete, is to be very informative and answer some of the common questions that come up regarding the sale of a business and how to sell a business and what that process looks like. Because I've been involved in so many transactions where it's scary for a seller.

I've said this before, and I'll just be real part of my job as part psychologist, counselor, psychiatrist, a business advisor.

Because when someone is selling, and this is their words, not mine, their baby, you know, they want to understand that, number one, it's going to a good home and that the process is managed correctly. And a lot of times a seller can be too emotionally involved in the process.

And it really makes sense for there to be an advisor, a counselor, or someone there to help them through the process, because I've seen a lot of deals not close because there were some, I guess, emotions that were involved that a deal probably could have closed if it had a little bit of help. Hope that makes sense to some folks.

Pete: 00:06:45

It does. And I think the passion that restream operators typically demonstrate towards their business is quite unique to our industry.

That people go into this heart and soul. It's not something they do with half an appetite that, you know, they don't just go along to do a few toilets for the sake of it.

They absolutely pour themselves into a business that they own. And that's what we're talking about today. It's the owner operator who's maybe built up a fairly sizable fleet.

And they come to the end of their time in the industry. Perhaps they want to retire or move on to something else.

And it's making sure that the business is in the best condition for sale and that they get the best possible deal. And I think you're quite right. That's not always something that the operator can do themselves. Damon.

Damon: 00:07:25

No, that's right.

And I'm glad you mentioned passion, Pete, because part of the reason I've stayed in the solid waste and the portable sanitation industry is because of the people. They're the hardest working people that, you know, I've ever been around. And that's just. That's what they do. And it's. It's great to help them.

And I get the satisfaction of, you know, a job well done after a deal has been closed.

And you know, when the seller and I can just kind of look at each other and take a deep breath finally and say, we did it, and we got what you wanted, and now you can go about whatever it is you want to do with the rest of your life. And so that that's what's most satisfying for me, is getting that feedback from the sellers.

Pete: 00:08:05

The first place to start is the owner to decide that the business is for sale.

Damon: 00:08:09

Absolutely, and I'm glad you brought that up. First of all, in any business transaction, you can do nothing. When preparing your company for sale, you can leave it exactly as it is.

That may or may not be the best way to get the best valuation, but you could always leave it the way it is.

In talking about preparing the company for sale, there are ways you can maximize the value of your company, and most people would like to do that rather than just take what they can get. And that's kind of what I want to share with the listeners today.

You know, one of the first things you can do is decide whether you want professional representation or help in preparing the business. Number one, you're probably good at what you do running your business.

You've run a successful business, but do you have the time to prepare it for sale? You'll find the right buyer and manage these entire transaction process, and that's a personal decision.

What I'd like to start with, Pete, is kind of the financial piece in preparing a company for sale.

And if the time is right, if there's no logical progression for family members or you don't have a succession plan already put together, and those are things you could talk to your attorney and your CPA about. And that's what I certainly recommend. First and foremost, is working off a set of good financials.

Again, I've been on the buyer side a number of times, but also worked with a number of sellers. And your buyer, just as if you wanted to buy a business, wants to see some solid financial results for the past few years.

Now, that can be, you know, working out of Quickbooks, that can be some of the other financial packages that are out there, but you want to have some prepared financial documents, profit and loss statements, balance sheets, tax returns, you know, good statement of monthly revenues. So the financials are a really good place to start.

Pete: 00:09:53

If they're operating as an LLC. You would presume that most of this is already available and on hand, I.

Damon: 00:09:59

Would say in 90% to 95% of the transactions I'm a part of. There's some pretty decent financials put together.

Some companies aren't doing them on a monthly basis, maybe quarterly, but I would say start putting them together monthly.

So you've got a good idea about the direction of your revenue, direction of your net income, and kind of the overall direction of where the business is going. And of course, your CPA can kind of help you with some of that.

Pete: 00:10:25

And I suppose there's two reasons why we do that.

One is to show that the financial value of the business, the revenue in and out, the income and expenditure, it gives you an indication of how profitable the business is. And secondly, the buyer is going to perform some form of due diligence.

And if you can help them with that, then I suppose you ease the way to a transaction and a sale more fluently than if they're having to scrabble around and scratch their head to try and decipher the code that they may have found in poorly prepared financials.

Damon: 00:10:53

No, that's exactly right. And I'm glad you brought up due diligence because that is kind of the most important part of any deal.

And most of your more sophisticated or professional buyers are going to look deeper into those financials. Let me backtrack a little bit and kind of talk about a process. Let me talk about the overall process, and then we'll break it down a little bit.

It's time for you to sell your business.

You may have someone that has approached you, maybe you know them, maybe it's a local competitor, maybe it's someone from outside the area that wants to get into the business.

They're going to want financials, asset list and let's say, and this is just very broad based here you come to an agreement on a price and you would put together what's called a letter of intent. The buyer would says, we would like to buy you ABC company for x amount of dollars and close it on this date.

And that's how the transaction is structured.

After both parties agree to that letter of intent, then you're going to move into the more formal due diligence, which you've probably already presented them with some profit and loss statements, with some revenues, with a list of your assets. And they've probably talked to the owners a couple times about the overall condition of the business.

The due diligence process is really confirming that. And a lot of times a third party CPA or financial firm will do that.

They'll look at bank statements because they want to confirm that the numbers on the profit loss statement are real. If your state charges sales tax, they want to make sure the sales tax are taken care of.

If there's any loans or liens on the business, they want to make sure the buyer understands every bit of that piece. So you've got that due diligence. That process can take 30 to 60 days, maybe a little more.

At which point, when the due diligence is done, then you're just moving to closing the transaction and then working on the integrating it into the new business. So it's really fact finding, letter of intent, due diligence and closing.

Pete: 00:12:48

Isn't that a good point to mention software?

I'm wondering whether or not the use of a sophisticated software package, not only for the financials, but also for your routing and your inventory management and your customer management, does software make a tremendous difference?

Damon: 00:13:03

I think it does. I think it does to a sophisticated buyer. And I'm glad you brought that up, because it segues right into operations.

Are you running any sort of operating software? And, Pete, you've discussed these on some of your previous episodes and done a great job.

I'm not here to endorse anyone or another because there are many out there that work well for a specific business. But I think if you've got some software that you're looking at routing, they're maximized for efficiencies.

Are you tracking any operating metrics you may sell to someone who's already in the industry? If you can prepare some metrics for them, maybe. What are your miles per route? How many stops are on each route? How many minutes per service?

So if you can demonstrate that you understand that piece of it, it's going to maximize the value of your business, that a potential buyer knows, that you're taking care of the details of the business. And, you know, that can have a tremendous effect on the value of the company, on how well you're managing your business.

Pete: 00:14:07

I think that's really important, Damon, because I am aware that there are still many operators out there who are using manual systems and they've not made the leap into software that either they don't understand it or it's too expensive, or they've just not automated the business in a way that a lot of other industries have done. But I think it is really important, and I agree with you, we're not endorsing any particular ones.

But I'm just thinking that the ease and the transparency that you get once that data has been captured has surely got to help the sale process. It's surely got to give a clear insight at the press of a button.

Damon: 00:14:42

Really, the more of your sophisticated buyers. These days that are maybe running national or regional companies, they're probably running on a similar platform.

As a seller, you don't need to be running on that same platform because many buyers can transition that over, the data over.

But just knowing that you're running some platform is certainly more advantageous and would be more attractive to a buyer than if you're doing everything manually, as you said, and piggybacking on that operations piece. You know, it doesn't have to be all that elaborate, but do you have any standard written policies or procedures in place?

Do you have some general position or job descriptions for what everybody does in the office or at the branch so that you can verbalize this to a potential buyer?

But if you can provide them with the handbook, the policies, the procedures to show that, you know, this is what we do during a specific situation, again, that will help increase the value of your business to a potential buyer.

Pete: 00:15:48

When you do that, you protect the future of the business for when the owner is not there, you show that you've got the systems and the processes and the procedures that the new buyer can move in. And maybe a little bit later on we'll talk about the transition period.

But I think it's really important that you establish a credibility that buyers look at and think this business is viable, it's profitable, and it seems to run along quite nicely. And all of the things you've mentioned help towards that.

Damon: 00:16:14

Yeah, you bring up an excellent point, because probably the biggest fear of any buyer is what happens when that owner steps away if they have had a significant role in running the day to day operations of the business. Many companies in the portable sanitation and solid waste industry have done some smaller acquisitions themselves.

And then when it's time to sell, they just have to put themselves, sit on the other side of the table and say, what would I be looking for? Or when I was buying companies, what did I find valuable? And what scared me when thinking about putting my money into this business.

Pete: 00:16:51

That's a good way looking at it. If you were the investor, what would frighten you?

And I don't know if you've got any hints or tips that you've come across that make people run away screaming the red flags.

Damon: 00:17:02

When there are tax liens, federal tax liens, those are the big ones.

But again, I think if you just sat down as a business owner and thought about what's my business look like and what would make it valuable to a potential buyer and what would scare them, and again, if you've been putting off those job descriptions because they're not fun to write. I get that. That's the least fun thing to do. But, you know, it could be 6 hours that could pay off very handsomely.

Pete: 00:17:29

And, you know, I suppose, Damon, I'll take you back to where we began, that there is always help out there. There are always specialists who are able to advise and consult and assist the seller in preparing those things.

And, you know, even if you're not thinking about selling the business now, it makes sense to do all of that work now rather than leave it until it's a panic when you on the countdown to retirement or to leaving the industry.

Damon: 00:17:52

Yeah, I don't know how many times I've heard, and not just in this, but, you know, the analysis paralysis, that it's scary. So I'm going to put it off for another day. I'm not going to think about selling my company.

But then all of a sudden, now is the time, for whatever reason, it's the economic conditions are right. Or maybe it is time to retire.

Or maybe you running multiple businesses and you want to focus your time and effort and capital on one of your other lines of business, again, preparing that and reaching out to whether it's an HR firm or an advisory firm, your CPA, your attorneys.

Pete: 00:18:23

The industry is very asset heavy in that we supply restrooms to site, and then there's a service side of it. And I think that leads to two dimensions that I'd like to explore. One is the management of the fleet.

And if perhaps we could talk about, you know, does condition of the fleet and size of the fleet matter to a potential buyer? And then the second aspect that I want to come to is what traditionally would have been called goodwill. Perhaps we could take those one at a time.

Damon: 00:18:50

Of course, yeah. Let's talk about assets.

You know, we are an asset heavy business because without the trucks, the portable toilets, the vip restroom, trailers, the temporary fence, storage containers, whatever it is we offer, without it, you know, we're not generating any revenue. So to answer your question, to most buyers, the condition of the equipment is very important.

And I know I've heard many stories, you know, going back to the eighties and early nineties, when I, you know, waste management and allied were getting into the portable toilet business, and all they were looking at buying was revenue. They really didn't care what the fleet looked like. We needed a customer list and we needed the revenue and we'll buy the equipment later.

I think those times have changed.

So the value of a company is going to vary widely depending upon the quality of the fleet and then also, again, putting yourself in the buyer's shoes.

If I bought your company today, what would I have to spend in the first year to either replace the equipment that needs to be replaced or add equipment to grow?

That is probably the number two concern to a new buyer right behind if the owner is very active in the business and what role are they going to play in the transition?

Pete: 00:20:10

If a company has got wrist rings that are maybe ten years old and they're starting to show their age, there's a few scuffs and wear marks on them and they've had a good working life, is it worth them buying new units ahead of a sale, or do they just bite the bullet and admit that the sale value of the business is perhaps less because of that fact that the fleet needs to be replaced or upgraded?

Damon: 00:20:30

A great question, Pete, and I'll say, in my experience, if there has been some sort of timely replacement of the portable sanitation units, the portable restrooms, you're probably okay. Where I see a greater apprehension from buyers or when I'm working with the seller is if the rolling stock, the trucks are older rather than newer.

You really want to look at what is the repair and maintenance spend on those vehicles over the past couple years. So the overall condition of the portable restroom fleet is less important than the overall condition of the rolling stock.

The engine or a motor or transmission goes on the truck.

You're talking, you know, ten thousand dollars to twenty thousand dollars which ten thousand dollars to twenty thousand dollars would buy you a whole lot of portable restrooms? I hope that might kind of help answer that question a little bit.

Pete: 00:21:20

It does, yeah. I mean, they're the big capital spend items, aren't they? The truck and the vacuum tank. And they're so essential to the business.

And it makes a lot of sense. If the truck is an old lemon and needs lots of RNM to keep it on the road, then that's going to flag up some warning signs for the potential buyer.

If it's brand new, I suppose the question to ask is, is it paid for?

Damon: 00:21:42

Yeah. I'll give you a real world example here, Pete.

,: 2530

And I said the seller, I said, you have to buy a new truck.

You have to replace a truck next year anyway for $130,000 so you either spend that money then, or you take 130,000 less right now and you can get a deal done. He said, you're exactly right, Damon. It's just pay me now, pay me later.

And that's just a real world example of that rolling stock being up to date and who's going to pay for it, whether it's the new buyer or the current seller.

Pete: 00:22:33

I like to get bogged down in the minute details. Does it increase the value of the company if they've got one type and one color of restroom?

Or does it not matter if they've got a rainbow assortment of licorice, all sorts.

Damon: 00:22:45

Yeah, skittles, as I like to call them in the states. You know, skittles are the candy of all different colors.

And if you pull into the yard and it looks like you have a bag of Skittles scattered all over, I think that's going to be in the eye of the buyer. Pete. I think most would like to have a more orderly fleet than less orderly.

But if you can show that there's been some effort to keep them in common, you know, we understand that most buyers today understand that the supply chain problems, you know, maybe you couldn't get the exact color. I think most are going to be okay with that.

And again, talking to, preparing your company for sale, just pull together an accurate list of your service vehicles by year, make and model. You know, an accurate list of your inventory. How many standard units do you have?

Construction units, special event units, holding tanks, because a potential buyer is going to place a value on all that. And if it's in an Excel spreadsheet form, fantastic. It makes everyone's life a lot easier.

So little things like that can go a long way to maximizing the value of your company.

Pete: 00:23:44

I've said many times on the show, I'm a big fan of numbering assets, giving each unit and unique id or stock number. And that would really help in that process.

Damon: 00:23:54

There was a second part to your question. After assets, what was that?

Pete: 00:23:58

So the first one I said was talking about the assets, and the second was about the market's reaction to what was traditionally called goodwill. And I don't know if that's a thing anymore in the modern trading economy, can we rely on goodwill anymore?

And is it a factor in the valuation of a company these days?

Damon: 00:24:13

It is a part of the valuation process. Additionally, over the past few years, companies have been selling as a multiple their net earnings.

And that is how nearly every buyer in the world values companies these days. And you can google anything under mergers and acquisitions, under valuations.

And, you know, that's how companies like Microsoft and Tesla and all these companies, when they're bought and sold, it's a multiple of their net earnings. There is a goodwill calculation at the end. It's like, you know, whatever is not the assets.

So let's just use a very generic example that if I'm buying your company for $10 million and you have $7 million in assets, where is that other 3 million? What do we call that? There's a few other things in there, but some of that is going to be called goodwill. I've heard it called blue sky.

There's going to be some value in there for your customer list, for your non compete clause, and maybe a few other things, the phone numbers of the business. But in most of the transactions I'm involved in, it's just the difference between the purchase price and all the hard assets that you're buying.

That's what's considered goodwill.

Pete: 00:25:24

And then in terms of the valuation, I'm guessing the multiplier is something that the buyer and the seller negotiate between them. Is it?

Damon: 00:25:31

Very much so. And again, this is probably the most asked question. You know, anyone in the industry gets. What's my company worth? There is no right answer there.

It varies so much. And if you had two companies that sell for $8 million, they could be completely different.

The revenues are different, the net incomes are different, the asset base is different. I've done no two deals that were alike. So you really have to say, what can I do to maximize the value of the business that I own today?

And it also depends on the buyer. Pete, this exact same company can be worth up to 50% more to one buyer than it is to another.

So I think it's very important to make sure you're dealing with the right buyer because there are so many variables. You know, there may be a buyer that just has more capital, more money to spend. The buyer might want to be in your marketplace.

There's some hot markets across the country in the world. Right.

And if they absolutely want to be in your area and they're going to buy you no matter what, then you want to make sure you're dealing with right buyer because their valuation could be much higher than perhaps a local competitor that would just like to have you out of their hair.

Pete: 00:26:38

Yeah, I suppose it's the same as, you know, property and vehicles. The right buyer is going to pay the price that they're willing to pay.

And I guess what you're saying is, you need to find the best buyer for your business, if it's your retirement fund, especially to maximize the most capital that you can liquidate from that sale as possible. That's why we're doing it, isn't it? We're looking to cash up and exit.

Damon: 00:26:59

You know, you're exactly right. And when I work with potential clients, we talk about what is your perfect exit strategy?

Meaning when you sell the business and a couple real world examples. A lot of times people say, I want the cash. The day I close and I'm going to walk away, you'll never see me again. Okay? That's one way.

I have clients that, you know, they're in a different financial position. Maybe they do not want all the cash at closing.

Maybe they would like a structured deal where perhaps they are holding some of the paper or holding some of the loan and they're going to take payments on that company over time. You know, some of your smaller companies sell like that because, you know, the buyer may not have access to all the capital to buy it at once.

Every deal is different. Every seller has different exit strategies. And what, you know, I do at my company, FMC Advisors, is try to find out what's best for them.

Seek out the best buyer that's the best fit. And then I say a lot. It's a. Deals happen when the timing and the valuation meet up.

The timing can be right, but if the valuation is wrong, there's no deal. The valuation can be right. But if the seller says, I'm young, I want to grow this thing, I've got a lot of energy left.

It's a great offer, but I can't accept it right now because the timing is not right. When the timing and the valuations meet up, that's when transaction happen.

Pete: 00:28:18

Have you ever found a company that you can't sell, Damon?

Damon: 00:28:22

It's a good question. And some companies do take longer to sell than others.

One of the things that I try to work with every buyer seller I've worked with is to talk about what is their value of the company. Today.

I certainly have instances where I've worked with a buyer that we talked about valuation and their opinion of the value of their company versus what I believe the market will pay is different. Meaning that the owner says, I believe it's worth 4.5 million. And everything that Damon does says that things valued at 3.5 to 3.8 in today's market.

It doesn't make sense for me to work with that client if I can't find them the right exit strategy and we just walk away friends that, you know, we just politely disagree on the value of the business. I will say that in today's market, if a company is priced fairly, it will sell and it will probably sell rather quickly.

Pete: 00:29:26

And I think that's a reflection of the fact that the industry's done pretty well out of COVID The sanitation industry has not been shut down and gone backwards. It's been in high demand because the focus is on hygiene and cleanliness as a result of the pandemic.

But also, I think there's a growing awareness globally that it's actually a really good revenue maker and people are attracted to the industry. We spoke before. There's very low barriers to entry.

You can start from scratch pretty easily whether you buy an existing company or whether you start by buying units and launching yourself. But all of that makes the industry fairly attractive to new investors.

Damon: 00:30:02

You're exactly right. And we've seen a lot of new investment activity. I'll use the parallel of the solid waste industry that has been very acquisitive.

rs and acquisitions since the: 1980

But the portable sanitation industry, at least in the United States, is now getting very popular with private equity groups, capital funds, and other folks that have capital they want to deploy. They call it blue collar businesses.

It may not be sexy, but the returns are good, and you can't export those jobs out of the state or out of the country.

Pete: 00:30:40

Now you make a good point.

Damon: 00:30:42

When I speak to you or people in Australia or Europe, you know, the commonality in our industry, we can joke about it all day long, but let's say everybody uses a restroom and everyone would like to use a clean restroom. It's the same around the country. And so you're finding that investors are now saying, hey, this is a good, solid business.

It does take some capital, but it's not extraordinary. And the returns are very good.

And I think that's why I see a lot of attorneys and cpas running these businesses or owning these businesses because they've seen the returns, but then they get invested like we do, and they say, these are really good people and it's a fun industry.

Pete: 00:31:21

I'm glad you mentioned the fun bit because it really is a fun industry. And I think unless you've been part of it, people don't necessarily see that or understand that. And it's hard to value that fun aspect.

Damon: 00:31:33

It is, you know, I've been on, you know, I'll say hundreds of job sites. It's maybe thousands. And, and special events and concerts and festivals and golf tournaments.

This business, this industry has afforded me to meet some fantastic people around the world, to go to some events that I would never have been able to, you know, in the past. You know, backstage at concerts and I. And sporting events and a lot of some of the.

When they're building these stadiums or when they're building schools and hospitals, I find that fascinating.

And it's fun to meet end users there, whether it's the project superintendents or the construction workers using the units and helping them find, hey, how can I best place these units on this massive job site to make you more productive? I mean, it's the little things like that that make it real.

And I think that's why people from all industries, from all different backgrounds get into this industry and dig in and say, I love it and I just want to stay with it.

Pete: 00:32:29

I'm glad we were able to cover that. You wanted to go back to preparing the company for sale?

Damon: 00:32:34

Absolutely. You know, we talked about, you know, the financials and operations and the assets.

I want to talk about just some overall things you can do to increase the value of your company. And some of these are going to sound very common sense, but, you know, they really matter.

Number one, ensure your yard and shop are clean and well organized.

Pete: 00:32:54

Such an obvious thing, but so often overlooked.

Damon: 00:32:58

It's such an obvious thing and, you know, I've heard it, but I know where everything's at. Well, I know you do, but when potential buyers come and look around, it's the old adage, you only have one chance to make a first impression.

And in that vein, lean and pressure wash the vehicles before a potential buyer is going to come visit your site. I think it's a small investment that can, you know, have huge returns.

Pete: 00:33:20

Makes a big difference.

Damon: 00:33:21

Absolutely. Put together an organization chart that details who's responsible for each task and it can be very simple, but it just helps a potential buyer see.

And, you know, lots of people are visual learners. You can tell them what everyone does, but in one piece of paper it certainly helps.

We talked about the position descriptions, job descriptions for each role. And again, there's templates online, so it shouldn't take a long time to put that together.

But some general business that you can put together that kind of pretties up the company and what you really want to do is take away any question marks of that potential buyer. You don't want a potential buyer walking away going, you know, if they treat their trucks that way, how do they treat their people.

You want to take away all those question marks to maximize the value of your company.

Pete: 00:34:14

One thing that's just coming to my mind as you're talking about that is if there is an in house buyer, somebody within the company wants to step up and take over, whether it's a family member or an employee or a manager, is it still worth going through this process and connecting all of these points together to demonstrate the value of the sale to them? Or in doing so, would you always have an eye on opening to external offers as well?

Damon: 00:34:41

I had an instance recently where a client did sell to one of their employees. It would make sense to do some of those things, but an internal candidate employee would already understand how everything works.

But I think it is still very valuable to put together the asset lists, have the financials, because that buyer is probably going to have to get some financing.

You're going to have to have that information, information anyway, for a potential financer, whether it's a bank or the small business administration.

So I think you would want to do some of that to a certain extent, even to satisfy an internal employee that you're going to sell that to, or, you know, whether it's a family member and you're passing it down. There would have to be typically some sort of valuation of the business done to validate, you know, what you're charging.

Pete: 00:35:32

That buyer, and that's a two sided coin, isn't it? Because you don't want to overcharge or undercharge. You want to make sure that a fair price is struck for both parties in that equation.

And actually going through the process perhaps gives it some more rigor than just over a beer deciding, well, it's worth XYZ.

Damon: 00:35:49

And I will mention that there's no deal too small. I've been involved in deals that were $125,000 up till very, very large transactions.

So it's not just trying to deal in companies with valuations of 20 million or more. Every owner has these questions. They want to know what's it worth, how do I maximize the value, and how do I find the right buyer?

So let's move into you're now ready to sell.

We've talked about how to prepare a company for sale, and you and I both know we could spend hours on this, but we want to scratch the surface, give people some information. But let's say now you're ready to sell or you've been approached by a potential buyer.

You could have got an email, a phone call, someone has knocked on your door made contact with you that, hey, I'm interested in buying Pete's portable toilets. Can we sit down and have coffee? Right. Well, now, again, you're going to sit back and say, do I want professional help? And this is the best time.

If you did not bring in professional help, in my opinion, now's the time to speak with someone, a professional in the industry. Talk to your CPA, talk to your attorney, bring in someone like, you know, that does what I do, because how are you going to manage the process?

And I'm going to give you some data here that I've compiled. And this is not just from portable sanitation.

This is typical mergers and acquisitions around the United States and probably around the world, understanding it's going to take hundreds of hours to complete this process.

And you, as a business owner, if you are actively involved in the day to day operations of your business, do you have hundreds of hours to dedicate to completing the sale process? That's one question. Who's going to run your business through this time?

The average time it takes to sell a company in the United States is six to eleven months. All companies. And there's some. It takes more than that. Now, sale process can be as short as 45 days, but some companies take up to a year to sell.

And a lot of times that's because you are going through maybe three to five potential buyers. A real world scenario is you may find a buyer you think is the right buyer. You come to an agreement, you're going through due diligence.

For whatever reason, the deal falls apart. One reason or another, there could be 100. Then you have to go to buyer number two. Who's buyer number three?

Again, the process can be long and drawn out. Which brings us to the next point. Do you know the value of your business in today's market?

The valuations today are different than they were prior to Covid. If your goal is to maximize the value, you want to make sure you know, you know what the value is in today's market.

And you and I know we could talk about this for hours, but we'll talk briefly about it. But this is where using a professional with experience in the portable sanitation or solid waste industry is so important.

In my opinion, the value of any company can change by as much as 50%, depending on who the buyer is.

And if you don't know who the acquirers are in the industry or who is paying the highest multiple, you may be short changing yourself if your goal is to maximize the value.

Now, there are times we can talk about the outliers when someone just has to sell the company quickly for lots of reasons, probably not going to maximize the value, but it still wouldn't hurt to utilize a professional during the preliminary process, the valuation process, or due diligence. You, as a business owner, do you know what information is reasonable and customary for a buyer to request? Confidentiality is important.

One of the things I've seen in the portable toilet industry is you have a lot of sellers that don't want anyone to know that they're for sale. Yes, I'll sell, but I don't want anybody to know I'm for sale. And, you know, I don't want word to get out.

So confidentiality and trust in this business is extremely important. What should you be giving out to a potential buyer? Because if I'm a potential buyer, I'm going to ask for everything that I want.

If you don't know that it's not reasonable and customary to provide a certain type of information prior to due diligence, you may be doing yourself a disservice.

Pete: 00:39:49

That in itself is a huge insight, because unless you are well versed in this and you're familiar with the ins and outs and the intricacies of the sale process, most people probably don't know what is reasonable and what's not reasonable in a transparent sale agreement.

And it would be really easy to divulge information which actually damages your case unwittingly or for the buyer to think that you're withholding information. So there's a real fine balance and it makes a lot of sense to get independent advice on that.

Damon: 00:40:19

And again, your attorney can give that you know your CPA, but you're someone with relevant transactional experience in buying and selling businesses. You know, certainly it would make sense and, and we talked briefly about it before.

But as a seller, are you familiar with the different deal structures out there and what's correct for your situation? There's asset sales, and I'm speaking specifically United States. You can sell the assets of the company.

You can sell the stock of the company, the structure of how it's paid out at closing or sometime thereafter. There's multiple tax implications.

And, you know, I have folks work with their cpas and other accountants to understand the taxable event that happens with the sale of a company. I know specifically about the United States, but I'm sure there's similar tax implications no matter where you're at listening to us.

So you'll want to understand going into the this not at the 11th hour, not one day before closing that maybe I made a mistake on how I structured the transaction.

Pete: 00:41:20

It's important to talk about that because, you know, whether it's capital gains or sales tax, there will be a tax liability from the sale, certainly for the seller. If you can factor that into the deal and get those bases covered, then it leaves you with more cash in your pocket.

Damon: 00:41:35

I would assume most of my sellers, nearly all, you all want to maximize the cash in their pocket, whether it's the day of closing or holding some of the. Doing a personal loan, holding some of the paper on it.

But, you know, that's the crux of a seller, that it's to pull the value of the business and the asset that you've built over days, years, months, or decades to do whatever it is you want to do with it.

Pete: 00:41:57

I've got one question off the back of that, Damon. Is it common for sellers to maintain an interest in the business, to maybe not sell 100% and walk away completely?

Or do you see people prefer a clean break?

Damon: 00:42:12

So that's a great question. And that is a viable structure that, you know, you don't have to be 75 years old, just really ready to retire.

You know, there are many reasons why people sell businesses. And I've had clients, you know, of all ages, you know, in all stages. Maybe they started the company a year ago. Maybe they started it 70 years ago.

Pete: 00:42:31

I'm glad we've covered that, because it's not just an end of career opportunities we're talking about. It's, you know, as you say, people sell businesses because they sell businesses.

Damon: 00:42:42

Absolutely.

We've talked about valuation, and I've got a couple points I want to make, because, again, there's some myths that, you know, I'd like to dispel out there, because I hear a lot of them about how companies are valued. And a lot of it's that I heard from a guy who heard from a gal whose uncle once sold their business that this is how it was valued.

And, I mean, that's not a joke, but it kind of is a joke. So, you know, I want to talk about some of the factors that affect the value of your business. And number one is the size of your annual revenue.

And it goes without saying that if you have a larger company versus a smaller, that multiple can be higher.

If you have a company doing 10 million in revenue versus a company doing 1 million, you are going to command a higher multiple than the $1 million company. So I think that's important.

Pete: 00:43:35

Sorry, Darren. It's not just a higher sale price. It's a higher multiplier of the revenue.

Obviously, it's going to be a more expensive company to buy because it's bigger, but on a ratio basis, it's going to be a much healthier ratio for the seller than the company that's only generating a million dollars of revenue.

Damon: 00:43:55

That's correct. And I'm just gonna, I'm sketching out a real quick example here. Let's say you got a $5 million company running at a 10% margin.

10% of 5 million is 500,000. But let's say you have a million dollar company working at a 50% margin. You know, that's 500,000. So you've got two companies.

One's a higher revenue, one's lower, but one's a higher margin. Right. So how do you, how do you value those two companies? It's complicated. I'm not going to go into that here.

But typically what you're finding is the larger companies are more valuable and that's what the investors are typically looking for. So you've got that piece, you know, the profitability.

Since almost all buyers are going to base their value on your multiple of earnings, if you have greater profitability, that's going to equal a greater value in their company. And the myth I want to dispel is it's not just a multiple of your annual revenue. It's typically a multiple of your annual earnings.

And I think that's important to get across. And again, let's talk about growth.

If you've got two companies, each doing 5 million a year in business, company a has done 5 million every year for the past five years. Company a did 1 million in year one, two and a half million, then 5 million, and they're projected to do seven and a half million next year.

And which company would you rather buy? Most investors want to buy the company that's growing at a greater annual rate. So your growth is going to affect the valuation of your business.

Also, we talked about earlier the age and the quality of your fleet.

If a buyer has to replace any trucks, as soon as they buy the company, they've got to really deduct that from the purchase price because that's money out of their pocket. And the quality of your financial records, and I know we're going over these again, but I do kind of want to summarize.

Solid financial records prepared by a CPA are more desirable than grocery bags full of receipts.

And I know that's an extreme example, but I think I want people to understand that now they don't you don't have to go to Ernst and young or PwC and spend $10,000 getting your books audited. Did. But I think it's important to have clean financial records that a buyer can logically review and understand.

Because, again, the more questions a buyer has in their mind, the lower the value is going to be. And one of the things we haven't talked about is, you know, it's the Sanitation podcast.

But many of our listeners have other services, whether it's fence, storage containers, vip trailers, any number of things. Buyers are going to look at those and it's going to affect the value of the company.

So just understand that, you know, your product offering, you know, will have some bearing on the value of the company and the potential buyers of that.

Pete: 00:46:52

Yeah, well, that makes a lot of sense. If you're showing you've got a diverse portfolio, then you spread the risk, perhaps a little bit.

You reduce your vulnerability to ups and downs, in particular segments of the market.

Damon: 00:47:04

You're exactly right, Pete. And a lot of it gets back to business 101. But, you know, this industry is filled with very sharp people that provide a good service.

And I think when it is time to sell, and whether that's in today's economy, five years from now, ten years from now, you know, we'd like to help people navigate that process and find the right buyer. And, you know, I'd hope some of the.

The listeners have taken a few things from this to say, hey, these are a few to do lists that I'm going to take back to my company, or I've got greater questions. I want to talk to my attorney, CPA, or some other advisor to help with.

Pete: 00:47:40

It's been really valuable, Damon, and it's really important for you to explain how people can find out a bit more about Damon and get in touch with you. I don't know if you can share that information with us.

Damon: 00:47:51

Absolutely. Again, it's Damon Powell. But FM is going to be the best place to learn more about what Ed and I can bring to the table as far as possible sellers.

But, yeah, just fmcadvisors.com. it's got all our contact information there. Consultations are always free.

We love talking to people in the industry, helping them navigate the process.

Pete: 00:48:13

Well, I'm really grateful that you've been on and shared your expertise with listeners today.

And it's great to hear you say that consultation is free, because I'm guessing some people will listen to this and think, if I ring Damon, he's going to present me with a hefty bill just for a phone call. But good to hear that there's a free initial consult that's available to listeners should they want to take you up on that offer.

Damon: 00:48:34

Yeah, absolutely. And every time, Pete, again, it's because of the great people in the industry and the satisfaction ed and I get from helping those folks.

But again, we're here to help navigate the waters, if that's the route a potential seller wants to take. Really appreciate what you do. It's a. It's a fantastic show. Can't say enough about being able to be here.

And I hope to come back and talk about maybe some other aspects of the sale process or maybe even buying a business.

Pete: 00:49:01

Well, I hope so, Damon, because it would resonate with listeners without a shadow of a doubt. I'm fairly sure that we could go back in and talk about that valuation in more depth.

You know, there's more than one way to skin a cat, and that's a topic that everyone asks. How much is it worth?

Damon: 00:49:17

I mean, at every convention, bar, table, coffee table, you know, did you hear Joe sold? How much did he get?

Pete: 00:49:25

All right, I'll let you get on and I'll speak to you soon. I really do appreciate that, Damon. Thanks for your time. I'd like to thank Damon for taking part in the interview.

As he pointed out, selling a business requires expert knowledge and skill.

Having the right advice to help you prepare the business for sale, find prospective buyers, negotiate the price, and close the deal could make a tremendous difference to the value of the sale.

If you're thinking of selling your business or have been approached by someone interested in buying your restroom operation, you need to contact Damon or his business partner, ed. FMC advisors specialize in helping owners in the portable sanitation and solid waste industries sell their businesses for maximum value.

Together, they've completed over 130 transactions worth over $600 million in value. Their team will help you prepare your company for sale, find the right buyer, and manage the entire process.

Consultations are free, and they believe that experience matters, so you'll get real results. I'll put links in the notes, but you can learn more www.fmcadvisors.com.

Okay, that's all for this week.

Please remember to tell at least one family member, colleague or friend all about getflushed and encourage them to listen in. We're available on every podcast platform. Once again, thank you for your time. I've been Pete and you've been listening to Get Flushed, the world's favourite sanitation podcast.