Sorry To Burst Your Bubble… But Your Business Is Not Worth What You Think It Is – by Gannon Mahaffay

By Gannon Mahaffay, Founder and CEO of The Pest Control Coach.

I bet you won’t like what I’m about to say, but you need to hear it and fix this problem before you ever think about selling a pest control business: too many pest control businesses have little or no value outside of the real estate. There are basically three reasons for this:

1. The business cannot effectively or profitably operate without the owner.
2. The owner’s take from the business is not any better than a standard job salary.
3. Most of the revenue is a one-off or one-time service, and there is very little recurring revenue under agreement.

Who would pay you a big check for a business with very little recurring revenue under agreement, just to buy themselves an ordinary job? The buyer could get a regular job for nothing, and the buyer would not have to work 60 hours a week either.

The only way to make your business worth the money it should be worth is to get into a position where it makes a significant amount of money without your direct daily input, and where it generates substantial recurring revenue under agreement. So what I’m saying to you is this: put systems in place so that you can get off the truck, get out of the office, and only sell service with agreements. Everybody signs one. Recurring plans should require autopay. And if you raise prices, wait until the customer’s current agreement ends. Don’t apply a price increase in the middle of an agreement.

Let’s have some fun here. Let’s say I represent a national pest control company with millions of dollars to invest. Today I am interested in investing in your business. I want to buy it. How much do I pay you? Don’t read ahead. Think of your answer. Write it down. So I go ahead and write you a check. You party like it’s 1999, and everything is great. Three days from now, I’ll come to you and say:

“Hey, we were excited about taking the business to another level, and we had a plan and a team in place to do it, but our upper management decided to go another way and no longer want to invest in your business. Now, I certainly don’t expect you to give me my money back. However, I would like it if you would buy it back for a fair price.”

So, what’s the price going to be? What is the first number that comes out of your head? Was it the same number you sold it for? I already know the answer to that: it wasn’t. You already know where I’m going with this. It’s worth the lower number. It always is.

I’ve had some interesting conversations during this exercise in the past. I did this exercise with a guy in Dallas, Texas. His sale price was $5 million. His buyback price was $1 million. In another situation, the guy told me it would take $10 million to buy his business. When I asked him how much he would buy it back for, he said, “Hey, a deal is a deal.” He would not even buy the thing back.

Situational Example

Mike ran a termite and pest control company for almost 20 years. Mike decided it was time to retire. When I asked, “How much do you think the business is worth?” he answered, “$1 million.” I challenged him: at the time, he could not afford to pay himself more than $70,000 per year. The business was breaking even, and larger national companies were moving into the area and stealing his clients. Key long-term employees had already checked out, which caused a lot of churn within the business. They were basically losing a ton of clients. When Mike asked what I thought he could get for the business, he did not like my answer. I felt no one would buy a $70,000-a-year job for any price, especially in this case, because most of the recurring revenue was no longer under agreement. You see, Mike’s right-hand man convinced him that the best way to get new clients was to sell pest control without an agreement. This was a bubble-headed move, because buyers buy agreements. Fortunately, all of Mike’s termite business was under agreement, so there was some value there. The best course of action at that point was to systematically liquidate the roughly $300,000 worth of vehicles and equipment they owned free and clear, and to get as much as they could for the pest control and termite business that was still under agreement. There was $130,000 worth of annual business under agreement at the time. On his short timetable, this was his best option. Definitely not a million bucks.

Action Solution

All right, the truth is a no-brainer. Your business is only worth what someone else will pay for it. The best tactic for selling your pest control business is to have it run well and profitably without your direct involvement. Not only does it need to run efficiently without you, but every client needs to be under agreement. I’m assuming you already know this, but probably haven’t done much about it. So I’ll leave it here. Take a look at the Ninja Kick below and make a bet on yourself. You need to be accountable, and brave enough to hold yourself to high standards that will get you great results.

Ninja Kick

I realize that removing yourself from the day-to-day operations is difficult. I realize that things don’t go right when you are not involved. I also realize that putting everyone on an agreement will take some effort by every member of your staff. However, you are selling yourself short by doing day-to-day tasks that don’t move your business forward, but only keep it from moving backward. You can do better than that, but you must do what I call making a bet on yourself. Most of the time, getting yourself out of these tasks involves spending money, perhaps buying automation or hiring help. Either way, you have to reach in your wallet and say: I can add more value to the business by spending this money to get my time back.

Now raise your right hand and repeat after me: I will not sell one-time pest control. I will train my staff how to properly sell recurring service agreements, with autopay required. And I will create the systems that will allow me to get off the truck and work on my business rather than in my business, day after day.

Want more? Read more straight talk in The Coach's Corner, and get to know Gannon Mahaffay.