How to Sell your Investigative Services Firm for the Highest Price
Industry predictions and economic stability make it a great time to begin planning your exit.
As our economy continues to prosper and the buyer pool in the Southeast expands, the time to sell a business has never been better. We are in the midst of a Seller’s Market, which gives business owners who have been thinking about planning their next step a very unique advantage. If you are reading this, chances are, you are the owner of an investigative services firm and are seeking information on how to sell your business and how to build the value prior to the sale. After facilitating over 500 transactions across the Southeast and helping thousands of business owners plan for their future, you have come to the right place.
The investigative services industry in the United States is comprised of over 4,600 businesses with a combined revenue of around $5 billion dollars. The industry covers a variety of services, varying from private investigations to surveillance to web-based investigations. Investigative services firms are expected to see an industry growth of 5% in 2017 and on average, gross margins exceed 75% of sales. This industry is small but affluent, catching the eyes of buyers and lenders as a safe investment. If you have seen growth in your investigative services firm, the time to begin planning is now. While this may feel backwards (why would you sell when there are better profits on the horizon?), it’s actually the best time to sell because it shows buyers that your business is going to continue growing in the future. Even if you may not be ready to sell right now, it is always smart to have exit options available and the first step to planning is getting a professional valuation. While only a business intermediary can tell you the true value of your firm, here is a commonly used formula.
- 70%-75% of annual sales
Now that you have a better idea of how value is calculated for private investigation firms, you can begin taking steps to boost your value. These 5 tips will help increase the value and appeal for when you are ready to make that next step.
High customer concentrations can damage a deal and are the bane of so many businesses we plan exit strategies for. The good news is they are fixable, but take time to repair. Customer concentrations occur when any customer is responsible for 30% or more of your revenues. Typically, investigation firms will have a couple large clients that they provide services for or manage some long-term projects. The problem with this is that too much of the businesses’ revenue is reliant on projects that may end or a customer that could switch providers at any time. This could lead to the loss of a major source of revenue or a slump in cash flow, which can really hurt your business when you decide to sell. We also see investigation firms that specialize in 1 or 2 areas hurt by this, because they are vulnerable to industry trends or customer needs changes. To cope with this, we have rolled out a full game plan on identifying, resolving, and preventing high customer concentrations.
Every successful business has a strong marketing campaign behind it. Whether or not you are doing much in terms of marketing, it is never too late to start. Keep in mind that marketing takes time to show a return, so don’t get discouraged if it takes a while to heat up. Most industries are making the switch to digital marketing and investing more dollars into SEO and AdWords campaigns, which your industry can definitely benefit from. But interestingly enough, P.I. firms gain a lot of clients from good ol’ fashioned networking and events. In terms of events, we have seen several businesses build their client base through tradeshows, hosting seminars, attending conferences and local networking events. Getting your name out to your community and making contacts will really help expand your customer base. When it comes to the digital side of marketing, we recommend creating social media pages, designing a website that showcases testimonials and case studies, putting some money into SEO and asking for client reviews on forums such as Google Reviews or Angie’s List.
Businesses within the investigative services realm require a variety of licenses and while it may not actually increase the monetary value of your business, it will catch the eyes of buyers. Oftentimes, the owner of the business is the main license holder, which severely limits the buyer pool due to the process of obtaining a license. To prevent this issue, we recommend that at least a couple key managers hold the same licenses as you so that the business can be easily transitioned. To learn more about licensing procedures and which licenses may be best for your employees, check out North Carolina Department of Public Safety – Licensing Process for Private Investigators. (https://www.ncdps.gov/es/About-DPS/Boards-Commissions/Private-Protective-Services-Board/Licensing-Process)
Balanced Cash Flow
Similar to the section on customer concentration, it’s important to have a balance among revenue sources to prevent slumps in the event of a completed project or lost client. To begin balancing your cash flow, we recommend adding new services to your repertoire and trying to build the income in those departments. The great thing about the investigative services industry is that there are so many different forms of investigation that adding 1 or 2 more services should be a piece of cake, as long as your team can handle it. As far as services go, here are a few we recommend: background checks, custodial investigations, home security, technology-based investigations, cargo theft, workers compensation, corporate intelligence, or social media investigations. Not only will adding new services balance your cash flow, they will give you marketing fodder and help you rank for new keywords.
Advanced technology in the private investigators field is critical due to the fact that everything is highly confidential. To ensure confidentiality is always protected, your firm needs state of the art software to prevent hacking or leaks. In addition to anti-hacking software, having access to databases and portals that would allow for deeper investigations will also help your firm offer top-notch services to clients. Buyers will also be impressed by the resources you have available and the different ways your firm can obtain information. If you own any of the equipment or databases, this can also be used as goodwill during the sale.
Understanding the value of your investigative services firm is critical, even if you are not thinking about actually selling for a couple more years. We have seen dozens of business owners lose dollars at closing because they didn’t start planning their exit until they were burned out on the business, which is why we recommend taking these steps now. Every business owner needs an exit strategy and if you have been thinking it’s time to start planning, the first step is obtaining a no-cost, no-obligation valuation. Prepare yourself for the future; take these steps to increase the value of your business so that when it comes time to sell, the years of hard work will all be worth it.