Wednesday, April 8, 2015

10 Steps to Selling Your Modular Home Business

You’ve weathered the housing recession of 2008 and this year is shaping up to the best you’ve had in years and now you're thinking this may be the best time to sell your business.  

Here are some major steps to follow for a successful sale:

1.  The very first is to determine why you want out of the business.  This may sound like it's easy, but you have to ask yourself some tough questions.  Did you get hurt on the job and need to find safer work or maybe your son or daughter doesn’t want the business. Maybe you are ready to retire.  The worst reason to sell your business is because you woke up one morning and said "This business sucks and I want out of it now!"

Factory owners usually want to sell for a couple of the same reasons. Heirs that don’t want the business or retirement but there may be other reasons you want to leave the industry. Maybe you are losing market share or you are having a tough time keeping your factory updated with the latest equipment.

Aside from the dollar amounts involved, both the factory owner and the modular builder with a model home center needs to know exactly why they want to sell.

2.  What will you do after the sale?  If you are a builder that does not have any developments to either sell or retain after your sale, what are you planning to do?  I've heard lots of builders say they are just going to do small jobs around town and go fishing whenever they want to.  This rarely works out.  You may be too young to make a living this way or too old to get affordable health insurance. Unless you've got something else to replace the income from your business, you may not be able to sale.

Factory owners that contemplate selling usually have some sort of afte-rsale life in mind. Maybe some community service work, consulting and even missionary work. Some may even decide to get back into a different business.

The worst thing for either is to not have an after-sale business plan.

3.  How much are you going to ask for your business?  After you've decided to sell, you need to decide how much to ask for it and there are several ways to determine the price.  You could use the cost of assets plus profit of homes under construction plus good will. Or maybe average the profit you reported last three years and use a multiplier.  I'm sure there will be the builder or factory owner that determines the price by throwing a dart at a bunch of prices.  One of the best ways is to ask professional with experience selling modular home factories and retail modular building businesses. 

WyndhamCapital’s Managing Partner, Mark Sage, has many successful sales in the modular home industry and would be a great first step.

4.  What are the tax consequences of selling your business?  Your accountant will help you figure out your tax burden and this is determined by how your business was legally set up...sole proprietor, LLC or whatever.  Be prepared for a surprise, taxes always seem to throw a monkey wrench into the stew.

5.  Spruce up your business!  Before you take prospective buyers on a tour of your homes under construction and a look at your books, make sure everything is ship shape.  Your office and work areas need to cleaned up and ready for inspection. I’ve seen production lines that were filthy and dimly lit with workers leaving tools lay where they were last used. Clean up your work sites or in the factory.

Things that you might overlook are your P & L statements, L & A statements and your past tax returns.  Talk with your accountant to make sure your business is presented in the best "legal" light.

6.  Promoting your sale!  This is a tough one.  You may think that first people you want to talk to are the people that already know you and make a deal. That usually doesn't work and even if it does result in a sale, it probably left a lot of dollars on the table you could have gotten. If you are a builder with a sales center or a modular home factory owner, going the professional route should be your first choice in selling your business. Yes, there is a fee involved but in 99% of sales, the sales prices was much larger and justified hiring a professional.

DO NOT use a local Realtor with a CCIM designation as they really don’t understand the modular housing industry and you will tie up selling your business for up to a year.  

The one thing you have to be cautious about is word getting out that you are selling and prospective home buyers turn away.

7.  Wheeling and dealing.  Here is where the rubber meets the road.  You've been presented with a buyer.  If you are retail modular home builder, do they want to pay you a lump sum or installments after a down payment?  What happens to your model home center? Do you sell it along with the business or keep it and long term lease it to the new owners? Do you want to negotiate keeping an asset such as some assorted power tools to use when you subcontract to others? 

Factory owners face similar questions but on a larger scale. Will they be part of the new factory? Will there be a non-compete clause that forces you out of the housing industry altogether or will the new owners allow you to do consulting?

Be prepared to spend quite a bit of time in this part to the sale.

8.  Signing over your business.  My only advise here is to use a good business attorney usually recommended to you by the professional helping close the sale.   The lawyer will make sure that your wishes are put in writing and all the legal stuff is correct.

9.  Transferring your business.  If you are a retail builder with work in process, you'll have to get mortgage banks to agree to the transfer and vendors may want paid in full before they let you off the hook for your company debts.  Again, this is best done through your attorney and accountants.

10. Completing all the legal paperwork.  You have forms to file with the IRS, your state and local agencies and transfers of assets.  These must be completed!

Now that you've successfully sold your business, enjoy the fishing!

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