Business men who are looking to sell their engineering firm usually underestimate the complexities involved in the whole sale process. As a result, they frequently sell their businesses for a very low price, wasting an excellent opportunity for making a good amount of money.
Generally engineering firms can be defined as a consulting company that provides engineering services. There are a lot of businesses like that in the United States and it’s hard to calculate the exact number, but it’s correct to assume that while there are many small firms, there are also the big ones, very attractive to young engineering students.
When an engineering firm owner decides to sell his business, he might just sell it or merge it to another engineering firm. But why is this happening? The simplest explanation is that one company has something to offer that the other company wants. Sometimes there are mega-mergers which changes the way people do business in the US.
Take a look at this tips and learn how to sell your business for the best price:
What is your Engineering Firm business worth?
The first thing you have to do is understand how the sale process really works. Don’t underestimate it and don’t try to get rid of it either, otherwise you won’t get the money you deserve.
Then, gather all financial data from the past three to five years. Prepare a report with all information and provide your potential buyers whenever they ask.
An engineering firm is very difficult to run, after all there are lots of numbers to be cared of, you might need a professional help to calculate exactly what your engineering firm is worth. In this case, a business broker could be very handy.
But if you really want to do the math all by yourself, there’s no problem. Take a look at these metrics and make sure you have all the answers:
- What are the sales?
- What is the profit?
- What are the growth trends?
- What is driving new sales and is that sustainable?
- What channels do new customers come from and what is the breakdown of each channel?
- What is your market position?
- Is your Location favorable?
- How reliant is the business on the owner?
- What systems and processes are in place to run the business?
After all, understanding what potential buyers want is essential to the success of any business transaction. So here it is: they would like to be aware of the quality of management, evidence of strong and consistent revenue growth, retention of key clients and, for last but not least, market presence.
What makes an Engineering business worth more?
You have already analyzed and calculated what your engineering firm is worth, but the math is not over. Now you must add the aspects that make your business worth even more. But don’t worry, if you have no idea of what I’m talking about, keep this guideline close to you and everything will be crystal clear.=
- Predictable key drivers of new sales
- Stable or growing traffic from diversified sources
- Established suppliers of inventory with backup suppliers in place
- Traffic stats
- High percentage of repeat visitors and repeat sales
- Clean legal history
- Brand with trademark, copyright or legal concerns
- Documented systems and processes
- Growth potential
But if you still have questions, you can always count with some professional help. The most important is to know exactly which aspects of your engineering firm makes your business more valuable.
What does the average Engineering business sell for?
Before analyzing the last 10 years numbers, two important details: the first one is that 2015 data is not complete, as the last engineering firm sold that is cited in our research is from July.
The second is, since there were very few engineering firms sold (only 61), the average multiple and average sales price are bigger than it normally would be, respectively 3.50 and $890k.
Those are particularly high numbers, and a multiple of 3.50 means the average asking price is almost four times higher than average gross income.
What is the most frequent deal size?
But don’t be impressed. The multiple rate may be high, but most frequent deal size is approximately half of it ($450k). And why is that?
If you take a look at the chart, you’ll see most of engineering firms sold in the past five years were negotiated for less than $250k. In second place is $250-500k deal size.
The higher the price negotiation, the higher the multiple rate. But frequency is much lower than the smallests categories as well.
Is the Engineering market getting bigger?
It’s hard to say. 2014 had an excellent year for engineering firms, but the same cannot be said about 2013’s numbers. The best year so far was 2009, when total transaction value almost reached $20 million in sales.
There are good and bad years, though, so it’s correct to say that engineering firms market has its ups and downs.
Are bigger businesses worth more?
Yes. “Bigger is better” runs engineering firms market rules. That’s why there are so much merges in these businesses.
At the same time, the higher the deal size, the higher the multiple, the higher the profit. Keep that in mind before setting your asking price.
What states have the most business deals?
California, Florida and Texas — the three most populated states in the US — are the best places to negotiate an engineering firm sale. In the others businesses like that are not that popular, but New York and Massachusetts can always be highlighted.
Why would you sell in the first place?
The reason to sell always varies from each person. Maybe you are looking for new challenges, businesses and opportunities, or you just want to enjoy your family and retire. Although it can seem tempting to get your hard worked cash, make sure that you are clear on the motives so you don’t regret afterwards.
How long will it take to sell your business?
If you have read all the necessary steps to understand your valuation, and think you have focused on all the topics that make your company worth more, it is maybe time to start the process. Selling your business is a long-term process, and doesn’t happen overnight. Usually companies sell in 12 months, but you can also see deals getting closed in 6 to 9 months depending on the opportunity.
What is the process of selling your business?
This step by step process will help you get less confused when you make sure you are ready and confident to let go of your business, and perform a nice and positive sell. Many entrepreneurs forget about a step, or just don’t have the right guidance to know all the stages necessary and get lost through the process. Don’t forget to go through all of these, and if you have any questions, comment at the end of the article or contact us for more help.
Who will buy your business?
If you are wondering about the buyers that can be interested in your Engineering Firm, don’t worry, there are many options and possibilities. From First Time entrepreneurs, to businessmen interested in new opportunities, the chances are that in the engineering industry it may likely be a person who already had a store in the field.
There have been very few engineering firms sold in the past 10 years, but the asking price of those 61 businesses is high enough, as the multiple is 3.5.
That means engineering firms can be very profitable. If you want to start accelerating your buyout process, fill out our free valuation form and get your business valued today! Leave your comments on any doubts or feedback, we are glad to hear your thoughts!