With property values and residential construction on the rise, it’s a great time to own a fence or decking business. Low unemployment and rising incomes have led to increased residential spending. The demand for fence and deck companies is high as homeowners look to install new fences and decks or upgrade existing structures.
Over the past five years, fencing companies have seen uninterrupted growth, according to IBIS World. Approximately 48,000 businesses employ 80,000 employees. The annual revenue for fencing companies is $8.2 billion, most of which comes from residential projects, according to IBIS World. Decking businesses have been slower to expand in recent years, but are still considered stable, with the industry bringing in $700 million in revenue annually. Based on this information, the time may be right to sell a fence or decking business. While it is best to let an M&A professional determine the true value of your business, the following formulas may give you a general idea of what your business may be worth:
- 27x-3.94x SDE (Mean is 2.99)
- 18x-5.20x EBITDA (Mean is 4.19)
Consider the following do’s and don’ts in building value in your fence or deck business.
Do Offer a Superior Product
Potential business buyers are always looking to see the value that you are adding to a particular industry. The best way to add value to the fence and decking industry is to offer the superior products that customers are seeking and to stay on top of trends. If you haven’t already done so, do some research on the Home Owners Associations in your area. Know what types of fencing are approved for each neighborhood and make it available to your customers. While many established neighborhood HOA’s may stick to a few pre-approved options, newer neighborhoods may be looking to use newer, on-trend materials. Businesses are seeing the value of updated fencing as well. Most still prefer basic, cost-effective chain link, but others are looking for a more stylized product to protect their business.
Not long ago, decks were seen as a functional space for a table and chairs, but today’s homeowners are looking to make the deck an extension of their living space. Wood is still the preferred choice of material, accounting for 84% of all decks, according to IBIS World, but composite decking is on the rise. Bench seating and other customized features are also important to homeowners. You add value to your business and to the customer experience when you can provide design services and custom decking to customers in your area.
Don’t Stick to Old Marketing Strategies
Having an effective, affordable marketing strategy in place is very appealing to potential buyers. There was a time when most businesses’ advertising plans consisted only of the yellow pages, but now, plans need to be much more diverse to target and attract the right customers. Direct mail has been around awhile, but you are now able to be much more selective in who you target. Focusing on new homes with no fence or deck, or neighborhoods where homes are 10-20 years old, where existing structures need a makeover, may be more profitable than a citywide mailer.
In today’s online world, social media is often the most cost-effective way to reach a large number of future customers. You may already have a basic Facebook page with your business information. That’s a great start, but don’t miss out on the other features social media has to offer. Customers are visual, so be sure to show them your work by posting completed projects online in real time. Consider Pinterest to have images of your best work reaching potential customers. In addition, use your social media platform to showcase reviews from satisfied customers. Not only will your online presence attract new customers, but it will also serve as an additional insight into your business for prospective buyers.
Do Prioritize Training and Hiring
Often, when business owners have a plan to sell their business in the near future, they take the focus off of hiring and training employees. While it’s true that some future buyers prefer to staff their new business themselves, most place value in having experienced employees already in place. As they learn the new business, they’ll have peace of mind knowing that each position is filled with a highly qualified employee, trained to do his or her best work.
As you prepare to sell your business, be sure to have no employee position vacancies. Knowledgeable managers are an asset to any business, especially if they are cross-trained in a variety of areas. You may also want to consider beginning the process of replacing family members that will not stay on after the sale with employees that plan to stay with the business for the long term. Buyers may see red flags if they anticipate a mass exodus after the transition of ownership.
Don’t Neglect Equipment
Prospective buyers are often focused on potential profit, not future expenses. Be prepared to show an organized workshop and tidy office space. Ensure that all business vehicles are in good condition before you list your business for sale. Inspect trailers and hitches to confirm they are in working order. If equipment needs repair, consider doing this as soon as possible. The investment to take care of these needs now will likely increase the value of your business for future buyers.
You may also want to invest in new equipment if it’s available. Modern workshops appeal to buyers that may not want to invest in updates once the business is purchased. Installers with new tools may also be more efficient in their work, leading to increased productivity and therefore, more sales. The same concept can be applied to the office as well. Have a streamlined customer management system in place to show prospective buyers. Establishing that effective processes are already in place will help them feel confident in a smooth transition.
It is never too early to think about the value of your business. Whether you plan to sell this year or many years in the future, put these practices in place to ensure your business is highly valued by prospective buyers. Reach as many potential customers as possible through effective marketing, and offer products superior to your competitors. Don’t lose sight of hiring and equipment maintenance, even if you are actively planning your exit. Offering a strong business with great potential profit will put you in the best position to find the right buyer for your fence or decking company.