Selling your payroll service or book-of-business is complicated. And between your hard work and capital investments, you, like everyone else, have a strong belief that your payroll service is worth a lot of money. So now what?
Have Reasonable Expectations
When selling a business, a buyer wants to know a lot of information. From seeing a deed or your lease on your office building, financial statements for the last three years, and your corporate Tax Returns. You are probably asking why this process has to be so complicated?
Early Planning (And Proper) Will Pay Off
If you are remotely thinking about selling your payroll service or book of business, you should start planning two to three years in advance, especially if your financial statements are not strong.
While the average length of time a payroll service is on the market is four to six months, be prepared to have your business listed longer. And once an offer is accepted, plan on two to three months to close.
8 Tips To Consider When Selling Your Payroll Service
1. Use A Realistic Price/Multiple – Use a professional or broker who knows the payroll industry if you want the actual value of your business. Make sure your expectations are realistic, and based on data you can prove on paper. You will need to present the following (other areas are required):
- Average annual revenue per client.
- Average client employee size?
- Revenue growth over the last 3 to 5 years.
- What industries the majority of clients are in.
- What other “add-on” services your clients purchase from you.
- What technologies are proprietary or licensed; What are the terms of our license agreement?
- Your client retention rate?
- Your operational processes.
- Your pricing strategy?
- Your staff’s tenure (and do I want to ensure their future employment).
2. Time The Sale Correctly – It’s best to sell your payroll service when it looks its best. Conversely, we don’t recommend selling it when you just had a major medical issue, a problem with your technology, or after losing a huge payroll client.
3. Get Your Financials In Order – You need to provide a potential buyer with three years of financial statements, including your corporate tax returns. Additionally, make sure there is adequate cash flow to ensure a buyer with a positive return. It’s also a good idea to outline all loans/liabilities, real estate contracts, employment agreements, employee non-compete agreements, etc.
4. Your Client Database – Make sure your client list is up to date, including employee size, monthly revenue, frequency of running payroll, etc. It’s also nice to see that your sales revenue isn’t coming from 50% of your client database. Remember, you want to eliminate all risks associated with the conversion process.
5. How Do You Want Your Business Managed After The Sale - First, are you a critical figure in managing your business or driving in new business? How about your staff; what do you want to happen with them post the sale? Do you want their employment to be secure?
6. Processes And Procedures – Depending on who buys the company, make sure your policies and procedures are in writing. A new buyer loves to see this type of organization. Remember, if the new owner wants to change things, it’s perfectly OK as they will most likely move your clients to a new payroll platform and have a different set of processes for onboarding a new client, etc. Again, it will be great to show a potential buyer how organized your business is.
7. Present A Buyer With These Documents – Along with your financials, make sure you can provide someone with the following:
- Payroll Technology Agreement
- Vendor Agreement(s)
- Lease Agreement
- Employee Contracts/ Non-Compete Agreements
- Employee Wages/Bonuses
- Other Important Items Are In Writing
Summary: The reality is this: Selling your business is complicated because it will be an emotional experience. To get a handle on what your payroll service or book of business is worth in today’s market, reach out to us today!
