Security Shredding and Storage - a shredding industry publication
by Jim McGuire

The excitement of running a high growth shredding business is infectious. I have a tremendous amount of respect for the entrepreneurs in the document destruction industry. As entrepreneurs, they often work 16 hours a day just to avoid working 10 hours for someone else. Many will drive a truck not because they have to, but because they want to. The sound of high-pressure hydraulics is music to their ears, and the scent of freshly baled paper is like a breath of fresh air. They love their business and rightfully so. After all, this industry seems to have a fantastic retirement plan – many started their shredding business on a shoe string, built it, sold it, and became millionaires.

If the financial health of your retirement depends largely on the future sale of your company, you need to plan your exit well in advance and build your company with the attributes a buyer finds most appealing. You also need to embrace the fact that the best time to sell your business may be when business is at an all time high and future prospects look fantastic.

This article will give you some insight into the merger and acquisition process, and will provide some tips on how to maximize the value of your business so when you are ready to sell, you are in a position of strength. Preparation is key to giving you the best possible chance for success, as opportunities to sell high, fast, and with minimal effort are rare and tend to arrive (and leave) with the speed of a cheetah.

Get Help Early

Even the smallest acquisition is a complex mixture of accounting, tax, and legal activities packed into a very aggressive timeline. If you see yourself open to the possibility of selling your business you should begin to develop relationships with knowledgeable professionals. Business brokers and investment bankers that actively support transactions in your industry are a wonderful resource of information and support. From time to time, certain pockets of geography heat up like a solar flare, increasing demand for quality acquisition candidates. Having professionals on your side that understand the buying criteria and processes of the industry consolidators increases your chances to recognize such an opportunity. Since the bulk of their fees are tied to a successful transaction, it is wise to include advisors early in your future plans.

By appointing professional advisors, you are free to continue to run your business with the pedal to the metal. This is one of the most important benefits of seeking assistance with your exit strategy. A common pitfall of a self-managed business sale is burnout – a business owner becomes all-consumed with the emotional tolls and time requirements of the sale process. They lose focus on the daily management needs of the business. Employees and customers begin to notice and service suffers. Burnout has the potential to destroy business value, as any hiccup in performance during the sale process sets you up for a downward adjustment in purchase price.

What to Expect When You’re Least Expecting

Most times, the opportunity to sell your business will come as a complete surprise. In a way it is a lot like big game fishing, one of my passions in life. Fishing for marlin, tuna, and swordfish requires hours of preparation before the boat even leaves the dock. These fish are big for a reason – they are elusive, fast, have keen senses, and are extremely difficult to trick into taking a bait. Men and women that fish for these species obsess over their rods, reels, lures, the weather, even the temperature of the water. Big game fishing is all about preparing for the moment when you are in the right place, at the right time, and someone yells “FISH ON!”.

Just like fishing, you can increase your chances of success by preparing well in advance. Search the internet for a due diligence checklist and perform a due diligence inspection on your own company. By keeping your financial and business records well organized, you can act immediately when the right fish shows interest. Before any information in exchanged about your business, a non-disclosure agreement should be executed by both parties. An acquisition advisor or competent attorney can assist you with this important document.

Once the non-disclosure agreement is executed, and the buyer is determined to be credible, the first round of information exchanged is limited to summary level financial information and sterilized facts about the business.

Beautify Your Business

Beauty in this industry is not genetic – you have a large amount of control over how attractive your business will be in the eyes of a buyer. Here are some beauty tips for your business:
  • Maintain Sound Pricing Discipline – By far, the most appealing billing method in this industry is to price your services by the container or box, with a minimum charge. This makes your recurring revenue very stable on a month-to-month basis. Of equal importance is pricing discipline – steering clear of low or no margin business.
  • Use Contracts – Gain commitments from your customers while limiting your liability in a Service Contract that spells out the terms and conditions of your services. Contracts with a term and automatic renewal (check local laws on evergreen clauses) are viewed favorably by buyers as the contract reinforces a customer’s commitment to your company. Your industry association has an excellent form to use as a starting point. As always, consult capable counsel when creating your service agreement. Use extreme caution when considering customer provided “Vendor Agreements” as these often contain unfavorable liability and assignment provisions that will be a major area of concern for a buyer.
  • Diversify and Strengthen your Customer Base – Excluding your paper recyclers, look at your top 20 customers and the revenue they represent. Do you have strong relationships with each of these customers? When was the last time you polled their satisfaction? Ideally, this list should not represent more than 30% of your service revenue and should be protected under contracts.
  • Have Great Employees – Nobody knows your customers like your employees do. They know where all the consoles are located, where to park, and where to leave the certificate of destruction. Buyers want to be certain your employees will transition well, and will pass their employment screens.
Whether you are in this industry for the long haul, or are looking to sell your business in the near future, having an exit strategy is as important as planning for retirement. By building your business with the end in mind, retiring a millionaire may be easier than you think.

Jim McGuire is President of Shotgun Capital Advisors, LLC, a merger and acquisition advisory firm that specializes in the document destruction industry. He resides in Southlake TX with his wife and two children, and is an advocate for children’s educational rights.

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