Exit Strategies for Selling Your Inspection Business

by Nick Gromicko

No career lasts forever, and the inspection profession is no different.  There are many reasons inspectors decide to sell their businesses:

  • a desire to start something new;
  • old age;
  • health issues;
  • spouse needs to relocate for work;
  • divorce;
  • mental burnout; and/or
  • retirement.

Regardless of the reason(s), you don't want to walk away with nothing to show for all the years you've worked in the industry.  Here are some strategies and tips to prepare for the sale of your inspection company.

Build your brand, but your brand can't be you because you're leaving.

Inspectors often make the mistake of relying too much on "relationship marketing."  The problem with this is that when you go to sell your company, you're taking with you the company's main asset: yourself.  To prepare for putting your inspection company up for sale, you should begin strengthening your company brand.  If your brand is mostly you, it's time to move behind the scenes gradually in order to build up your company brand.  

Think of some of the most powerful brands in the world.  Do you know who the presidents of those companies are?  Do you know if the CEO of the Coca Cola Company has a great personality?  Do you drink Coke because of his or her personality?  Of course not.  And despite almost everyone in the world knowing what a Coke is, the Coca Cola Company is still out there every day, marketing and strengthening its brand awareness.  Your inspection company should do likewise.

If you'd like some free help building your company brand – a brand that puts your company front and center – visit InterNACHI's Member Marketing Department at marketing.nachi.org. Your professionally designed marketing pieces are valuable company assets.

Trademark your logo.

Unless you have a distinctive company name, it may or may not be eligible for registration.  But if you had InterNACHI's Member Marketing Department design or redesign your logo, it is an original logo created from scratch, so your logo is eligible to be trademarked, so register your mark.  You can have an attorney who specializes in trademarks file your trademark for about $1,200.  Contact InterNACHI's patent and trademark attorney (below) for more information.  Ask for the "Nick Gromicko" discount.

Jim Sheridan
sheridanlaw.com
(303) 953-9083

Get your company systems in place.  

Potential buyers want a turnkey operation with the systems already in place.  Here are a few that you should consider implementing:

Increase your gross revenue.

A common formula for determining a business's market value is based on a multitude of annual revenues.  Now, of course, net profit is ultimately the most important revenue to the owner, but when buying a business, size matters.  Here are some tips for increasing your gross revenue:

  • Read "STACKS: A Home Inspector's Guide to Increasing Gross Revenues."  The short book is available as a free download at www.certifiedmasterinspector.org/stacks 
  • Perform more inspections.  The easiest way to bring in more inspections quickly is to work your past client base.  Read "How to Quadruple Your Inspection Business in Two Years."
  • Offer more inspection services.  Don't just make them available; explicitly offer them to every client who books a home inspection. 
  • Charge a little more for everything.  Charging a little more for every home inspection and every ancillary inspection, every day, starts to add up.

Remember: It's not only important to have high gross revenues, it's also important to show anyone interested in buying your inspection company that your revenues are increasing.

Open a commercial property inspection division.

Having a separate commercial property inspection operation makes your inspection company more robust.  It need not be a totally separate company, though; filing a DBA with your Secretary of State is easy and inexpensive.  Strategies to employ might include:

  • campaigns that target buyers of commercial properties.  Commercial property buyers worry that a home inspection company attempting to do a commercial property inspection may be in over their heads;
  • a company name that reveals that you specialize in commercial property inspections, such as "ABC Commercial Property Inspection Company";
  • a website featuring images of commercial buildings.  Images of retail stores, dentist offices, and restaurants might work well;
  • a team approach to doing commercial inspection projects;
  • use of the Certified Commercial Property Inspection Association (CCPIA) logo; and
  • ads that are placed where the commercial property buyer frequents, such as commercial real estate companies and investment clubs.  Inspector Media can target those exact consumers so that your advertising budget is spent solely on attracting the customer who will most likely want a commercial property inspection.

Hire more inspectors.

When you focus on increasing gross revenue, you'll need more help to perform those additional inspections. Here are some tips for multi-inspector firm owners:  www.nachi.org/multi   

Nick Tip:  If you are preparing to sell your inspection, hire inspectors who might eventually want to take over the business.

Get your company policies in place.

If you've been in business for a while, you probably have your own ways of handling issues, such as what to do when a customer cancels at the last minute, how to handle client complaints, and whether or not there are circumstances where you will accept payment at closing.   Most company policies will be related to your staff.  To establish those, use InterNACHI's Employee Handbook Template for Multi-Inspector Firms.  The template makes this task really easy.

Choose the optimum places to advertise that your inspection company is for sale, such as:

Offer your company to your own employees first.

Your employees are probably your best prospects when the time comes time to sell your company.  They are already inspectors and they already know your operation, your market, and you.  

Non-Disclosure Agreements

If you are negotiating the possible sale of your inspection business to a competitor or two, or to more than one employee separately, you may want to enter into a non-disclosure agreement.  InterNACHI has a sample non-disclosure agreement you can use.

Offer financing.

It's unlikely that your buyer is going to be able to pay you what you want for your inspection company in one lump sum, especially if your buyer is an employee or group of employees.  You are probably going to have to carry the note.  

Here is a win-win method of providing financing:  Have your buyers pay you a percentage of their gross revenue each month.  This way, if they hit a slow spell, their monthly payment decreases to something more manageable for them.  And during periods where they are rockin' and rollin', their monthly payment to you increases.  This also has the advantage of financially incentivizing you to help them when they need it.  It really is a win-win.

Collect a modest down payment.

Even though you are financing the purchase, you still want to collect a down payment upfront.  You don't necessarily want it so large that your buyers have to refinance their homes, but you want it large enough so that they have skin in the game.  

Lower the buyer's payments over time.

Depending on the down payment your buyers are willing to make, you may want to consider a percentage of gross revenue that is slightly higher at first, but that decreases over time until finally becoming a small monthly fee.  A payment structure such as this gives you some added protection as you are collecting more of the money earlier.  At the same time, it gives your buyers the feeling that they are paying down their debt to you.  Here is a made-up example:

  • $XX,XXX.XX down payment.
  • 5% of gross revenue for years 1, 2, and 3.
  • 4% of gross revenue for years 4 and 5.
  • 3% of gross revenue for year 6.
  • 2% of gross revenue for years 7 through 10.
  • 1% of gross revenue after year 10, forever.

Of course, you can adjust the down payment, the percentages, and the loan term to your liking.  This is just an example.  

To protect your buyers and yourself, dissolve your company.

Your purchase agreement should require that you legally dissolve the existing inspection entity, be it a corporation or an LLC, and your buyers should form their own.  It is fine for them to create an entity that is similar-sounding to yours.  This protects both you and your buyers from liability which may have been incurred by your existing company.  Thus your agreement will likely be an asset purchase agreement.  InterNACHI has a sample agreement for your attorney to review:  Sample asset purchase agreement.

And for your buyer's new company, here is a sample operating agreement you can use.

Collateralize the loan.

If your buyer is paying over time, you may want to relinquish ownership and control of the assets over time.  Perhaps you can keep some assets in your name until certain timely payments have been made. For example, your sales agreement could stipulate that you:

  • transfer ownership of the main company phone number after upon receipt of the down payment;
  • transfer your company trademark at the USPTO (in the U.S.) or CIPO (in Canada) in year number 2; and/or
  • transfer your company website domain name in year 3.

Of course, you can adjust these terms to your liking within the sales agreement.  This is just an example.

Agree not to compete.

Your buyers may want – and deserve – a non-compete agreement from you so that you don't sell them your company and then start a new one or go to work for a competitor.  Give that to them.

Be on call.

If your former company needs your help from time to time, you may want to offer to be on call to come back and do some inspections or real estate presentations.  Perhaps you'd even be willing to represent your former company by manning a booth at a real estate event or home show.  Such arrangements should NOT have any effect on the terms of your sales agreement.  That is a totally separate deal.  

Note:  The good news is that if you are collecting Social Security, the sale of your inspection company has no effect your benefit payments whatsoever.   However, if you return to do any work for your former company, your Social Security payments are reduced by $1 for every $2 you earn.  That's a 50% tax!  So, be careful not to earn more than the yearly earning limit, which is $18,960 for 2021.

Get tail coverage.

Tail coverage, also known as extended reporting coverage, is especially important when selling or closing down your inspection company.  Tail insurance covers your Errors & Omissions claims after the policy has expired.  If you are using InterNACHI's insurance, you get free five-year tail coverage.  If you aren't, it's time to switch to InterNACHI's insurance company. You can get a free quote in minutes.  

Sssshhhh.

There's no need to alert real estate agents or past clients that your company is under new management. Make the transition as smooth as possible.  

And, finally...

Thinking about selling your inspection company?  InterNACHI® is here to help.


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Marketing Tip for Inspectors: Online Promotional Videos
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The Importance of Advertising the Corporate Structure of Your Inspection Business
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