Case Study #79: Yes, You Can Sell a Service Business without an Earnout

Case Study #79: Yes, You Can Sell a Service Business without an EarnoutWhen it comes to building a successful service-based business, few entrepreneurs can match the journey of Brandon Lazar. Over the course of 15 years, he transformed a simple window cleaning operation into a thriving business that served his community. But what happens when it’s time to move on and sell that business? Well, for starters, Brandon wasn’t interested in an earnout, which meant that he had to be particular about his buyer.

The Path to Selling a Bootstrapped Business

Brandon’s story begins with the humble origins of A+ Gutter & Window Cleaning. He turned a one-man show into a thriving operation through hard work, dedication, and a relentless focus on providing top-notch service to his customers. 

An intriguing aspect of Brandon’s business is his approach to financing it. He bootstrapped his way to the top, relying only on his cash flow to fund his growth. Unlike many business owners who constantly monitor valuation multiples, Brandon decided to concentrate on steady growth and exceptional service. 

His path to success raises the question: Should valuation multiples be at the forefront of an entrepreneur’s mind during the growth phase? 

Brandon says that honestly, he wasn’t thinking about valuation because he was fully invested in growing and scaling his company on a day-to-day level. With that mindset, he grew his business to seven figures before deciding to sell. It’s something to note for all of you valuation-obsessed owners out there.

Initial Approach and Negotiations = No Deal?

It’s all about who you know, or at least it was in Brandon’s case. After a tough hiring cycle, he was approached by a potential buyer within his network. This initial conversation led to negotiations about the sale of his business. 

Brandon was upfront about his expectations, being sure to emphasize the financial terms that would make the deal worthwhile to him. The lesson here is clear: transparent communication is key during the negotiation process. 

Or, one would think. While Brandon was very clear on his end, the buyer? Not so much. He eventually requested audited financial statements, which added complexity and ultimately dragged out the process. Another lesson to note here is the importance of setting clear deadlines and managing your own expectations throughout the process.

Despite progress made throughout the negotiation and due diligence stages of the sale, the deal ultimately fell apart during a Zoom call. It goes to show how unpredictable business transactions can be. 

A New Buyer Emerges

As one door closed, another one opened for Brandon. Someone else in his network expressed interest in buying A+ Gutter & Window Cleaning. He decided to go all in on this second chance, and dove into the new negotiations. 

Now that there was a new potential buyer on the horizon, Brandon revisited the valuation of his business. He successfully negotiated a sale without an earnout clause. The deal’s structure itself, including vendor take-back financing, was carefully created to align with Brandon’s specific goals. 

Key Lessons

Brandon’s story offers three key lessons:

  • Focus on growth, not valuation multiples. Brandon’s success story highlights the importance of prioritizing growth and exceptional service over constant valuation concerns during the business’s growth phase. Instead of fixating on valuation multiples, entrepreneurs should invest their energy in scaling their companies and delivering outstanding services to their customers. 
  • Transparent communication in negotiations. Being upfront about your expectations and financial terms is essential to ensure a smooth negotiation process. Clear communication helps prevent misunderstandings and aligns both parties’ interests.
  • Be flexible when structuring a deal. Explore various deal structures to align with your specific goals to ensure a favorable outcome. Brandon’s ability to adapt and shape the deal to his liking, including negotiating the absence of an earnout clause, showcases the importance of flexibility.

We help business owners create their own ideal exit, whether you’re interested in an earnout or not. Give us a call today.