Receive Higher Multiples When Selling Your TAS
By Steve Michaels
With the increased number of telephone answering services bought and sold this past year, one owner, after seeing the Businesses Sold report on our website, asked, “How can I structure my business to get the highest multiple possible?”
The Businesses Sold report showed that the average selling price for Accounts Only was 11.1, ranging from 9.5 to 12.8.
For Going Concerns (purchasing the entire business), the average was 12.8, ranging from 11.5 to 14.7. However, there was one outlier sale for a very high multiple. Here’s my explanation:
Buyers outside the TAS industry, looking for a lucrative investment with recurring revenue, determine the value of a business based on the EBITDA formula, not a multiple of monthly billing. An EBITDA valuation gives a better picture of a business’s profit and loss and how long it will take to pay off debt. Here are the criteria both buyers and banks look for:
1. A monthly billing of at least $150k
2. An EBITDA of at least 30 percent
3. Signed agreements with customers
Although signed contracts are not highly valued in our industry, a bank views them as adding longevity and validity to its greatest asset. Contracts are something you can “take to the bank.”
I’m sure this is raising the eyebrows of some TAS owners. How binding is a service agreement? Is it worth the effort to sign up and enforce it? The real point, however, is those agreements add value to the business. The alarm industry commands anywhere from 25 to 30 times monthly billing due to its customer agreements.
In many cases, to qualify for a line of credit from the bank, a buyer must substantiate or back up the purchased assets. One of the easiest ways to do this is through customer agreements.
So how do you get accounts that have been with you for years to sign a written agreement? (First of all, call them agreements, not contracts.) Here are three ideas:
1. Tell them that your E&O (errors and omissions) insurance requires you to have signed agreements with your customers. Inform them that you cannot cover them under your insurance unless they have an agreement with your service.
Actually, having contracts are more important to owners who are keeping their answering services than those who contemplate selling. For example, if an E&O provider says, “That’s not covered,” when a client is suing your TAS and you don’t have a signed agreement with a limitation of liability provision, the legal costs could be massive. And if it’s a medical error involving a death, the legal fight could bankrupt smaller answering services.
2. To avoid a rate increase, your clients’ rate will be guaranteed at its present level for the length of the agreement (normally one year). Basically, you’re providing a guarantee that your clients’ rate will not change for one year, which is a huge incentive in this economy.
3. For medical customers, there’s no guideline from HIPAA requiring signed agreements; HIPAA only addresses the agreements themselves. However, proving the customers are yours is important.
Therefore, if you want to get top dollar for your service, start requiring your customers to sign service agreements. It may be challenging at first, but you will benefit by having more peace of mind about your business now – and a higher multiple when it comes time to sell.
Steve Michaels is a business broker with TAS Marketing (www.tasmarketing.com) and can be contacted at 800-369-6126 or tas@tasmarketing.com.
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Hurricane Sandy’s Silver Lining
By Carin Shulusky
It’s hard to forget the devastating images of Hurricane Sandy. Sandy affected twenty-four states, including the entire eastern coastline from Florida to Maine. Loss due to damage and business interruption was tens of billions of dollars. Even weeks later, many businesses were still without power and unable to operate.
AB Universal Messaging of Neptune City, New Jersey, was right in the path of the storm. Only blocks from the Jersey Shore, water poured into their offices and destroyed the operations room flooring along with some computers. They were without power for nineteen days; their toll-free numbers were down for about six hours; and their point-to-point connection with their Nebraska office was down for a day and a half. Washed-out roads kept operators from getting to work.
“I am a lucky woman,” said Debbie Bibber, owner of AB. “In my forty years in this industry, I have never seen people, competitors, and vendors – everyone – drop everything and work so hard to help me stay in business. Even though the hurricane damage probably cost me about $15,000, we’re okay. I have great friends in this industry, and I’ll never forget the way they helped me.”
The Saturday before the hurricane hit, Debbie flew to Florida to set up an alternate plan. Tom Baur of CallStar in St. Petersburg offered to allow AB calls to re-route to their service, should everything be washed away. Debbie’s vendor prepared for the re-routing: Roger Young, Robbie Parnell, John Jones, Bob Vornberg, and others worked to utilize SIP trunking to allow for the re-routing. “I couldn’t have asked for more,” Debbie says.
Debbie also bought a generator at the last minute, which as it turned out, helped her stay in business without the re-routing. The generator was enough to keep the call center running but not provide heat. Since most of her customers were without electricity and, in many cases, had severely damaged businesses, they had all calls routed to AB. At the peak, AB had 16,000 calls a day. Becky Retherford of Emerald Coast Answering Service of Lin Haven, Florida, pitched in to donate two operators to help with the volume.
“I have a wonderful crew. We worked from 6:00 a.m. to 12:00 a.m., fully staffed, answering calls,” said Debbie. “Even my kids and niece pitched in and worked fifteen hours each day, seven days a week. I learned some good lessons. First, I am blessed with a wonderful crew and friends. Second, I am very glad to be with Telescan. I know they will be with me whatever comes. Third, you can never prepare too much. Whatever is the worst you prepare for, you should double it. Last, this industry has changed. People are more than willing to do anything to help one another in times of crisis. That means so much.”
Debbie has taken her lessons to heart and once a degree of normalcy returned, she began to pay-it-forward by helping out a New York call center that was still without power.
Even in a hurricane like Sandy, there is a silver lining.
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Ten Keys to Success
By Paula Ford
1) Raise Rates Annually: Raise your rates a little bit every year. Costs creep up, and customers will accept a 3 to 5 percent annual increase in stride. If your costs go up 3 to 5 percent and your prices don’t, then you’ve just taken a 3 to 5 percent pay cut. Annualized over ten years, this can become a 40 percent pay cut. Suddenly you have a crisis, and you’re going to irk a lot of customers to fix it.
2) You Must Make a Profit: An experienced manager at a leading fast-food restaurant will earn an above-average salary with profit sharing, a 401k, and full benefits. Start believing that you deserve an even better compensation. Think about it: your duties and responsibilities are greater.
3) Charge for Each Service: Your phone company doesn’t give you anything free. Follow their example when charging your customers.
4) Bill by Time: Time billing makes sense – even if you disguise it as “per call” billing or “flat rate” billing.
5) Do the Right Thing: It’s more important to do the right things inefficiently than to do the wrong things efficiently. Raising prices should be the first of your five “must do” tasks. The other four are staff retention, quality control, customer retention, and paying the bills. If, as an owner or manager, you are the best telephone operator in your business, then you’re doing the wrong thing efficiently.
6) Profit Is Good: Profit is not a four-letter word. Remind yourself every day, “This is a for-profit organization.” When you sign up a new account or if an existing customer wants to make big changes, be ready, and charge what you should.
7) Fear Is Bad: Fear is a four-letter word. You can choose whether it motivates or paralyzes you.
8) You Do Have Overhead: Don’t say, “I don’t have the overhead of the big guys.” That is simply not true.
9) You’re in Business to Make Money: Claiming, “My customers are my friends,” is foolish if you intend to stay in business.
10) Sometimes You Need to Say No: Don’t be afraid to lose a sale over money. Some customers are not worth having. If someone gives you a hard time or tries to beat your prices down, don’t be afraid to say “no.” If they leave, you will have saved yourself some grief and made your operators happy.
Paula Ford is with Answer Center in Virginia Beach, VA.
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News
1-800 We Answer Honored by SmartCEO
1-800 We Answer was honored by SmartCEO magazine as a Top 100 Best-Run Company in the Mid-Atlantic region. Recent acquisitions and strong sales have elevated 1-800 We Answer into a nationwide call center that competes alongside much larger companies in the business services sector. SmartCEO recognizes president and CEO Robert Porter’s successful mission of providing cost-effective customer service-based communications outsourcing solutions to a broad range of traditional businesses, healthcare providers, and government agencies. By hiring dedicated employees who share in his vision and goals, Porter has succeeded in creating a company culture worthy of this distinction.
Szeto Technologies Secures SMS Messages
Szeto Technologies released Secured SMS Messages software, a security feature for deliveries of SMS text messages between mobile devices and the Call Linx system. This feature ensures privacy and confidentiality in personal communications to comply with HIPAA requirements. Secured SMS Message in Szeto’s Call Linx TAS is programmable on a per account basis. Subscribers will have their SMS text messages delivered securely to their mobile data devices. SMS texts messages are secured in both directions: outbound from Call Linx to the mobile devices and inbound replies from subscribers. The delivery process is automatic and transparent within Call Linx, without requiring human interaction.
Amtelco’s miSecureMessages Adds On/Off Feature
Amtelco’s miSecureMessages is a subscription-based smartphone paging and messaging application. In response to suggestions from call centers providing miSecureMessages to customers, Amtelco enhanced the miSecureMessages app to include on/off functionality. App users will be able to set their apps to “on” or “off” without starting or stopping the software. The contact list includes red or green indicators next to each contact’s names, indicating whether a contact is “on” (green) or “off” (red). When app users have miSecureMessages set to “off,” they will not be alerted upon receipt of new messages, and the message sender will receive notification that the user set the app to “off.”
Amtelco’s Soft Agent Receives Avaya Certifications
Amtelco announced that its Intelligent Soft Agent received two Avaya DevConnect Compliant Certifications for successful testing at Avaya’s certification lab. Amtelco’s Soft Agent application is certified for interoperability with Avaya Communication Server 1000 7.5 and Aura® Contact Center 6.2. Soft Agent provides streamlined intelligent attendant console and call center performance. It combines agent state control and call handling capabilities with Amtelco’s Intelligent Series suite of applications. Amtelco’s vice president of R&D, Kevin Beale, said, “This certification confirms Amtelco’s commitment to a strong relationship with Avaya and to provide state-of-the-art solutions to our customers.”
Startel Releases New CMC Reports
Startel Corporation has announced that the Startel Contact Management Center (CMC) now features four new reports for users. These new standard reports will provide Startel users with greater insight into the overall performance of their contact center, especially from a service and staffing perspective. The four reports are the Agent Login Rotation Report, Agent Summary Report, Call Period Summary Report, and Service Level Report. “With these new reports, we are able to provide our users with more insight into the performance of their workforce and business,” said Bill Lane, president and CEO of Startel.
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[Posted by Peter Lyle DeHaan, PhD for TAS Trader.]