When you start a business, probably the last thing on your mind is what you’re going to do with it when you retire.
However, this is exactly what landscape company owners should be thinking about, according to Kurt Bland, president of Bland Landscaping Company, based in Wake Forest, North Carolina. He says the sooner an owner starts thinking about their exit strategy, the better.
He says often owners who started their companies in the 60s and 70s feel guilty when they consider leaving the business. What he hears most often from owners is that while money is important, they’re most concerned about their people and still providing opportunities for them.
Yet the sooner you start planning your exit, the better you can set up yourself and your team for success. One major aspect you need to determine is how much you need to get out of the business as this can influence which exit strategy is the best option for you.
“Some people run their businesses where they build wealth in the business and they have a lot of their worth is tied up in their business,” Bland says.
The best exit strategy will vary based on the type of organization you have. Whether you decide to pass the company on to someone internally or sell the business to an outside party, Bland stresses that you need to have a team in place that can run the business without you there.
Passing It On
If you’re not wanting to close the doors on your lawn care or landscape company, one option is to pass the business on to another.
A common option is a generational transfer to a family member. Bland says owners who have this option in mind should have serious discussions with the person they are hoping to pass the business on to. It’s important to not just assume a certain family member will naturally take on the role of owner when you step down. Also, consider if this person is truly the best option to keep the business thriving. You can sell the company as a lump sum or stay partially connected to the business and earn a monthly income in this case.
If there is no family member willing or able to take on the business, you can also consider selling the company to your business partner, a trusted employee or your leadership team. Bland says you could encounter issues where your ideal employee is not interested in stepping up to take on the risk or they may not have the capital resources to pay you right away.
Another option is to turn your company into an employee stock ownership plan (ESOP) where you can sell your shares of the company to employees leading up to your exit. It’s a good possibility if you want to provide your employees with an ownership option that helps them prepare for their own retirement as well. This option is quite complex and Bland adds not every company is well-run enough to become an ESOP.
Selling to employees can also be a risk as you are dependent on them continuing to run the company well. Bland says in one case an owner had to buy the company back when the stock value of the business went down after three years.
Selling to Outside Parties
As for who you can sell your company to outside of the organization, this depends on the nature of your company. Bland says a lot of owners are misinformed about how much their company is worth and may think their business’s name is worth a lot on its own.
“There’s a little bit of truth to that in the sense of goodwill, but what really determines the value of a business and even the salability of the business is first and foremost is it run in a responsible and clean fashion,” Bland says.
Owners need to have clean bookkeeping, use E-Verify for their workforce and have a well-maintained fleet. Bland says investors are most interested in purchasing companies with solid maintenance contracts.
“We’re looking for a company to have at least three-quarters of its revenue coming from a recurring revenue stream such as commercial maintenance, with 20 to 25 percent of its revenue coming from maintenance,” Bland says.
If you are purely a design-build landscaping company, Bland says it’s harder to sell these to private equity firms. He suggests selling this type of business to another local design-build firm.
Another aspect to keep in mind if you’re deciding between selling to another local competitor or a private equity-backed operation is if you’re willing to wait on financing.
“A local business, if they wanted to buy they’re going have to go the route of financing through local banks or another encumbered means of getting capital,” Bland says. “If we make an offer on a business, we can close that offer within 90 days because we’re already funded.”
For those concerned that their employees will react negatively to the business being sold, Bland says it all comes down to presenting the information clearly and inclusively. He says it’s important for both the owner and the buyer to reassure the team that they are the reason the business is being acquired.
“Every acquisition we’ve done there’s been promotions and hires as the owner is stepping down we need someone to take over and others to assist that person,” Bland says.