Cream of the Crop features a rotating panel from the Harvest Group, a landscape business consulting company.
Landscape business owners are among the more than 70% of small business owners in the U.S. who will exit their businesses over the next 10 years. Those who have a well-executed exit plan are more likely to increase the value of their businesses from today until the date of actual transition because they will be watching the business to make sure it hits the goals. Sadly, many companies end up in liquidation because there was no one interested in buying the farm and running it.
To get the thinking process started for exit planning, you will need to consider when and how you would like to exit their business. To get the exit plan started, the owner should focus on:
- His/her readiness to exit the business
- Personal financial goals for retirement after/tax income
- The current value of the company
- The gap between the current business value and the desired after-tax stream of payments
Next, the company will build the plan to improve the value of the company. The best way to do this is to develop targets for the key performance indicators and measure them from now until the date of transition. It can be helpful to have an advisor to assist with the development of the improvement plan and the measures of the factors at a fixed point in the year.
To get the process started in exit planning, consider your readiness to exit the business, your personal financial goals and the current value of the company.
Three things owners don’t think to address in an exit plan are:
- Integration with the owner’s estate plan to minimize taxes
- A program for building and assessing the talents of the next generation leadership team
- The need for an annual review of the plan to make sure goals are being met and needed modifications can be made early
The result is a plan that meets the business owner’s goals for:
- Financial needs
- Life after retirement
- Protection for heirs and estate planning
- The future of the company, its clients and employees
An owner who has done the work of developing a clear path with a knowledgeable team would avoid these hazards: (Note: these are sad-but-true examples of owners’ experiences.)
- Sold the business but most of the proceeds had to be paid in taxes (upon an audit completed eight months after the close!).
- Sale process terminated months after signing a Letter of Understanding. The buyer terminated because two of the key leaders left while the overly-long due diligence process dragged on. In another example, the buyer terminated because they had identified another company to buy and didn’t want to extend their Letter of Intent beyond the initial period.
- Sold the business to an internal buyer but the transition was botched with several bad results (client, staff, etc.) The original owner ended up getting his now-damaged company back. Result: He now had to come back from retirement and fix his company so that he could show the recovery and try to sell the company again.
Fortunately, these are rare stories we hear about from other business advisors.
Everyone wants to achieve a successful transition, regardless of whether that takes the form of sale to an outside third party, sale to internal leaders and/or transition to family members. Your exit plan will give you a plan to achieve your company’s best value and achieve your goals for retirement income as you phase out of the business.