Selling or transitioning ownership of your lawn care of landscaping business is a big decision, to put it lightly. Some owner-operators have a solid succession plan in place. But now more than ever, turf and landscape companies are being sold to competitors or financial buyers — which can be an incredibly lucrative exit strategy.
It’s important to note that selling your business doesn’t have to be all or nothing. Depending on your personal and corporate goals, you can structure a deal that allows you to “stay in the game” — i.e., maintain some level of ownership, or continue to be involved in operations — without having so many chips on the table.
No matter what, the key to a successful transaction is preparation. If a sale could be in your future, whether it’s in six months or six years, now is the time to evaluate and make changes. Here are 5 actionable things you can do now to achieve the best value for your business.
1. Determine Your Objectives. Know exactly what you hope to get out of a transaction before you begin the process. Selling your business is a once-in-a-lifetime, life-changing event, with a direct impact on your personal, professional and financial future. Ask yourself: What does a favorable outcome look like for me? Specifically, would you like to:
- Sell the business, throw the keys at the new owner, and head to the beach (i.e., exit the company completely)?
- Sell the business and remain an employee of the larger entity with incentive options, bonus plans, etc.?
- Sell controlling interest to a Private Equity Group (PEG) but continue running the company?
Regardless of ultimate objective, if you consider in advance what the sale of your business will look like, you can prepare for a certain type of transaction and buyer. As a result, you’ll be in a position of strength when the time comes. If you’re not sure about the implications of each option, talk to an advisor.
2. Evaluate The “Product Mix.“ Product mix, or the amount of installation versus maintenance can be a value driver or a risk factor, depending on the ratio. When it comes to purchase price, some landscape companies can be “penalized” if they don’t have the right balance. Most buyers like to see a product mix that is 65% maintenance and 35% installation. Why? A larger proportion of annual contracts gives buyers reassurance: they know there is a minimum amount of revenue and profitability the company will generate every year.
3. Focus On Multi-Year Contracts & Escalators. Some markets make it difficult to get multi-year maintenance contracts, but they are a plus in the eyes of a buyer. If customers are amenable, try to get escalators as well. For example, if a customer signs a three-year contract, include a clause that acknowledges the price will go up 2% per year.
4. Get HR In Shape. When it’s time to sell your business, a lot of skeletons can come out of the closet (which is a great reason to work with an advisor — they can help identify and deal with potential issues before they become dealbreakers). Particularly in the turf and landscape industry, employee issues can be tricky. Ensure any migrant workers have their green cards or guest worker status, and that you’re fully I-9 compliant.
5. Assess Financial Reporting & Sales Tax Compliance. If your financials are a mess, buyers can’t get an accurate assessment of what they are buying. So to compensate for perceived risk, company value can be negatively impacted, and delays can occur as they try to get their arms around the business’ actual cash flow and assets.
If you have large installation projects that take several months, a “percentage of completion” approach to recognizing revenues and expenses is optimal, but requires some expertise from your accounting/finance team to implement.
Take the time now to review everything, ideally with a CPA, and get your house in order. The goal would be to have all of your financials 100% GAAP compliant (or close to it). And be sure you’re compliant with sales tax collections and reporting per your state and local laws before selling.
If a future transaction is even a remote possibility, remember the “3 Ps:” Preparation and Process can drive the Price you get. But it’s also never too early to start looking at your company from a buyer’s perspective. Planning ahead gives you enough runway for strategic changes to generate positive results — and that means when the time is right to sell, your business will be as ready as you are.
Stockett is managing director with FourBridges Capital Advisors. FourBridges represents business owners who are thinking about selling their company, making an acquisition, or refinancing. The partners identify quality buyers, achieve the best value, and close a deal fast. FourBridges has experience closing transactions in the landscape and turf industry, most recently as an advisor to Nashville-based Color Burst Landscapes in its sale to American Landscaping Partners.