We are often asked by clients and potential clients what they can do to improve the valuation of their business when it comes time to sell or how they can make the process easier.

To illustrate our response to these questions, in this article we contrast the experiences two different landscape business owners had recently when they decided to sell their businesses.

I will call the first landscape business owner Alex.  To be honest, Alex’s landscape business had been almost incredibly successful.  Part of his success had surely been due to being in the right place at the right time.  After all, he was located in one of the most high-growth, high-income areas of the country.  It was also due to old-fashioned hard work.  Alex did it all.  He had a substantial commercial maintenance business and also had a design-build business that served both commercial and high-end residential customers.  He had his own nursery and landscape supply business.  Lately, he had been talking a lot about rainwater harvesting and, especially, green roofs.  It was obvious to Alex and everyone else he had a great business – money was rolling in.

Like many of us when we hit our fifties or so, the pace of business had caught up with Alex.  He was beginning to get tired, but more importantly, the business was beginning to stress him out. You see, Alex was a perfectionist, and he knew that one of the reasons he was so successful was that he personally made sure that all of his company’s work was up to his standards.  The days were  long since he was really the chief salesman, foreman and quality control person of the business.  He began to have some health problems – he couldn’t sleep very well, and he had developed high blood pressure.  His doctor and his family tried to get him to slow down.  Alex couldn’t really disagree, so he started to think about selling the business.  He had heard lots of stories about high prices that other landscape companies had gotten when they had sold out to the big boys, and since business was so good, he assumed that his business would generate a really high price and be highly desirable to a buyer.

When we sat down with Alex to discuss his business with him, we started with a few questions.  We first asked how much of his business was maintenance versus design-build.  He told us he wasn’t really sure, but he would estimate it at about 35% maintenance and 65% construction.  He said he did all of the construction work he could do because it was much more profitable than the maintenance work and, besides, it was more fun.  We asked him about the breakdown of his customer base between commercial and residential clients.  Again, he said he wasn’t exactly sure, but he thought about 40% of his customers were residential.  We were meeting in the middle of the summer, and I asked him if I could see his tax return and financial statements from the prior year.  He told me he had a great accountant who would get me whatever I needed.   When I asked about interim financial statements, he told me that the accountant would have them as soon as he filed last year’s tax return.  They filed an extension, of course, and the returns would be ready sometime in August.

To be honest, I was pretty frustrated with those answers, and I didn’t understand why they didn’t bother Alex.   I realized that the only real measure that meant anything to Alex was how much money was in the bank-and that there was a lot of it.

We did our best to market Alex’s business, but the results were not stellar.  The “big boys”

that Alex thought would be very interested were not interested at all.  Several people got pretty excited when they realized how much cash the business was generating, but several dropped out when we were too slow providing additional financial information they requested.  Some more potential buyers dropped out when we couldn’t answer some of their questions very well (the same questions we had first posed to Alex).  The buyers that made it past those issues got kind of skittish when they realized that there wasn’t much in the way of management beyond Alex, especially for what was about a $3.5 million business.

The good news is that Alex’s business finally did sell.  The bad news is that it sold for a price that was far below Alex’s expectations, and he never really understood why buyers couldn’t see the real value in his business.  Surely the value he got for the business was not nearly enough for him to comfortably retire.  He had, however, squirreled away several million dollars during the good years, so Alex is pretty comfortable now.  A friend asked Alex about his experience in selling his business, and he was very candid: “If I had only known what makes a business valuable when I could have done something about it, the value of my business would have been much higher and the whole process would not have been nearly so painful.”

The other landscape business owner I will call Cal.  Cal’s business had grown in a very different way than Alex’s, and that was very much on purpose.  Early in his career, Cal had worked for another landscape business.  He listened and learned a lot.  When he started out on his own, he had a plan and he worked it – very hard.  Much like Alex, at one point, he had managed “opportunistically,” but Cal knew that it was likely that he would one day want to sell his business.  He began to pay close attention to what he saw in the marketplace.  He paid attention to industry businesses that seemed to be successfully sold, and he began to pattern his business on them. He focused on the kind of business they were looking for – commercial maintenance – and limited his construction work to about 20% of his business.  He still did some residential work, but it was mostly for the owners of his commercial clients.  Just over five years ago, I got a call from Cal.  I had met him at the Breakfast of Champions during the Green Industry Conference.  He asked me to come visit his business for a day, observe his business and just talk.  I jumped at the chance.  I remember that day very well.  Cal had a great business, but there were plenty of things he hadn’t thought about.  For one thing, his books were not much better than Alex’s.  I told it to him straight – if he didn’t improve in that area, he would not get top dollar for his business when the time came.  He arranged for the two of us to have a conference call later with his outside accountant to brainstorm changes that could be implemented to improve his information.  Cal was definitely a people person. He genuinely liked and cared about his employees, especially those who had been with him for a long time.  He was especially proud that two of his foremen had been with him ever since he started the business over fifteen years ago.  I asked him what his succession plan looked like – who among his employees could take over in his absence.   He told me he had not really ever thought about that, but that he would give it some thought.  We talked about it several times later, and ultimately, he promoted one of his foremen to assistant manager.  I remember when he called to tell me that he had taken a vacation – the first real vacation since he started the business.  He told me that the only way he could have done it was because he’d promoted and trained Sam as his assistant manager.  Since I had suggested the idea and even told him I thought he should take a hard look at Sam as an assistant manager and possible eventual successor, he invited me to come along for a few days’ fly-fishing in Colorado.  Cal and Sam worked hard on creating and documenting systems and procedures for the business – not just the operations side, but sales, too.  It really paid off.

Cal knew when I first met him that he expected to sell his business just about now.  He didn’t have all of the answers about how to do that, but he set out to learn as much as he could, talking with people he trusted, like his accountant, his financial planner, his attorney and me.  When the time came, the sale couldn’t have been easier.  He didn’t get everything he wanted out of the deal, but he got most of it.  Cal’s Landscape Maintenance is now the local branch of a national company.  The trucks look a little different, but they don’t really look any sharper than they did under Cal’s management.  I think what Cal is most proud of is that Sam is now the branch manager, running the same business that Cal worked hard to build.

I will be going fly fishing with Cal again soon.  This time he won’t have to worry at all about who is minding the store in his absence because it isn’t his store anymore, even if that still feels a little funny.

Amid the challenges of day-to-day operations, it is really hard to take time to plan for the future, but those who do will often be rewarded.  If you think you one day will be wanting to sell your business, it is vital to stop and take a look at just how desirable your business will look to a potential buyer, who may see it quite differently than you do.  If you take the time and deliberately set out to mold your business to be desirable to buyers, you will likely be rewarded with a higher valuation and a much smoother transition than can otherwise be possible.

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We would be happy to talk with you about developing a  plan to make your business more valuable and salable.  We are also available for fly-fishing.

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