|Commentary – Time to Get Started
If you are like many green industry business owners, you know that having an exit strategy for your business is an important part of the maturing of your business. Conventional wisdom states that exit planning should begin on the day you start or buy a business, if not before. Surprisingly, a recent poll suggested that less than 10% of green industry business owners have any kind of exit mplan or strategy.
Principium has recently launched The Exit Planning Kickstarter as an economical product to assist green industry business owners in developing their exit strategies. If you’re ready to get started, please contact us or visit our new exit planning website, GreenExit.biz.
In connection with the launch of The Exit Planning Kickstarter, we have a limited offer for readers of Green Industry Megrer & Acquisition News. Click here for more information.
This month, we are also launching a question and answer collumn. The inspiration for this column has been the large number of questions submitted during recent webinars and speaking engagements that we did not have time to answer. We are taking the most interesting of these questioins and including answers in Green Industry Merger & Acquisition News and our blogsite, SellMyGreenBusiness.com. We are also taking questions submitted to [email protected]
As always, if you are interesting in pursuing an acquisition, contemplating the sale of your business or ready to begin the exit planning process, we would welcome the opportunity to speak with you.
Call me direct at 901-351-1510
|Some Questions and Answers
We have been saving any questions that have been asked on recent webinars and speaking engagements which could not be answered due to time constraints. We will try to answer the most common and interesting ones here and on SellMyGreenBusiness.com.
If you have questions that you would like to submit, please email them to [email protected] We plan to run this feature quarterly.
Here are this month’s questions:
What kinds of businesses are in greatest demand for acquisition in the green industry currently?
The answer to this question varies a bit from time to time, but, in general, the companies that are in highest demand are those with recurring revenues that can be continued under a new owner. My current assessment is that in most locations in most circumstances, the companies most in demand are (1) commercial maintenance businesses, (2) residential lawn care – fertilization and weed control and (3) residential landscape maintenance companies.
This does not mean that other companies are not “sellable”, it means it will be more challenging and it will be even more important to look carefully at those factors about a company that will make it more sellable. Probably the two factors that will have the greatest impact are the business’s track record of growth and profitability, including how it performed during the recession, and the existence of an effective sales generating system that is not dependent on the continuing presence of the owner.
Are there good opportunities to buy or sell existing franchised businesses in the green industry?
Franchises are a very dynamic part of the green industry. There a number of landscape maintenance franchises, led by the pioneering and industry leading US Lawns. In the last couple of years, The Grounds Guys has also been growing rapidly. There are an even larger number of companies franchising in the residential lawncare (fertilization and weed control) space, ranging from titans TruGreen and Scott’s to such companies as Lawn Doctor, Naturalawn and many others. Most of these companies are growing.
In most cases, there is a fairly active resale market. In the past few years, we have represented clients in both buying and selling existing franchises. We have represented franchisees acquiring businesses to fold into their franchise, franchisees acquiring additional existing franchised locations. We have also represented independent sellers who ultimately sold to a franchisee.
So I guess I would say the market is vibrant. The same factors that make a franchise an attractive way to start a business for many potential buyers make byying an existing franchise attractive to others. Progressive franchisors recognize it is important for their franchisees to have an exit strategy?
Looking to the future, we see most existing franchises continuing to prosper. We also expect new franchisors to develop in such sub-markets as organic lawncare and residential landscape maintenance.
Should an ownership opportunity be a part of the compensation package for a key manager in a landscaping business?
This, of course, is a complicated question. I think most everyone agrees that one of the things you want to accomplish in a compensation package is to incentivize the management employee (and other employees too) to think like an owner. I don’t pretend to be an expert in human resources matters, but what I can tell you is that small amounts of stock ownership spread around among key employees can be a big complication when it comes time to sell the business. Far worse are relatively vague promises of equity interests that are sometimes made in order to hire or retain a key employee and that are never committed to writing. Such promises are often forgotten by the owners of the business, but almost never forgotten by the employee to whom the promise was made, no matter how vague it may have been. Resolving that kind of situation at the last minute while trying to close a transaction can add time and complexity to a transaction and create unhappiness among the employees, a key consideration of the buyer in most situations.
In our opinion, it is a better idea to create incentives that feel like ownership and produce a reward similar to ownership but are not actually shares of stock. Such incentive arrangements should be in writing and clearly understood by all parties.
What impact will being a woman-owned business enterprise (WBE) might have on the business- sale process?
Like most similar questions, there is not really a simple answer to this question. The important thing to remember is what a business buyer will be interested in when buying your business. In most cases, it comes down to two basic questions:
Will the buyer be able to retain the business’s customer base?
Will the buyer be able to retain the employees of he business?
If the business’s status as a Woman Business Enterprise raises a question about the buyer’s ability to retain the business’s customers, it may be a very significant factor in the business sale process. Typically, the woman-owned business scenario is most significant with federal, state and local government entities which may have targets for contracting with woman owned businesses. There are also large corporations that have similar targets.
A change in ownership status might give rise to a governmental entity rebidding an opportunity. It might also make it less likely that the business will be able to retain the business through the next regular contracting cycle. A potential business buyer will be very interested in understanding the business implications of acquiring a woman owned business.
In some cases, the percentage of a business’s customers who are impacted by ths status is relatively small. In those cases, a buyer might conclude acquiring the business might not result in a significant risk of client losses. In other cases, the business’s status as woman owned may have been a major source of client opportunities. A change in ownership status might put the customer base at significant risk.
A potential buyer will be very interested in understanding what the facts are in a specific acquisition opportunity.
Building a Sellable Business
with John Warrillow
Thursday, August 23, 2012 11:00 AM EDT
John Warrillow, the bestselling author of Built to Sell: Creating a Business That Can Thrive Without You, will lead a one-hour webinar presentation on building a sellable business. Built to Sell was ranked by both Inc and Fortune Magazine as one of the best business books of 2011. During this unique session, John will discuss the principles of increasing the value of your company – John will also take your questions directly.
Try Out a Leader’s Edge Peer Group
Many of you have heard my thoughts about the power of peer groups in buiding growth and profitability. I just heard that Jeffrey Scott is offering a very limited number of guest passes which will allow select green industry business owners to experience a “peer group” meeting of like-minded contractors. At this event, contractors will work on timely business issues, financial management, and the sharing and implementing of best practices. This is a great opportunity to try out the peer group experience.
Guest passes—only 3 available—are being offered to green industry business owners to come and experience a “peer group” meeting of like-minded contractors. At this event, contractors will work on timely business issues, financial management, and the sharing and implementing of best practices.
These seats are being offered by Jeffrey Scott’s Leader’s Edge. His peer groups are made up of achievement-minded green industry leaders from different geographic markets. In their first year, members achieved a 27% increase in profits.
To qualify for the passes, the owner should be keenly interested in growth, both for his/her company and him/her self. He/she should have an interest in the peer group process, and should have revenue between $500,000 and $10 million. Only 3 passes are available.
The upcoming meetings are being held on the east coast, in September and October–with contractors coming from eastern, central and mountain time zones.
The passes are first come, first serve, and will be handed out based on the owner’s goals and desire to improve his/her business.