Let’s talk about developing an exit strategy.
A lot of us are getting older
I turn 59 this year. The big six-oh is staring me down. It’s about this time you start thinking about this business that you spent 30 years building.
You’ve been successful for a bunch of years and you’re starting to think; “What am I going to do with my business when I’m done with it?”
If you have read the E-myth by Michael Gerber and if you have followed the advice I offer in Lawn Maintenance and the Beautiful Business, you’ll find that you should be constantly thinking about your exit strategy.
We believe that part of the point of building your lawn care business is to build a company that can be sold easily. The best way to build a business somebody else can easily take over is through developing systems.
Processes make the difference in the value of your landscaping business
We talk about this concept a lot. We even developed a tool called Know It All that allows you to store and search all of your business’ documents and procedures. Keeping a record of all or your processes and procedures is a vital part of your exit strategy. It’s the only sure way to make sure that whoever comes in after you
Profitability is the key to selling your lawn care company
The other thing you want to look at is your profitability over the last three years. Take a hard look at your P&Ls. You want to create this boring business that doesn’t require your presence. Any good exit strategy requires a solid foundation.
One thing you can do is sell your lawn care business to somebody else. Usually, the sale to somebody else doesn’t go quite the way you think it would, however. There are all kinds of different evaluations you can put on it to try to figure out what your company might be worth.
The key to selling your company for top dollar
Let’s look at an example. If I would invest one hundred thousand dollars, I would expect a return of probably 15% to 20% per year. If I’m not getting that 15% 20% then I’m not going to invest because I have other opportunities can bring me the same yield.
Think about the state of your company. If your company produces $10k in profit and that represents a to a 20% return on investment, then I would only pay $50k to buy your company because I need to make that 20%.
There’s risk involved with any purchase. I can make 10% or more in the stock market. I certainly don’t want to acquire a lawn maintenance company to only make 10%. When you consider it from that standpoint you won’t worry about the equipment, or the trucks, or anything else. The only thing that matters is how much money it produces and how much somebody would pay you to take it off your hands.
Take that figure and assume that is 20% of whatever it is that they’re going to pay. If you’re making $100k in profit then somebody might pay you $500k for your company.
Success is in the eye of the beholder
The success of your company isn’t dependant upon how much money you earned last year. How “big” is a company that makes $100k in profit? You could have a $1m company that’s making 10% profit. You could have a $500k company that’s making 20% profit. Either way of those it’s gonna be worth the same amount of money. So it’s not how much gross sales you do, it’s actually how much profit you earn.
The way you get a handle on your profit is to pay yourself a decent salary. The salary you come up with has to be something that you would pay somebody to replace you. Take into account all the other expenses as well. Consider the boat and all the little tools and toys that we buy for ourselves as owner benefits. You can put those back in and that becomes part of the profit. Once all that profit is accounted for you can think about selling it.
Another exit strategy that you might consider is passing your lawn care business on to
Be very careful about how you train your family, particularly if it’s your son or your daughter or someone very close to you. Often times when family comes in they’re never given credit for the success of the business. If there’s any failure, however, they’re given the blame. Be careful about that.
There’s a book called “My Father’s Business” which is about the history of Dollar General. I would highly recommend that you read that. It’s a great story. It’s the autobiography of Cal Turner, the guy who took over the business of Dollar General from his father. He grew it and then ended up getting out of it as well.
Talk to different people who have sold their business or passed it on to