Being born in 1960 places me close to 60 years old.
At this point, I know that I will not be able to run my companies forever. In fact “the end is near” as they say, and I wonder if the light at the end of the tunnel is an oncoming train! The question comes up, how are you (or I) are going to exit from this train without causing a train wreck?
How can you successfully go about getting your lawn care company ready to sell
I think there are a lot of people that find themselves in the same kind of situation. I have been talking to some of my “older” customers, and they are facing some of the same circumstances. In a couple of cases the owner has passed away, and it has come down to the spouse to manage and handle the day to day business.
It’s hard to leave your business. Here are some cases I’ve seen play out over the years.
In one case involving a lawn care business in Texas, the husband and owner passed suddenly from a heart attack.
The wife had been working together with him in the company from the beginning, so it wasn’t too hard to keep things going. Once she decided to get out of the business, she sold it to her field supervisor. She took off to see grandchildren, travel, and have a nice time.
Not more than a year later, the supervisor had run the company into the ground. The electricity was being cut off, the water was cut off, the credit cards were maxed out, the line of credit was maxed out, and the customers and employees were angry — not a pretty picture! She got back in the saddle and ran the company for 2.5 years getting it back to profitability. Then, she found a larger company in the area that was willing to purchase the company at a discount.
In another instance, I was called in as a consultant to a company in Maryland where the owner had passed suddenly, and the wife had to step in quickly to keep the company going.
He had been a micro-manager and had not trained anyone to take his place. The company was reasonably large, $8 million in sales with two offices and 50 employees. The main shop was on the same property as their house. The real estate was all mixed up in the business along with special zoning exceptions and such. It was impossible to sell the company without the land, and even that was questionable.
She tried to keep it going, but by the time I got involved, it had gone from $8M down to $6M.
The year before he passed, he had signed a number of large contracts and purchased a whole fleet of vehicles and equipment. Everything was on payments, and it would have worked out if he would have prepared someone to take his place, but by forcing his wife into the position and then not having prepared her, the employees had no “leader,” and they started doing whatever they thought best. Customers bailed and soon the bills were higher than the income.
By the time I saw it, there was negative cash in the bank, behind on the payments, customers were canceling contracts — I gave them some advice, but it was at a point that only a “fire sale” would do the trick. That is what happened; they sold the company for pennies on the dollar. From all accounts, the husband was a nice guy and had created a great company, but he had failed to prepare anyone or anything for the inevitable and his family and employees were left with a huge mess that only added to the stress of losing their husband, father, and employer.
Another example is a company that I became familiar with in West Virginia.
They had the typical situation of the father having built up a nice business and then bringing his two sons into the business to take over. The problem was that the eldest son and the father were not getting along. There would be regular yelling matches in the office. The son felt like he was not being listened to and the father thought that the son did not know what he was doing by changing the company that he had built. There were problems with spending the company’s money, with what jobs to pursue, with what ideas to implement. The son felt that the manager that had been with the company from the beginning got more respect and honor than he did. It was a mess, and it was threatening to tear the family apart.
Another company in Michigan is trying to groom their son to take over, but the son does not see the value in the maintenance part of the business and wants to take the company more in the direction of construction.
The owner is an old guy like myself and is trying to get his son to understand the value of what has been built up — guaranteed income — month after month. It might not be as exciting as a $100,000 but provides a comfortable living.
The book “The E-Myth” by Michael Gerber stresses that your business is your product
What he means by this is that we should constantly be asking ourselves what needs to be changed to make our company more “sellable.” I use the phrase that I need to become “useless” in my companies. The examples I give above are some of the more drastic reasons to get your company ready for sale even if you do not expect to sell it, but they illustrate the fact that if these owners had had a different attitude towards their companies, the transition would have been smoother.
There was another company in Tennessee that I had known for a long time.
The husband had been running the company on his own for many years but then was diagnosed with cancer. The doctors gave him one year to live. To pass the company down, he started training his wife to take over. I got involved when he called me to upgrade to the latest version of CLIP and to ask me to “look out” for his wife as she took the reins of the company. I spoke to him a couple of weeks before he passed and after that, I went to visit his widow and see if there was any way for me to help her. We discussed purchasing the company from her, but she was able to keep it going and is still functioning to this day.
So, how do you start getting ready to sell your company?
You can start by just mentally going through the exercise of what it would look like if you, the owner, disappeared from the scene? I have heard of companies where the owner will tell the staff that, even though they see him sitting at his desk, he is “not” there. Do not ask him anything, do not try to get information from him/her, that way, you, the owner can observe what is happening with your company when you aren’t around. Obviously, your presence will still be “felt” but it will start to give you the idea of what it would be like to walk away from your company.
I receive various interesting emails and communications when people find out about the about my companies, my books, and conference speaking. One such interaction was between myself and a man that wanted to sell me his business. He told me how great his business was, how many customers he had, and how much equipment he owned. What he neglected to tell me was about his systems.
Everything was done by himself and his wife. Yes, he had a couple of employees, but all of the running of the company was in his head. I was not interested in purchasing a company that would leave the table as soon as he got up from the closing. The real “company” was in his head, and I would be left with a customer list, some used equipment, and some employees that would be waiting for my instructions.
This is what I wrote him:
Thanks for the offer but we have family and events happening.
If you read my “Beautiful Business” book, you will understand some of what makes a company attractive to me.
A “turn-key” operation is good, and it is what an investor is looking for, but one person’s definition of “turn-key” is different from another’s. My Lawn Care company in Maryland produces 20-30% profit on gross sales after all expenses, including the manager’s salary. I have to spend less than three weeks of work on/in it per year. Everything is documented, including every minute on every property for the last ten years. All contracts/agreements with all of the customers, all P&L – Balance sheets…. for the history of the company. Because we use CLIP, the whole thing is online, and the guys use the online version even though they do not speak English. The marketing pieces/campaigns and such are all documented. All of the processes, all of the passwords, all of the instructions/equipment maintenance/how to’s — basically everything that the manager needs to run the whole company is in systems that are instantly retrievable. I could take someone (and have done that) that knows nothing about this industry, and they would immediately be effective. I am sure you will agree that a business like that is truly “turn-key”.
A business derives its worth from the return on investment that the investor can expect and can be shown to be “guaranteed” (as much as that is possible. To the best of my calculations, your business would require a ton of documentation before it could be run by someone else. That means money). If the investor has to “work” in the business to make it work, he is only buying a job. It might be a good job, but it is still just a job.
When a new owner takes over a company, and the previous owner was heavily involved, there will be attrition. It has to happen because part of the company is the personality and friendliness of the owner. You built this business by talking with customers and having them trust you. If you are still an active manager and then you hand it over to another, there will be attrition. “Tom used to do this or that…..!”
So, as I look at your company, I see a nice “lifestyle” company that pays you well and takes care of your family. Good for you, congratulations on a job well done. As an investor, I do not see a return on investment without a lot of work on my part. What would I be purchasing? A customer list that I can pretty much guarantee to lose 30%. I don’t know how you do things because it isn’t documented. I don’t know how long it takes to do each service; I do not know how productive your employees are, I don’t know a whole host of other things.
Employees – we pay by Piece Work (you might be interested in reading the book I wrote on that). We would have to change your employees over to the piecework system, and I can expect a loss of 50-70% of the employees when this happens.
Equipment – to have the type of company that we have, we are very specific about our equipment. We only invest in equipment that we will use extensively. Everything else we rent out. Our equipment is very specific, and we keep it standardized so that we get to know it intimately and know how to fix things quickly. I do not see a lot to gain from your equipment, take a look on Craigs List, and you will see what used LM equipment goes for. It sells for pennies on the dollar.
The question becomes, do I want to shell out a few hundred thousand dollars to possibly gain some customers or is it better for me to spend the money in marketing and get the customers I need into the system that I have created? We have only been in Murfreesboro for two years, and we are growing rather rapidly. It will be one or two more years, and we will be at your size.
I believe things happen for a reason as well; maybe this chance encounter was to help you create a “beautiful business” of your own. If you had what I call a “Beautiful Business” you could walk away from it, and it would keep producing, and then you could start your construction company and end up with two or maybe three streams of income. I own six different companies, and none of them require my presence to exist. I create the company, usually starting with someone that will become the manager, and then we grow it. It requires more attention and work at the beginning and very soon it becomes a self-producing company with no input from myself needed.
My suggestion to you would be to read both of my books and read “The E-Myth” by Michael Gerber. That will give you more of a vision for what I have been talking about. After that, get CLIP (www.clip.com) and KnowItAll (www.knowitall.biz) and start setting your company up as a “beautiful business.” Once it is that, we might talk about buying it, but in reality, once you have attained that, you would not want to sell it because it would be like selling the golden goose! 😊
I hope some of this helps you. I consult for companies like yours from time to time, but they have to be using CLIP before I will do anything because that truly is the center of your company’s operations.
Blessings to you and your family,
Dave Tucker, Sr.
I hope you get a feeling for what it takes to sell a business. This young man had not thought through what it would take to transition out of what he had built. So much of it was/is dependant on him. He had visions of getting out of his lawn care business and starting a construction business. Sometimes we need to take a large step back and evaluate our roles, which is helpful even if you’re not selling your business.