What is an exit plan, and do I need one? Why or why not?

As a landscape business owner, you’ve spent years building your company into a successful going concern. You’ve invested your time, talent and capital and realize that at some point, either now or in the future, you want to figure out how to transition the business to a new ownership structure, whether that be in your family, your management team or to an external buyer. Your exit plan will identify which of the options you are considering will fit with your and your spouse’s goals.

Your Exit Planning Team

Some studies show that 80% of small business owners have much of their wealth tied up in their business. While outside investments in your retirement plans, real estate and other investments are made, that still leaves a significant amount tied up in one large, illiquid asset, the business. If you are working with professionals on investments, estate plans and tax planning, your exit plan is a great opportunity to coordinate all the pieces for the best result. For example, the attorney who handles your estate, will and trusts will want to know when and how you might be considering transferring or selling the business. Pre-planning can minimize negative outcomes.

Steps in the Plan

There is a proven process for exit planning to work well. Many people have a general idea of a goal for the future, but not a plan. Part of the process is the education that will allow the owner to make informed decisions about options for his/her landscaping business. These are the steps that work (at a high level):

• This takes time and attention, talking with your spouse, thinking through what you do and don’t want to do in your next phase of life. It really helps to write things down and “try on” a few options.
• What does your spouse want to do? Will you both make a change at the same time?
• Do you want to start another type of business? What’s the exit plan for that?
• Build another house? Travel extensively? Fund your grandchildren’s education?

2. Quantify your goals. How much will your ideal life cost? Again, writing down the real numbers will help make this become real. Timing is important too. What year will you need big outflows?

• What are your expected annual costs and how long will you both live?
• If you do want to start another business or build a house, what will that cost?

How much will your annual income sources be? Given your assets, how much could you expect to generate in annual income given certain interest rate assumptions? How will that be taxed?

Do you have sufficient resources outside of the business that you do not require the highest possible price for the business? What terms are you willing to be flexible on (how long will you continue to work?) What would be the expected result of transferring the business?

• Different types of transfers have different values.* Not all businesses are saleable in their current state. Unrealistic price expectations can prevent a sale too.
• A strategic buyer is usually willing and able to pay the highest price for the business.
• If you want to execute a family transfer, you may want to transfer the business ownership over time and continue to receive dividends in future years.
• An ESOP will have a different value for the business.

6. Execute your plan. If the business is ready and you are ready, is now the time? Based on the options you want to pursue, is the business ready to be sold for your desired price and after-tax net income?

• Consider a pre-due diligence phase (always) but especially if you are ready to move into sale mode now.
• If now is not the time, a profit improvement plan to prepare the business for sale will keep the end in mind as you are growing the business.
• Make sure you have your business advisors all aware of the plan and have taken the actions identified (update buy-sell insurance, for example).
• Time activate an update.

Your exit plan is an exercise in identifying your goals and readiness for the next steps both personally and for your business. The outcome is a living document that can be updated and shared with your trusted team of advisors as they work together to achieve your best outcome.

*Range of Values – Same Company, Different Values

 Strategic Value

Fair Market Value

Liquidation Value