Who Takes Over When You Retire?
In Alfred Lord Tennyson's famous poem, Ulysses, the legendary king of Ithaca, reflects as he nears the end of his days. He has lived a full life, had many great adventures, and has raised a son to carry on his work, but he still doesn’t want to yield to old age. ‘How dull it is to pause, to make an end, to rust unburnished, not to shine in use!’ Ulysses says.
His sentiment is one that many senior company owners in the green industry can identify with. Being a small business owner is as close as any of us are likely to get to being a king—after all, we are the ruler of our business. As a business owner, you can run your company as you wish, within the bounds of the law. You can change your logo to a duck if you want to, or make the company uniform blue paisley.
That’s not to say there aren’t checks and balances to our power. Employees who don’t like their new uniforms can quit, and customers can seek out the competition, so it behooves us to be benevolent sovereigns. We try to give our employees good lives, and treat our clients fairly.
At the end of the day, though, it isn’t about power. Most of us have devoted our lives to this pursuit because we love it, and don’t want to give it up. Still, time marches on, and like it or not, nobody can run his business forever.
For many of us, the idea of letting someone else take the reins is unpalatable, even scary. If you wince at the mere idea, then read on—this article is for you. We’ll go over your options, cover a few of the do’s and don’ts, and talk to some people with first-hand experience in ownership transition. Hopefully, by the time we’re done, you’ll have an idea of how to start planning your exit strategy, whether it’s three years in the future, or 30.
Owners who are running a family business have probably given this topic a thought or two by now. If one of your children is hoping to take over the business when you retire, then you’re partway there already. However, it pays to play it safe, and be absolutely sure that there’s a plan in place. When you hand over the keys one day, you want the transition to be as smooth as possible.
In the case of Greg Pruski and JBP Landscape Contractors, LLC, in Collegeville, Pennsylvania, the responsibilities of ownership began shifting to him slowly. It started when Greg’s brother, Matt Pruski, graduated college. That was four years before the brothers officially took over the business from their father, John Pruski. “The transition started slowly,” Greg said. “I gradually started taking over the insurance, then managing employees, then handling payroll. My name started going on loans.”
Matt’s degree from Penn State is in landscape contracting, and once his design/build skills were well established, their father issued them an ultimatum. “He said to my brother and me, ‘I’m retiring in two years, so you two have got to figure it out,’” recalled Greg.
In another family that might have caused considerable strife, or even a falling out, but Matt and Greg had a good working relationship. “We just got together and divvied up the responsibilities,” Greg said. “Matt is more interested in the design/build side of the business, so all of those jobs get referred to him, and all the maintenance contracts come to me.”
When the two years were up, the brothers were both ready and willing to take over. “Since then, we’ve lost some work and we’ve gained some work, but I know that in the last several years, we’ve done better than we ever have,” Greg said. The transition was a resounding success.
Greg is a long way from retirement, but he predicts that when he does retire, the business will not pass to a third generation of Pruskis. “My brother doesn’t want to take over the work I do, and my daughter has no interest in the business, in any way, shape or form,” he said. In all likelihood, they will sell the firm someday.
When you don’t have someone you’re willing to just give the business to, selling is definitely an option worth considering. It isn’t only for retirees, either. Some of the successful green industry business executives that we cover in our Close Up Profile section aren’t running their first companies. One person, for instance, owned a lawn maintenance business before he started manufacturing mowers.
People come into this industry from all walks of life, too. Charles Knowles was an FBI agent before he left the agency and founded the Wolf Creek Company, which distributes irrigation components, water features, and outdoor lighting supplies in Ohio, Pennsylvania and Kentucky.
Palmer Higgins worked in the financial sector with his brother, James, and James’ wife, Trish, before the trio bought into Seabreeze Property Services, Inc., a landscape company in Portland, Maine. They all moved to Portland and made Seabreeze the first purchase of their new investment company, Chenmark Capital Management.
They focus on highly stable small businesses, and decided that Seabreeze made a good start to their portfolio. “The company was focused on commercial landscape maintenance, which is an area of the landscape industry that we thought was really attractive,” Higgins said. Maintenance contracts are more likely to survive an economic downturn than design/build jobs, so a company that does maintenance is more stable than one that doesn’t.
If you’ve never sold a company before, it is a long, complicated process, as Dominic Rinaldi, the managing partner of Sun Acquisitions, explained. His Chicago, Illinois company provides business brokerage services, advising owners on how to maximize the value of their businesses, and finding them interested buyers.
“Owners underestimate how long it takes to sell their businesses,” he said. “Under the best conditions, it takes six to 12 months. I’d advise owners who are thinking of selling to start planning it three to four years ahead of time.” If that sounds unreasonable, stop and consider things from the buyer’s point of view.
Let’s say that tomorrow morning, you wake up and say ‘That’s it, I’m done; I want out.’ Ask yourself, if you took the day off, would your business still run? How long would it take before things ground to a halt because questions arose that only you could answer, and tasks piled up that only you could complete? If your answer is measured in hours, not days, then you have your work cut out for you.
Ideally, most of your employees will stay with the business after the sale. In that case, the company’s lease or deed, clients, employees and equipment will all transfer to the new owner. However, all of that still may not be enough to attract a buyer. He needs to be able to understand how the business runs on his own.
You may be capable of explaining it all face to face, but a written record is much more attractive to potential buyers. “Write an operations manual for the business,” Rinaldi recommended. “That way, there is a road map for how you market, how you bid on business, how you take care of your clients—all the things that matter in operating the business.” The Devil is in the details, so pin them to the page.
Financial records are important for a potential sale as well. Not just to prove that there are no improprieties which might attract the IRS, but to show that your success is no façade. Keeping spotless records can be a lot of paperwork, but it makes a big psychological impact. The more you can replace estimates with certainties, the fewer unknowns a buyer has to worry about. Instead, he’s thinking about how much money he’s going to make.
If your company is facing any legal troubles, it’s worth giving that some thought as well. “Make sure you have any legal issues well in hand,” Rinaldi said. “Any issues with workers’ compensation, any lawsuits— things like that. You can sell a business with a minor lawsuit that is still unresolved, but you need to have your arms around it.”
If all that sounds like a mountain of work, it probably is. There are attorneys who specialize in business-for-sale transactions who can address any liability issues, and specialized accountants who can work out any tax implications. You may find that hiring one of these experts can save you a lot of grief, and puts more money on the bargaining table.
Even if you don’t plan on exiting your business for at least a decade, keeping neat, if not exhaustive, records is a good habit to get into for your own sake. Not only does the extra organization make it easy to find some bit of info about a client or an expense, it also makes analysis easier, so your business decisions will be better informed.
Speaking of being informed, that’s another important strategic component to selling a business. The best time for an employee to learn that the business has been sold is after the papers are signed and the ink is dry.
This may seem like a nasty surprise to spring on faithful employees, but in almost every case, it is better for all involved. Consider the scenario where you tell them of your intent to sell the day you decide you want to. They are going to start worrying about their futures and asking you questions, but you won’t be able to answer them.
You can’t know for certain who is going to buy the business or when it will sell, let alone what the new owner’s personality and managerial style will be like. If it ends up being radically different from your own, the new boss could decide that your most competent foreman has to go, because they clash too much.
When someone isn’t sure whether or not he will have a job in six months, he starts making his own plans. Employees will hunt for new jobs, and if your workforce starts to dwindle, any offers on the table will go up in smoke.
In a worst-case scenario, the fears of your employees can become a self-fulfilling prophecy. You start hemorrhaging employees, clients start looking elsewhere, and your company enters a downward spiral.
Keeping the sale a private matter may be difficult, but it can avert a catastrophe. More importantly, it saves your employees from a long period of anxiety that is often needless, because competent subordinates are such a huge asset in a sale.
So far, everything we’ve talked about pertains to your financial readiness to sell, but that’s only one side of the coin. You should also do a serious self-evaluation of your emotional readiness to sell. Take a good, hard look in the mirror and ask yourself if you’re ready to give it up. “I love it when owners come into my office and say, ‘I’ve got a lake house and five grandkids and I can’t wait to spend more time with them—take them fishing.” Rinaldi said. “Then I don’t have to worry about second thoughts.”
Some older business owners, faced with retirement, reject a sedentary future and choose an alternate path. They may be slowing down, and want a little more time away from the office, but they still enjoy their work and still want to participate. These owners will sell their businesses and give up control, but on the condition that the new owners let them continue to have a role after the sale.
“It’s a little bit rare, but you do find owners—typically younger owners—who are looking to stay on for an intermediate timeframe,” said Higgins. “More commonly, though, the business owner is looking to transition entirely; he wants to retire.”
You might choose to take on a reduced range of your previous workload, taking fewer hours and a limited role that still lets you contribute every day. And the new owner may want you to stay on in an advisory role, especially if your company is sizeable. Still, be aware that watching someone else take over your baby can be hard to watch. After decades of being your own boss, you may find that the life of an employee chafes.
Thinking about your exit strategy may be uncomfortable at first, but note that even old Ulysses had a plan. Admittedly, his succession planning was more laissez-faire than most, but he had to work harder to make his retirement enjoyable. I’ll let him, and Tennyson, take it from here:
Come, my friends
’Tis not too late to seek a newer world.
Push off, and sitting well in order smite
The sounding furrows; for my purpose holds
To sail beyond the sunset, and the baths
Of all the western stars, until I die.