How to sell a landscaping business in Michigan
We can help you to sell your Michigan Landscaping Business.
That having been said, make no mistake about it, we don’t see selling a business as a wise DIY (Do-it-yourself) project. My dear departed Father used to say “Son, you can’t beat a man at his own trade.” Truer words have never been spoken when it comes to selling one of the largest and most valuable assets you might attain in your lifetime.
Selling your Michigan landscaping business -versus- selling off accounts.
If you are a small operator and you are contemplating selling off some accounts (0-300) you can more than likely sell off those accounts to a competitor without needing our assistance. Conversely, if you are looking to buy 0-300 accounts you surely can do that without our help. That having been said, if you are buying accounts, you should make sure there is an agreement in place between you and the seller that protects you from the seller marketing and selling services to those same customers for a reasonable period and what happens if the customers choose not to switch to your company once the sale is consummated.
Selling the business.
Why are you thinking of selling?
When you offer your business for sale one of the first few questions a prospective buyer(s) will ask is “Why are you selling?”
Your answer to this question is important. If your answer to this question seems unclear or strange to the prospective buyer(s) it might cause them to question your motivation to sell.
There are many good reasons why someone under 50 would be selling a business and if this is the case with you it is imperative that you be able to communicate your reasoning with prospective buyers. If you are selling for health reasons, relocating to another area, or maybe you are just burned-out you must be able to make buyers understand that the business is still a good business it just isn’t a good fit for you anymore.
If you are over 50 but not ready to retire yet and are looking to start a second unrelated or related business or career, you should be honest and up front with prospective buyers to allay any fears they might have about your motivation to sell. In most cases this will be acceptable to prospective buyers if it is totally above board and out front in the discussions regarding the sale of the business.
If you are of a reasonable retirement age, and are truly retiring once the business is sold, prospective buyers view this as ideal. They are more likely to understand your motivation and less likely to worry about there being something wrong with the business.
What are you planning to sell?
Are you planning on selling accounts only, or your entire business? If selling accounts only, are you selling all or your accounts or a portion of your accounts? If you are planning to sell all your accounts, then what are you going to do with the equipment used to service those accounts? If you plan on keeping the equipment you better have a plausible reason for doing so or most prospective buyer(s) will be very suspicious of your intentions post acquisition.
If you are selling a portion, then you need to be clear exactly which accounts are for sale and how you derived at the decision on those accounts? Prospective buyer(s) will be looking for some reasonable explanation as to how the accounts were chosen and if appears to them during their due diligence that the accounts they are buying are your low margin accounts or troublesome accounts then they are liable to expect quite a haircut on the price. And, if the accounts you have decided to sell are mostly full-service accounts which offer little to no add-on sale opportunities this is also a bad situation for a buyer.
How is the business doing financially?
Another popular question you are likely to be asked is “How much money are you getting out of the business, what is your net income?”
The answer to this question is not on your tax returns, not on your yearend balance sheet statement, cash flow statement or your profit and loss statement.
The answer to this question is determined by a comprehensive review of all your business income and expenses to determine your discretionary cashflow/income. This is the amount of money you are taking out of the business along with; 1. the value of any non-cash benefits the business is providing you or your family, 2. the value of any discretionary benefits you are providing any/all employees (not including paid vacations for employees), 3. depreciation and amortization, 4. non-recurring and/or non-operational related expenses.
This financial review and subsequent calculation are critical and should always be done before you set a price for the business.
Some landscaping businesses will sell for a multiple of 2-4 times the seller’s discretionary cash flow to another local landscaping company or an individual. If the landscaping business you wish to sell is large enough the buyer could be a private equity group who might pay more than 4 times the multiple.
Some landscaping businesses are sold for the market value of their furniture, fixtures & equipment, real estate and a premium for goodwill.
In both aforementioned scenarios it is assumed that the business is being sold in an asset sale. That having been said, there are circumstances that come up during the structuring of an acquisition wherein the fact pattern might lend itself more towards an entity sale rather than an asset sale.
Which makes more sense for your situation?
As mentioned earlier, during negotiations leading up to an acquisition it becomes necessary for both parties involved to look at whether they would best benefit from an asset sale or an entity sale.
Understand this fact: YOU AND THE BUYER(S) HAVE COMPETING INTERESTS
It is because of this fact we urge to you consult early and often with your trusted financial, tax and legal professionals to make sure you understand completely the financial, tax and legal implications of the various structuring strategies you might be asked to consider making it possible for a successful sale.
In all cases there will be pros and cons associated with any structuring strategy and you will need their advice to be able to decide which strategy best meets your needs.
As the business owner you can chose to sell your business transferring all or some of the business assets by way of an asset sale or entity sale. Generally, most small businesses are sold by way of an asset sale. That having been said, in certain circumstances some small businesses are more likely to be transferred in an entity sale. The reasons for such a structure are many and varied and will be addressed in more detail later in this publication.
In an asset sale the business entity, whether it be a C Corporation, Partnership or Limited Liability Company, sells its tangible and intangible assets to a buyer, while the shareholders/partners/members retain their equity in the entity.
In an entity sale, the seller(s) transfers his, her, their shares/partnership interests/membership interests to the buyer who acquires the entity with all its assets.
There are many factors for both the Seller and the Buyer to consider before deciding which transaction structure, asset sale or entity sale, is appropriate and/or acceptable to all parties. Some if the issues that might be considered in making the decision are: