Even in the face of increasing interest in the buying and selling of landscaping companies, many owners are ill-prepared for this important life event.
The reason is twofold. Some owners find themselves in a reactive selling position. They are being approached to sell and get caught up in the moment instead of having a clear plan to build value before selling. Other owners are simply frustrated with their business, and they pull the rip cord early, selling their company at a depressed level of earnings.
Planning your exit can take five to 10 years to do right. It’s important to understand that the value of your business will escalate over time as you grow it into a stable and scalable entity.
I call this climbing the “value curve,” where, for example, a $20 million company is worth more than four times the value of a $5 million company.
We all know that value is driven by earnings (EBITDA). It is also driven by reducing business risk and building opportunities for growth. Here are four key phases of growth to consider as your company climbs up the value curve.
Owner-led growth
All companies start at this level. Building a multimillion-dollar company is a grind, with the owner still heavily involved in most areas of the business, whether that’s employee management, sales or day-to-day administration and operations.
Traits of owner-led companies include:
- The owner holds too many positions on the org chart.
- The leaders — and doers — wear multiple hats.
- The company has limited systems, and thus limited delegation from the owner.
During my time in the industry, I have seen small companies ($3 million) move beyond this level quickly, and larger companies ($10 million) still stuck at this level. The main obstacle is not the revenue; it is the owners’ mindsets and the tools they use to grow their companies.
Team-led growth
This next phase of growth has clear roles in place for the different areas of operations — sales, finance and administration. It also has clear division leaders with their own profit/loss responsibility.
Traits of team-led companies include:
- A stronger focus on budgeting, forecasting and living by the numbers.=
- Consistent meeting rhythms and reporting structures.
- Real systems being used to develop people and manage costs.
- Clarity of roles in the front and back office.
- Better software setup, allowing the company to scale.
- One or two specialty functions (see list below).
Director-led growth
In this third phase of growth, director leadership roles are established to oversee middle managers. For example, these companies have sales directors, finance directors and directors of operations.
In this phase, you start seeing more specialty functions, which might include human resources, recruiting, marketing, information technology, training, safety and possibly systems or data analysis.
Platform-led growth
In this fourth level, you have built a profound platform for scalability. You have learned how to replicate growth and establish branches, and you have vice presidents in place overseeing various directors and other specialty functions.
Traits of platform-led companies include:
- They can easily expand regionally with the right resources and focus.
- Succession planning happens at multiple levels in the business.
- They have a proven ability to launch or acquire new branches.
- Financial maturity makes them attractive to investors.
- They have a strong regional brand that is easy to build on.
In many cases, companies can straddle two levels at once as you develop some parts of your business faster than others. That is natural and part of the journey. Overall, building value means growing consistent, repeatable earnings while removing yourself from key roles over time. This will generally require that you constantly upgrade your leadership teams to run and grow the expanding areas of your business.
To help climb your own value curve, reach out to us and identify your next steps. Go to www.JeffreyScott.biz for more information.
