The Nursery Management Conference took place Sept. 14-16 in Arlington, Texas. Over the next week, we’ll be giving you a glimpse of what you missed if you didn’t attend.
It’s never too early to start the succession planning process. None of us know the time nor the hour, so make a plan so your business can survive your passing.
On Day 2 of the Nursery Management Conference, Gene Redlin and Brian Decker provided several case studies of how to develop a succession plan.
Gene Redlin has a unique background as a nursery owner who also spent time in the corporate world as a CEO of several international companies. He’s been providing valuation services since 1998, specializing in succession, sale and settlement. He led his presentation off with the incontrovertible fact that every nursery owner WILL exit their business, eventually. Redlin provides some sobering statistics: 80% of the typical nursery owner’s net worth is tied up in the nursery. While 98% of the industry believes succession is vital, 80% of industry businesses have no succession plan.
Brian Decker, president of Decker’s Nursery in Groveport, Ohio, did not want to be one of those left with no plan. He described the types of succession plans that happen in the nursery industry.
Liquidation: This option will wind down and liquidate inventory, auction stock and equipment and sell real estate. It’s often the best choice for companies under $2 million range up to about $5 million in value. The downside is that it can turn into a fire sale.
Redlin agrees. He said the average liquidation returns 20% of the actual value of the operation.
Turn-key sale: These are so rare that they can be considered a pipe dream. They are often undervalued out of desperation. Decker considers this a poor exit strategy if you want full value for your business.
ESOP: The employee stock ownership plan works best for companies over $10 million in value, but includes ongoing consulting fees, audits and supervision fees. Also, Decker said the ESOP is not a good fit for some owner’s personalities. Particularly for opinionated owners.
Breed your buyers: this is the option for those with children interested in and capable of taking over the business. If your children have what it takes, and are willing, this can work. However, not all owners have the time to train and prepare them for management.
Redlin said if a nursery owner doesn’t put in the work to prepare the successor, the transition will go poorly.
“If you have an heir, nurture them,” he said. “If you don’t have that person, hire them.”
The last option for succession planning is private stock agreements. Decker detailed the alternative succession plan he designed at his own Ohio nursery.
It came about from asking a few important questions. Are your key employees loyal to the point that you would consider them family? If you consider those key staff members family, would you treat them like heirs? If the answer to this question is yes, trust and reward them as family. If the answer is no, change them out for more qualified leadership.
Decker developed a plan to transfer ownership of his nursery to a “core four” group of key employees. Before you move forward with a stock transfer agreement, make sure you have a frank discussion with all potential owners to gauge their interest and commitment. Discuss the concept with attorneys and accountant, and make sure your bank is on board as well. Hire a consultant to provide a professional evaluation of the company separate from the real estate. Then comes the tricky questions of stock valuation per share. Split stock shares to reach an affordable price per share based on the overall company valuation divided by the number of shares.
Decker’s stock transfer purchase plan provides the current owners with income while purchasing shares over the projected timeline of the buyout. The plan will transfer up to 49% of the shares this way, then have the lender participate in the sale of the last 51%.
In most cases, your employees won’t have the funds to buy the company from you outright. Decker’s plan requires a huge leap of faith by gifting 5-10% of the shares in the company to the selected staff. It’s necessary for them to have the funds to purchase the remaining shares. It also requires continued employment, creating a bit of a velvet cage.
This is only a quick summation of the plan. There are many more stipulations, and Decker suggested any nursery owners considering a similar stock transfer plan contact his attorney, Jim Vonau, at Decker Vonau, LLC in Columbus, Ohio, for advice.
Watch for more from the 2021 Nursery Management Conference.