Moving on

Moving on

Features - 2018 State of the Industry // Business Management

How to prepare your nursery – your life’s work – when it’s time to sell.

October 31, 2018

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In the recent past there have been some exits from the nursery business with clumsy efforts and low return. I won’t identify them, but you know who they are. Auctions, liquidations, vacant land, bankruptcy and loss of a lifetime of effort create this tragedy. Most nursery folks are great at growing and but not so great at getting ready for the ultimate transition. I know one who insists he’s not going to die.

One nursery owner put me in his will. He has instructed his heirs in the event of his untimely death to contact our firm and develop a program to sell the nursery.

Nurseries are not easily sold in these emergencies because unlike a bolt and nut factory, the inventory needs care to stay saleable and not turn into product destined for the landfill.

Since we will all go into that great greenhouse in the sky (or wherever your faith tradition says you will go) the time to plan is before you are about to change worlds. Selling your nursery business to someone hungry to buy it is the goal of most of my clients.

The question I’m often asked: “What can I do to get my nursery business ready for sale?”

Here are ten keys to putting a polish on the business as you get ready to put it up for sale.

1) Have good historical records of your operations. Audited is better. I know most of us hate paying income taxes, but income (positive cash flow) is what they are going to buy. Keeping three to five years of records is the key. Yes, your internal records are important, but proving that is essential. People don’t buy inventory and assets, they buy operations. And the inventory and assets are the engine that allows for positive cash flow. For that reason, you must have a good fixed asset inventory, equipment, age, hours and condition. That’s part of what makes the purchase possible. You should have a good live goods inventory that includes all that is in the production pipeline. Location mapping is important so the buyer can prove it out. Your buyer will want to know when you planted the liners and where they came from. Your buyer wants to know that in the next few years he can pay for some of the purchase price out of what you already have in the ground or in pots.

Don’t bother to cheat or fib. Potential buyers will send in auditors to discover reasons why their client shouldn’t buy your business and they are going to scour your operations for problems. Tell the truth. If you don’t have positive cash flow, it’s not the end of the discussion, it becomes an asset sale. For the right buyer that will be enough.

Once your records are in order, you will need a fair and substantiated selling price. A nursery business appraisal accomplishes this.

2) Clean up. Physical appearance matters to a buyer. If they show up and it looks like a disaster, you will lose a buyer. You don’t have to be perfect, just not sloppy. A client recently put out all of their relevant equipment neatly in a row for a potential customer making a decision on a big contract. Cleaning up and being in order closed the deal. Look sharp, it pays.

3) Diversify your customer base. If you are selling more than 20 percent to one customer, work hard to develop others. More than once I have been called in after the fact by a bank when a single customer comprised the bulk of the business volume. When they pulled out they left the nursery stranded. Selling 10 percent to one customer should be your goal. Your top 10 customers should make up less than half your business.

4) Put good people in place as much as possible. Hire well. A new buyer wants to see continuity after you are gone. You should have a person or two who can take over if you were to hit a tree. They don’t want to be dependant on you for very long. A roster of competent employees who are willing to stay is priceless. It lends itself to the idea of a turn-key operation.

5) What would you represent as your unique factor? It’s the thing that your nursery does better than most. For instance, I know of a nursery that is better at producing a Skyline honeylocust better than other growers. Another has plant patents that generate substantial income; another has an ongoing hydrangea expansion program. These unique factors add value.

6) Figure out what your absolute “must have to get out” dollar needs to be. If you have outstanding debt, it will likely drive this number. Buyers will seldom pay cash for your operation. Typically, the assets and some of the inventory are paid for early. Real estate is leased back for a time. What is your exposure and how much can you carry? No one is going write you a check for the whole thing. Knowing your cut-off point will help you answer the question, “How much do you want and how can we do this?” A good business valuation provides that answer. The buyer isn’t likely to buy your existing corporation; they will buy your assets as needed.

7) An important point the buyer will consider is scalability. How much can this business grow? What are the expansion potentials? What limitations are there? The hard question will come, “Why haven’t you done this?” No one buys a business to have it stay the same. If I were 33 years old and had the wherewithal, I am not going to buy a business and have it stay static. Seeing a brighter future drives a buyer to say yes. Think of opportunities. It’s part of the sale.

8) Your buyer will expect you to stay on in transition. Be prepared to do so for a while. Thte buyer will do things that drive you crazy and you will want to step in and say no. This discipline of keeping your mouth shut or offering advice carefully is an art. Learn it. Even in the early stages of negotiation, if you appear to be the only essential person and irreplaceable, you can kill the deal.

Give credit to your wonderful employees for your success. Remember you are going to leave and if you take too much of the credit for the company’s success (even if it’s true) you can kill the deal. No matter how able you are, you will want to give the impression that you are very replaceable.

9) Get your antenna up for people who are potential buyers. Don’t contact them yet. That’s another process altogether. There is a process in selling a company. Offering too much information too soon is certain death. The following is a list of prospects identified in order of probability who may buy your nursery.

  • A. A customer
  • B. A supplier
  • C. A competitor
  • D. A similar business not in your market currently using this purchase to take up a position
  • E. An employee buyout
  • F. A relative. Succession planning is another issue.
  • G. A private equity group (they do invest, but not as often as you think)
  • H. A consolidator who has been buying everything not tied down. The company with a ONE in its name is an example. It’s possible, not likely.
  • I. John and Mary Smith in their 40s from New York City who made a lot of money in Hedge Funds and have decided they want to run a nursery.

10) The last and most important thing to prepare is you. Being “wishy-washy” and trying to game the system will ultimately waste precious years. If you are committed to selling your nursery you must be solid in your intention. Many good sales of a nursery are lost because the seller changes his or her mind and enters into the negotiation saying, “I wanted to test the waters” and like Goldilocks, finds this one too hot, this one too cold and never gets to just right.

When it’s time to begin the actual sale of the nursery, get close to the deal and let the lawyer draw the agreement. Your lawyer and your accountant shouldn’t be doing the negotiating for you. If you’re considering using a business broker, here’s a dirty little secret – a business broker gets as many listings as he or she can and then throws it out there like spaghetti on the wall with an expectation that there will be a few that will turn accidently. They generate income by the law of large numbers. If nothing happens, they are out little. What you need is a solid proven system for selling the nursery business, but that’s another issue for another article.

Gene is a certified personal property appraiser specializing in nursery business appraisals;