Hope is not a plan: How to win at retirement
By Adam SnookFeatures
Planning now for your exit will generate benefits.
A year or so ago I talked about the rental industry going through a period of consolidation and what to do to make your business more sellable to a larger player. We may be in a different economic environment now, but that doesn’t mean there aren’t decisions to be made.
A recent CFIB article talked about how over $2 trillion in business assets are at stake as over 75 percent of small business owners are planning to retire in the next decade. If you look at the majority of independent rental companies around you, they are owned by operators who are nearing retirement age. If you fall into this group, you can consider these other guys as your competitor in more than just renting equipment. If you don’t have family actively working in the business to take it over, or a key employee who’s interested in assuming ownership, you’ll be competing with a growing group of sellers and a shrinking group of buyers. So you’ve got some time to get a plan in place if you don’t have one already. That time however will go by fast. Here’s a couple things to consider as you start your “escape.”
Figure out the fair market value of the business. This always falls somewhere in between what we think our decades of work is worth and what the auction value of the assets is. Paying for an evaluation is often well worth the money. Determining the actual valuation of your business is something mergers and acquisitions people have turned into something of a science. There are often good seminars on the basics of this at industry conferences like The ARA Show and the Rental Mart. Highly recommend sitting in on one to at least understand what buyers look at so your aren’t surprised when people have different numbers in mind than you do.
Also look at how “sellable” the business is. Equipment, facility and its reputation all should be in top shape. Spend the time and money to make sure all appearances are as good as possible. Buyers these days will care as much about the businesses online reviews as they will about the equipment mix.
Are you profitable or do you treat the business like a personal bank machine? If you are constantly bleeding the company, you are starving your future self. Most serious buyers will want to see a minimum three years of consistent profitability, especially if external financing is involved. If you are not profitable, all you’ll end up getting is auction value for your equipment with no goodwill. You didn’t put over 20 years into your business to recuperate just the depreciated value of your fleet – your could have done that by buying it and leaving it in a garage.
Be prepared to offer financing or terms that help the buyer. A lot of times this will get you a better selling price, but it requires a lot more legal due diligence and trust in the buyer.
The rental industry is a niche market and usually requires a niche buyer. Maybe you know someone who fits that description. Maybe you’ve got a go-to employee who loves the business and always goes above and beyond without being asked. You could have a potential buyer in the company already. It might require creative financing, such as giving a small amount of shares in lieu of raises over the next few years. There are many options.
The other side of this coin is that, if you’re a buyer, opportunities will abound. There will be great businesses who will be willing to help you into an ownership position with very little money down. Not to sound too opportunistic, but there won’t be a choice for many of them.
If you can demonstrate reliability, a good work ethic and a willingness to learn the mundane tasks required to run a company you will have your pick of the litter. Start planning.
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