Did You Know That Your Replacement Plan For Key People Will Affect The “Salability” Of Your Company?
By now, most landscaping company owners who are considering a sale of their business have a sense of the major items that buyers are looking for. One of the most important is whether you have a “strong number two” or general manager that can run the company when you step out. For a larger company, this might translate into two or three key people who can and do work together to deliver and manage the results as if they were owners. Many times, they have been identified as such and may be part of a bonus plan or phantom stock plan that directly ties their contributions with the company’s results. For those owners who have this all covered, congratulations!
Now, for the rest of us, this might be a little more complex. Maybe you’ve been so busy with clients, COVID, and supply chain issues that you haven’t taken the time to even check in with your top people. If your people really are your most important resource, you may be exposing yourself to being blindsided when one of your key people “suddenly” announces he/she is leaving.
The good news is that from my (non-scientific sample size) conversations with landscaping business owners, most are putting their time and money into reinforcing that their key reports are their most important asset. They’ve also authorized comprehensive plans for the balance of the company to do the same.
Those insightful owners who have been smart enough to reinforce their support of their key people in the past couple of years have great timing. We’ve been asked to provide input on total compensation for top-level contributors that includes salaries and bonuses, perks and, in my opinion, the most important “glue” – long-term incentive plans. These “executive compensation” packages have been adjusted to be competitive in their market, region or nationally, as appropriate. In addition, the CEO/Owner has weekly check-ins to review KPIs for corporate performance, the direct reports for their direct reports, and the individual’s issues (if any) are treated as a priority.
During the pandemic, I heard from more than one owner who was impressed with his team’s leadership and with his employees’ attitude and performance. Employees who were able to cover and support those who were ill, or caretaking did so. Professionals “ran the extra mile” to meet client proposals and needs. The best news is that when I check in with those key people, I hear almost the same thing as I do from the owner. They were treated and felt like owners before the crisis, and they kept it up during the tough time. That has translated to increased profits for the owners and higher bonuses for the team. It starts at the top!
One of the threshold questions for buyers (whether they are strategic buyers or private equity investors) is Who will run the company when the owner steps away? The strongest companies have bench strength in both the overall management as well as the specialty areas including sales and production management. In some cases, the companies are already “running themselves” on a day-to-day basis and the owner is focused on new initiatives.
While there are some buyers who do have management talent on their bench to insert into the selling company it is difficult to replace the detailed knowledge a key person will have. They have years of trust and understanding built up with clients and employees that will be lost if they leave. In those cases, the price will surely be adjusted downward, since the lack of continuity of senior management will also add to the risk the buyer is taking on (whether clients will continue, whether employees will remain, etc.)
- Your homework: Make sure you are in touch with your key people.
- What are your COO’s skills, knowledge, and abilities?
- How well does your VP Production deliver results? (Make this more than your opinion, too. Collect input from the employee, his reports, clients, and performance records.)
- Find out if your VP Sales is perceiving a problem that should be brought out into the open. (You can’t shoot the messenger if you want an open and trusting culture.)
- If anyone on your key person team isn’t hitting their goals, find out why. Are they ignoring areas they don’t like to deal with?
- Get in touch with the direct reports of your direct reports. Have a (transparent) lunch gathering a few times each year to share information about what they think about the company. This way you get to know the people, and hear what they are saying (have you heard it from their boss? You can assess them for future jobs. Be sure to notice little clues that may be put there for you to find that will lead you to bigger problems.
You aren’t asking anyone how to fix things – although you can listen to those ideas. You are listening to understand what is going on and whether there are issues that you should address.
If you have a strong backup team for your role(s) and your backup team has a strong backup to their positions, you are in a strong position from a buyer’s perspective. One of the best ways to assess this is: What happens if one of these people dies? Who fills in? If you have a plan for that eventuality, you would receive an A+ in that Readiness to Sell box.
If you would like to discuss this or any other topic in the list of ten boxes or how your company goals fit with the current marketplace, please feel free to reach me via email: [email protected] or on my cell phone a: 224-688-8838.
We’re here to help you Harvest Your Potential!