No one wants to think about the day when they will die or when they will no longer be leading their companies. But I know an important reality: There is a 100% chance both will happen to you. Legacy happens as we live and lead.
We are creating our legacy every day. It isn’t an event; it is the result of living a life and, in the case of our business, the result of leading others and running a company.
Two Legacies We Will Each Leave as Precision Ag Business Owners
This not only includes thinking about the values we want to leave behind and the impact we hope to make on others, but it also encompasses a broad set of tasks that need to be completed like wills, power of attorney, health care directives, financial planning, estate and tax planning and so on.
For many of us in the precision farming industry, this includes passing on the heritage of the family farm for future generations and ensuring we leave it better than we found it. It’s about family pride.
The same questions around impact and values apply here as well; additionally it includes thoughts around business exit/succession, business continuity and disaster recovery planning.
Whether we are an implement or an independent dealer, preparedness is critical to help a precision ag business leave a strong legacy. The area I’m most concerned with these days — the one that is keeping me up at night some — is the valuation of small businesses.
Many leading their precision ag companies do so with the plan in mind that the company will grow and become their retirement someday. A whole lot of owners are expecting to live primarily off the hard work and sweat equity they have invested in their company.
Day after day for 10, 15 or even 20 years, they get up early and stay late to build their business. The hours poured in during planting and harvest are worth it for a future return. Yet I fear that many precision ag business owners need to accept one harsh reality: Hard work does not equal business value.
To be sure you generate enough value for the future, you need to answer some very important questions. If there are multiple partners or principals in the business, obviously the answers have to include everyone.
• How much is the business worth today?
• When (years from now) would you like to sell and stop being an owner in this business?
• What is the reasonable expectation of what the business will be worth when you want to exit?
• What steps do you need to take to grow it each year by that amount to fill the gap?
• How much money do you need from the sale for financial planning or retirement?
• Will the sale proceeds be sufficient to support your retirement or do you need to downsize?
• What gap exists between your business contribution toward your retirement and what you really need to be happy?
Lots of people have little or no idea what their company is really worth. Almost always they believe it is worth far more than it truly is. Of course, the value of a company (or anything for that matter) is what someone is willing to pay for it.
The key is to know now what the number is that you would sell your business for in the future, which hopefully is closely related to what you need for your future. Your business should always be for sale, for the right price. That means you have to run it like you might sell it any day, which makes for good discipline and decision making.
Don’t Leave Your Future to Chance
During your business exit/succession is not the time to discover that you have come up short from what you need and expect to receive. Today is the day to start working on legacy — not just the impact side but the preparation side as well!