Are you thinking of selling a landscape company? Whether you’re moving on to another venture, retiring, or mulling over a tempting offer, you want to maximize your investment.
Successfully selling a landscape business entails more than the financial transaction—you also have numerous considerations about possibly preserving the brand or keeping a stake in the company for passive income. If you’re ready to make a move, review this detailed guide to understand how to sell a landscaping business.
Preparing To Sell a Landscape Company
As with everything else, things proceed smoothly with proper preparation. Lay the groundwork for the sale long before marketing your company.
Ways To Determine the Value of Your Landscaping Business
In general, you have to decide which of the following models is right for valuing your company.
Seller’s Discretionary Earnings (SDE)
Sellers often use SDE when selling a small landscaping business worth less than $3 million. Start by adding:
- The company’s net pre-tax income (or loss)
- Your salary and the value of your perks as an owner
- Interest expenses
- Depreciation expenses
- Amortization expenses
You’ll multiply this number by a figure that’s usually between 1.5-4. (That multiplier depends on market trends and the landscaping industry’s projected growth.) The final result is your business’s value.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
For businesses worth more than $3 million, EBITDA is often the preferred model. That’s because in these cases the buyer is usually not going to be an owner-operator.
Like SDE, EBITDA is a sum of the previous year’s earnings to show the company’s cash flow and profitability. In this instance, you get the sum of your profit, depreciation, and amortization.
Then, multiply that sum by the appropriate multiplier to approximate your business value. (The multiplier is usually higher than the one for SDE because owner perks and salary are not part of the initial sum.)
Multiples of Revenue
The previous methods are multiples of earnings and are more popular for their reliability. Still, you might feel tempted to use the simpler method of multiplying last year’s revenue by a number between 1-2. However, this tends not to be the best calculation because it does not consider earnings and profit.
Granted, SDE and EBITDA might seem a bit too sophisticated as you determine how to sell a landscape business. Fortunately, Axia Advisors provides a business valuation calculator you can use to simplify things as you set your valuations. If any of this feels like too much to do on your own, remember that you can turn to our M&A advisory team at Axia for comprehensive guidance.
Factors That Affect Valuations When Selling a Landscape Business
Of course, you want the best price and terms possible when selling your landscaping business. Before putting it up for sale, review the key factors that affect valuation and what you can do to increase your company’s worth.
Company Size
A larger business is likely to be worth more as long as you have not overleveraged it. This can actually make your company easier to sell than a smaller one. That’s because buyers making this kind of investment often want to see proven success and growth.
Additionally, even buyers with considerable capital usually finance part of the acquisition, using leverage to maximize their returns. However, loans for companies with lower valuations tend to have less attractive terms. For example, some of the best rates the Small Business Administration offers are for loans above $350,000. Therefore, you may get more interest if your valuation is above that figure.
Years in Operation
A longer time in business demonstrates you have a stable operation and a strong brand. After passing the initial few years when most small businesses fail, you can fetch a higher multiplier for your valuation.
Client Base Composition and Revenue Sources
A more attractive customer base includes commercial clients, which tend to be less volatile and more willing to spend on services. Also, your value could be lower if most of your business comes from only a few clients, which is more risky than having a wide client base.
The types of services you do most are important as well. One-off installations can be unpredictable and drop during economic downturns. Clients with long-term maintenance contracts offer predictable earnings and stability for new owners.
Reputation and Brand Strength
Consider your company’s image when selling a landscape company. Buyers get more than your assets and client book; they can also take your name and reputation. You have greater bargaining power when you can quantify how trusted you are in the community through good reviews and testimonials.
The Skill and Dependability of Your Workforce
High-value businesses typically have employees and management that can keep things running smoothly without constant interaction from the owner. Unfortunately, landscaping companies often struggle with labor and employee turnover. Plus, the work often requires having a hands-on owner. However, ensuring you have a reliable crew that is likely to stick around facilitates transactions and raises your value.
Maintain good relationships with your employees and ensure they have adequate training. This will make them more likely to stay with the company when the transition occurs. (Keep in mind that noncompete clauses are now typically unenforceable.)
Clean and Transparent Accounts
Maintain good financial records and track all revenue. Not only is doing business “under the table” illegal, but it also hurts your valuation when you sell a landscaping business because you can’t prove your earnings.
Clear up accounts receivable and resolve billing for any customers who are 30 days past due. This reassures buyers that they’re less likely to have issues with working capital because they’re generating sufficient revenue to keep operations going smoothly. Also, buyers will struggle to get financing for a company with overdue client payments.
The State of Your Assets and Equipment
Old and worn-out equipment will keep buyers away because they’ll view that as how you’ve cared for other aspects of your company. Furthermore, they don’t want to have to replace and repair equipment as soon as they take over. Remember that expenses for upgrades now can yield a higher valuation and sale price when selling a landscape business.
Understanding the Pros and Cons of Different Buyers When Selling a Landscape Business
Who you sell to can make a significant difference in the quality of your deal, so understand the pros and cons of different kinds of buyers.
Employees and Individuals
While selling to an individual is less likely to fetch higher prices, there can be advantages at times. Unlike an existing landscaping company, these buyers typically want to purchase all your assets and equipment. Also, such parties may be more likely to keep the company brand and legacy alive by following in your footsteps.
However, individuals are unlikely to be able to afford high-value businesses. If your landscaping company is worth over $2 million, completing a transaction with an individual can be difficult.
Competitors
Selling to a competitor can result in a quick transaction. Another landscaping company generally has easier access to capital and already understands the work and the market. Plus, you won’t have to train them about the business.
A likely benefit is that this buyer will want your equipment or branded materials. You would have to sell these through other means or dispose of them. However, a competitor is unlikely to keep your brand, so keep that in mind if that’s important to you when selling your landscape company.
Strategic Buyers
A business that offers a related service to landscaping could be the ideal buyer. Like individuals, they often need to buy your assets. Like competitors, they usually have access to higher capital to make a more expensive purchase. The sale can also be a win for your customers, who can now bundle complementary services.
Still, a strategic buyer might want to rebrand. They might also change operations to match their existing model instead of following your methods after you sell them your landscape business.
Private Equity Groups
Private equity groups aren’t usually the first in line for buying landscaping businesses, but they can be one of the best options if you can attract them. Connecting with PE firms largely depends on your network. This is where working with an M&A advisory service such as Axia Advisors gives you an advantage in contacting various types of interested buyers.
PE groups focus on buying a controlling interest in private companies with high growth potential. They work to improve the business and sell it for a profit years later.
If you don’t want to fully cut ties with your business right now and want assistance to help it reach new heights, consider pursuing PE groups. The firm could be willing to keep you on to manage the company as it grows. Their additional capital and expertise can accelerate growth and lead to a more profitable cash-out later.
Remember, attracting a private equity firm can be challenging if you don’t yet have those connections. You also have to be willing to accept a long-term exit plan that follows their direction on how to sell a landscape business for higher value. However, such strategic partnerships can be well worth it.
Gearing Up for the Sale Process
Once you’ve lined up a buyer, you’re ready for the sales process:
- Accept indications of interest, and have interested parties sign a confidentiality agreement. Then, you can provide initial details, including key financial documents that you’ve prepared for review.
- Meet with potential buyers to answer any additional questions they have about the business. Try to get a better idea about each one’s timeframe and motivations to see if the transaction seems to be a good fit.
- Accept written offers from buyers. After carefully considering these, enter negotiations with the best potential deals.
- Once you agree to terms with a buyer, both of you sign a letter of intent that gives time for due diligence. The buyer uses this period to verify the information you’ve presented about the business, especially information that any financiers may require.
- Draw up a contract for the purchase agreement and sign it. Accept payment from the buyer and close the deal.
Once you close, you shouldn’t consider the process over. Ensuring a smooth transition is good business practice when selling a landscape company and something the buyer has likely negotiated for.
A few best practices include:
- Providing a plan with responsibilities and timelines for the takeover
- Communicating with employees, clients, and vendors and assisting them through the transition
- Training and supporting the new owner and management team with your current operations, processes, and culture
You might even continue to take a salary or commission to briefly continue on as a consultant.
Leveraging Tools, Networks, and Guidance for Help With Selling Your Landscaping Business
Digital marketing tools have become a good way to find and attract serious buyers. Besides online listings, showcase your business with a professional website. Articles and blog posts with topics and keywords that buyers are using will draw them in as well.
Also, extend your professional network to engage with circles that interested parties would frequent. You could find your ideal buyer by joining industry associations or attending networking events. A smart way to get the widest network is by working with an M&A advisory firm specializing in home services and blue-collar businesses, such as Axia Advisors.
Selling a landscape company takes a lot of diligent work. Thankfully, help is readily available. Talk to our experienced team at Axia Advisors, an M&A advisory firm that will skillfully guide you through selling your landscaping business.
Sources:
https://www.investopedia.com/ask/answers/06/amortizationvsdepreciation.asp
https://www.sba.gov/partners/lenders/7a-loan-program/terms-conditions-eligibility
https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes
