The landscaping market is extremely sought after and can create a significant profit. But if you’re looking to sell your successful business to a potential buyer, how do you know how much it is worth?
There are three approaches for valuing your landscaping company: the multiple of earnings method, the adjusted net asset method, and the market approach. The multiple of earnings method is the most accurate way to determine the value of a landscaping business.
A business valuation’s goal is to quantify a company’s many parts in terms of monetary worth. It essentially conveys an organization’s background, health, and general condition in the form of a monetary value. The results of the business appraisal vary between the three approaches, as each approach uses a separate set of assessment criteria and formulas. The three ways to determine the value of the landscaping business are explained below, along with tips on making your landscaping business more valuable.
How to Value a Landscaping Business
Multiple Earnings Method
The Multiple of Earnings, also referred to as the Income Valuation, approach is a dynamic formula that determines the value of a company based on its potential for future earnings.
You must determine the predicted cash flow and net profit in the form of EBITDA or SDE, and then add those numbers to the relevant indicated valuation multiples. The value of the business is what you ultimately obtain as a result. Seller’s Discretionary Earnings (SDE) and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) are the two components of the multiple Earning method (EBITDA).
Seller’s Discretionary Earnings (SDE)
Seller’s Discretionary Earnings is referred to as SDE. This is the total money a sole proprietor can anticipate making from their enterprise. It accounts for your pre-tax earnings, to which you should add your interest income, depreciation, and other costs. Even one-time expenses, utilities, rent, wages, and personal and travel costs are included in the prices discussed here.
The total of all of these should indicate the overall financial advantages to which you can look forward as the company’s new owner. But remember that SDE only applies to small companies with a single owner. Therefore, you can use it to your advantage when estimating the value of landscaping companies founded as sole proprietorships.
(EBITDA) Earnings Before Interest, Taxes, Depreciation, and Amortization
EBITDA works best for evaluating larger organizations. It uses a system like SDE to evaluate medium- to large-sized businesses based on the total of their net income, interest expense, depreciation expense, amortization expense, and taxes.
The average yearly revenue of the companies in this category is $3 million or higher. They also include all the expected corporate attributes, such as shares, a board of directors, etc. In essence, this means that, unlike SDE, EBITDA does not assume an owner-operated model or, for that matter, any owner’s pay.
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Adjusted Net Asset Method
The Adjusted Net Asset Method does not fully examine every aspect of the corporate finances, in contrast to the Multiple of Earnings approach, which means you won’t be basing your decisions on profitability presumptions.
Instead, it is designed to determine a company’s value based on the sum of the market values of its assets, less the current market values of the associated liabilities. The cumulative worth of both tangible and intangible assets must be determined, and the total losses associated with the liabilities must be subtracted. A landscaping business may include a variety of tangible assets, including vehicles, office furniture, real estate, fixtures, and cash.
On the other hand, intangible assets are non-physical items like websites, patents, customer lists, service contracts, and trade secrets. Regarding the liabilities, you might have accrued expenses, small business loans, and several unpaid accounts payable.
To begin the Adjusted Net Asset procedure for business valuation, list all the assets and liabilities. Then you should examine each one individually to calculate their unique expenses based on current market prices. When you’re finished, add the prices of each asset, then remove the equivalent amount from the liabilities. The Adjusted Net Asset technique is all that is necessary to determine the worth of a landscaping business.
When disposing of corporate assets, you may rely on this value approach. This format is the one that works best for determining how much money you stand to make after closing the shop and liquidating the entire firm.
Market Approach
The Market Approach is more concerned with the external elements that affect a company’s value than the other two techniques, which evaluate organizations using internal criteria. The general rule is to compare a firm to other identical businesses that have already been sold to assess its position in the market for business sales.
For instance, you should compare a landscaping company’s worth to other similar businesses that have recently undergone ownership changes. And if you’re only interested in selling your assets, you should concentrate on service industry professionals who have already sold products similar to those you want to offset. This is a very accurate approach to determine how the market will react to similar business sales or buy bids. In essence, you’ll receive a realistic assessment of the value your landscaping company might command on the open market.
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Ways to increase the value of your landscaping business
Branding
Setting aside money in your budget for building and promoting your brand is among the most crucial choices you can make as the owner of a landscaping company. Everyone knows the importance of maintaining a presence on your website and all social media platforms, however, the free publicity you receive as a mobile contractor may be even more beneficial to a landscaping company. Due to your location and work on busy streets and thoroughfares, you have an advantage over many businesses. Your equipment, tractors, trucks, and service vehicles should be mobile billboards. Remember you’re your work crews must be completely attired with gear touting your business name and logo. Consider sponsoring neighborhood sports teams or high schools to get the news out about your business. In addition to exposing your business to thousands of potential customers, effective branding and marketing will also help you establish a reputation as a firm that appreciates giving back to the community.
Equipment
The quality of your equipment will determine how successfully and efficiently your landscaping company can complete its projects. You do not need to buy the most advanced equipment available. Purchase the best item you can manage and keep it maintained. With routine maintenance, everything should be in fine functioning order. When it comes time to transfer ownership of this item to a new owner at the time of sale, keep thorough records of this servicing for your tracking and as a way to document the equipment’s lifespan.
Organizational Structure
Do not ignore your organizational demands or structure. The luxury of having numerous crews, crew leadership positions, interoffice workers, whole design teams, and outside sales agents is available to larger organizations. Smaller businesses are run by an entrepreneur and a team of workers who multitask to keep everything running smoothly. Even if that leader is you as the owner (which you will be initially!), a project leader or leader must be in place and visible to the client. Consider how you will expand your crew in the future as you expand your service offerings and grow your business. Choose a worker who has the potential to take on more responsibilities and begin to develop them.
Licensing
Do you provide any services that necessitate a license for general contractors? Who holds the licensing for your business? If you are the solution, start formulating a fallback strategy. Getting a key employee licensed or hiring a key employee with the licensing necessary for your company is never a bad idea. By doing this, you can leave the office during a sale, vacation, illness, etc., and yet be sure that business will continue as usual.
Bidding Software
Find and use an affordable software program for bidding, estimating work, and client tracking. The capacity to develop expert offers and offer precise estimates, track ongoing bids, maintain a client database, and generate reports are just a few of the numerous aspects of a capable bidding software package. You stand out from the competition because consumers perceive you as more professional. This software bundle will be transferred to the new owner as a valued asset when it comes to selling. You are not only more likely to win bids by using contemporary software to organize your bids and estimates, but you also have excellent paperwork to provide to purchasers when you are ready to sell.
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Frequently Asked Questions
Can you get rich being a landscaper?
It is very possible to accumulate wealth from landscaping, but remember that every business comes with risks. People also lose money from landscaping without proper planning. Start your business by creating a business plan and a budget, then determine what you consider “rich” as you plan out your profits.
Is the landscape business market getting bigger?
The market is expanding based on the past ten years’ trends. Since 2018, the annual transaction has exceeded $53 million. Market and trend variations will always exist, but it’s crucial to keep your business steady during those times.
To learn more on how you can start your own landscaping business, check out my startup documents here.
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Meet Shawn Chun: Entrepreneur and Landscape Business Fan.
I’m a happy individual who happens to be an entrepreneur. I have owned several types of businesses in my life from a coffee shop to an import and export business to an online review business plus a few more and now I create online resources for those interested in starting new ventures. It’s demanding work but I love it. I do it for those passionate about their business and their goals. That’s why when I meet a landscape business owner at a job site, driving down the road or anywhere else I see myself. I know how hard the struggle is to retain clients, find good employees and keep the business growing all while trying to stay competitive.
That’s why I created Landscaping Business Boss: I want to help landscape business owners like you build a thriving business that brings you endless joy and supports your ideal lifestyle.