If you and are thinking about selling a landscaping business in Southwest Florida, you are in luck, because it is a highly sought after industry. Before you can list it for sale, you must determine its value, and see how you can increase it. Several factors go into determining how much your landscaping company is worth. Here are some of the most important ones, and the best methods for preparing to sell your business.
Determining the Value of a Landscaping Business
Many business owners believe that the best way to value their companies is to use a specific percentage of their sales revenue. Revenue by itself may demonstrate the size of your business, but it is not a reliable measure of valuation. The most reliable method of valuation is the multiple of earnings method. This method considers two different calculations. One of them is to take 2 to 4 times Seller’s Discretionary Earnings (SDE). The other is to take 5 to 7 times Earnings, before Interest, Taxes, Depreciation and Amortization (EBITDA).
SDE represents the total financial benefit a potential buyer can expect to receive from your business. Expenses such as owner’s salary, benefits, depreciation and other one-time and situational expenses get added back into your net profit, before taxes. EBITDA is similar to SDE, but typically used to value very large businesses. The primary difference between the two is that EBITDA assumes that the buyer will not be an owner-operator, so it considers a market-value officer’s salary as an expense, and keeps it as a deduction from net profits.
Increasing the Value of a Landscaping Business
There are numerous factors that can impact the value of any business, regardless of the industry. Generally, the more involved the owner is in producing revenue, the less valuable the company. Your business should operate smoothly and be profitable without your continuous, direct involvement, since you won’t be there after the sale. To maximize value, you should have a capable management team that can keep the company performing well when a new owner takes over, without setbacks. Having an operations manual also goes a long way in ensuring there is a roadmap to continuing the success of your business, regardless of who is running it.
Keeping your financial records organized and up-to-date is another critical step for any business. All serious buyers will inevitably request them, so having them ready will keep the momentum of any deal going. It also gives the impression of a well-run business. Leaving money off the books will hurt your business’s value, so record everything and make sure the records are thorough. Every dollar entering of leaving the business should be accounted for. Make sure your receivables are all current as well. A new owner will need to have the cash flow to pay expenses. If you have been extending credit to customers past 30 days, it is time to clean things up. Failure to do so could also make it difficult for buyers to use the SBA 7(a) loan program, which could limit the number of people qualified to purchase your business.
If your business depends too much on one big customer, or even few customers, it will be considered a high-risk business. It may not scare everyone away, but it will make your company much less attractive. Your business should be able to withstand losing a big client, or a few clients, and remain profitable and stable.
When it comes to the landscaping industry specifically, the type of customer you have is also important. Buyers are attracted to companies that have a lot of long-term contracts. They help to protect the business from volatility and make revenue more stable and predictable. The more maintenance contracts you have, the more valuable your landscaping business will be. If you rely too much on one-time customers, your business will be perceived as riskier. Commercial accounts also help to add value. Although many companies focus primarily on residential work, commercial landscaping companies tend to sell for higher multiples. If you don’t have any commercial accounts, consider trying to add a few before listing your company for sale.
In today’s world, your company’s online presence will also be a big indicator of it success and overall value. Reviews definitely matter, so make sure you are asking customers to submit online reviews. Digital marketing is also important. If you invest in a good website and Search Engine Optimization (SEO), it could go a long way in growing your business and boosting its value. Buyers are likely to research your company online when considering it for purchase, so making sure your business is well represented and ranks high in search and maps can go a long way.
One of the biggest challenges in landscaping can be labor. Finding reliable and trustworthy workers can be a difficult task, especially considering recent issues with labor shortages. If you have high turnover, try implementing incentives to keep good employees from leaving and attract new ones. It also helps to have a consistent process for seeking out and hiring new crew members. Even though it can be difficult to find good workers, resist hiring undocumented workers. The penalties for hiring them can be very steep, and most buyers will not be willing to take on the risk.
Finding a Buyer for Your Landscaping Business
Who you sell your landscaping business to can make a big difference in your profit from the sale. If you are thinking about selling to a competitor, there are a few things to consider. Competitors may sometimes just be kicking the tires, and are not serious about buying your company. They could be fishing for information about how much you charge, how much you earn, or who your clients are, among other things. They could potentially use information about the sale to scare off some of your customers, or employees. This is one reason why it is critical to be able to sell your business confidentially; to protect it from being purged. However, it is difficult to sell confidentially on your own. This is why it is a good idea to list your company with a business broker, who will be experienced in confidential marketing.
It’s also important to understand that a competitor will almost always pay less for your business. This is because they do not want or need many of the assets that come with your company. This includes your brand reputation, employees and equipment.
Alternatively, you could sell your landscaping business to a strategic buyer. This is another business that operates in a related industry, but is not a competitor. A strategic buyer is anyone who uses your services frequently and could benefit from acquiring your company, as it would help them with other aspects of their business. It could be a property management or irrigation company, for example.
The bulk of potential buyers for your company are going to be individuals. Selling to an individual is typically the most profitable way to sell your landscaping business, because they need to acquire every aspect of it. Individual buyers often need financing to purchase a business. Before giving out any sensitive information about your company, or spending too much time with a buyer, make sure they are financially qualified to make the investment. This is another situation where the services of a business broker can be invaluable. They can pre-qualify buyers before divulging any information about your company.
When preparing to sell your landscaping company, remember that low risk and high reward are characteristics coveted by all business buyers. Focus on reducing risk and you will add substantial value and attract more buyers. This will help you to sell your business faster, and for more money.
Do you own a landscaping company in Southwest Florida that you have thought about selling? It can be very difficult to sell on your own while simultaneously trying to run the business. Dealing with a high number of inquiries from competitors and tire-kickers can be frustrating, and small mistakes can hurt your business. Corporate Investment Business Brokers (CIBB), headquartered in Fort Myers, has been helping small business owners sell their landscaping companies since 1986. Contact us to get a free, no-obligation business valuation and consultation, and discover how you can sell your business for more.
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