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Two Lawn Maintenance/Landscaping Businesses with Similar Revenue – Why is one worth so much more than the other?

Two Lawn Maintenance/Landscaping Businesses with Similar Revenue – Why is one worth so much more than the other?

I have brokered the sale of many lawn maintenance/landscaping type businesses and am often asked to provide an opinion of value. The value of one business over the other can be far different even when they are similar in revenue size. Here are the key value drivers that owners should consider prior to selling their lawn maintenance/landscaping businesses:

Mix of Service Offerings

I have found that buyers will pay more for a business that provides services that are recurring in nature such as fertilization, weed control, mowing, irrigation, tree care and pest control. Businesses that primarily provide landscaping services on a project basis are not as desirable and typically require more capital equipment and labor to perform the work.

Customer Type

A business that provides recurring services to corporate campuses and government/municipalities will typically have more value than those that service primarily residential or townhome association properties. Having signed contracts in place is very important regardless of which customer type you service. Customer concentration is also an important factor and business owners should strive to keep their largest customer at no more than 10% of overall revenues.

Owner Dependency

Buyers are more comfortable in purchasing a business that has key management already in place and where the owner isn’t involved in every aspect of the business. As the owner, you want to have piece of mind that the business can operate without you and won’t miss a beat while you take that one-week (or longer) vacation.

Profitability and Owner’s Cash Flow

It goes without saying that lawn maintenance/landscaping businesses that are highly profitable and provide good cash flow to the owner are much more valuable than those that are just getting by. It is important to keep an eye on margins and to price your services correctly. Growing revenue doesn’t make a business more valuable if the bottom line and overall cash flow to the owner isn’t also growing.

Condition and Quantity of Equipment

Maintaining equipment and replacing older assets on a regular basis are also important and affect value. Buyers don’t want to purchase a business where they will need to immediately replace assets that are worn out and haven’t been well-maintained. Also, having too much equipment on the balance sheet is a waste of resources, especially if they are sitting idle for the majority of the time. Consider renting instead and keep just enough equipment on hand to adequately perform operations.

The value of a lawn maintenance/landscaping business comes down to how risky the business is to the buyer. Focusing on these key value drivers will translate to a much higher value when it comes time for the owner to exit the business.

Bob Harris
Sunbelt Business Advisors