By - Jeremiah Grant
Last Updated - January 12th, 2024 8:27 AM
Jan 12
With over $170 billion in market size, landscaping businesses are the true hidden giants. So much so that they account for 633,481 registered companies and employ over 1.2 million people.
As such, big ticket sales and mergers are the usual order of business in the industry.
In fact, from business owners looking to simply cash in and retire to startup founders looking for the next big idea, there’s an array of entrepreneurs wanting to sell.
But if there’s one common question that they all have on the back of their minds, it is, ‘How to value a landscaping business for sale?’
You see when it comes to selling a landscape business, it is essential that you know its accurate worth. After all, this small piece of information will ensure you get a fair deal.
And that’s exactly why I’ve compiled each of the valuation methods and their multiples that you can use to find the value of your business. Also, I’ve included value calculation examples along with tips from my own business appraisal services for a reasonable valuation.
So read on and find out what your landscaping company is worth.
What is involved in a landscaping business valuation?
If you’re someone who is either considering a sale or has already put your company up for sale, you’d find yourself asking, ‘What is a landscaping company valuation all about?’
So, before we get into the practical valuation aspects, let’s first understand what’s involved in valuing landscaping companies.
For starters, the methods and formulas for calculating the value of your landscape company are the same as for any business. For instance, the EBITDA method will include the same formula as it does for any other business or industry.
However, your business’s unique features, such as location, size, years of operation, number of employees, etc., will all influence the valuation multiples. And this, in turn, will have an impact on the total value of your company.
Meaning these are essential variables that personalize the valuation process of your business and help determine a price tag for sale.
Whether you’re expanding, investing, or gearing for sale, gain insights tailored just for your industry with our expertise in landscaping business valuations.
And most of the business owners asking this question are those who want to sell their company for a profit.
So, to find the value of your company, you can follow three industry-accepted methods, namely:
Earnings multiples – Relies on present-day earnings and future earning potential.
Net asset valuation – Calculates the value of all assets minus liabilities.
Market value – Compares with identical businesses that have recently sold.
Now, depending on the method you choose and the multiples used therein, you can get a completely different value.
For instance, EBITDA and SDE are popular earnings multiples. And although both focus on your business’s earnings, the total value you derive will be different for each multiple.
Similarly, the total value of your business as per net asset and market valuation will be different, too.
But rest assured, all the valuation numbers are legitimate and widely accepted for buy-sell deals.
Wondering what’s more to these methods?
Let’s see what is included in these valuation methods and how you can use them to value your landscape company for sale.
1. Earnings multiples for landscaping business valuation
The earnings multiples method, also known as income-based valuation, looks at the present-day earnings and future income potential to determine the worth of your business.
This is a popular method among landscape businesses, especially those that are profitable or carry high profitability. That’s because the method focuses on real-time earnings for calculating the total value, an attractive feature for those buying a landscaping business.
You see, the net profit data that income or earning methods rely on is something prospective buyers find valuable. After all, it allows them to calculate how much they can earn out of a business.
Now, there are three ways to calculate the total worth of a lawn care company for sale using this method, namely:
EBITDA multiples
SDE multiples
Revenue multiples
So, let’s understand what these multiples are and how they calculate your business’s value.
A. EBITDA multiples for landscape business
EBITDA, or earnings before interest, taxes, depreciation, and amortization formula, is commonly used for valuing medium to large-sized enterprises. And it does so by factoring in the total sum of net income plus the cost of taxes, depreciation, interests, and amortization.
Herein, valuators use similar financial benchmarks for a comparable evaluation of similar landscaping companies.
Talking about EBITDA multiples, they’re valuation ratios that are used to calculate the total ROI of a landscape business. These multiples are multiplied by the total cash flow of a lawn care company for sale to derive its total saleable value.
How to value a lawn care business for sale using EBITDA multiples?
Evaluating a landscape business for sale using the EBITDA multiples is quite straightforward; all you need is accurate EBITDA data and the right multiple. Once you have this information, you can simply multiply the EBITDA with the multiple to know the total worth of your company.
For instance, the latest industry figures put EBITDA multiples for average landscape companies between 3.6x and 4x. So, you can pick any multiple between 3.6 and 4.
Now, if the EBITDA of your company is $633,000, I’ll take 3.75 as your multiple and multiply it with the EBITDA. This will give us a total valuation of $2,373,750 for your landscaping business.
There’s a reason why EBITDA multiples are so popular, and that is its simplicity + accuracy. Talking about advantages, these multiples are beneficial for both evaluators and buyers because:
For business valuators, the normalized ratio for comparing similar entities creates a standardized and widely acceptable methodology.
For buyers and investors, it offers clear data on a company’s financial performance by discounting the cost of taxes, debts, etc. And this, in turn, puts sellers like you in an advantageous position for a quick and favorable sale deal.
B. SDE multiples for landscape business
SDE or seller’s discretionary earnings, in simple terms, are the total revenue or cash flow that you generate out of your landscape business. It takes into account your business’s profits before taxes as well as its interest before your personal expenses, investments, benefits, etc.
Like EBITDA, SDE also uses valuation metrics that provide potential buyers with a clear idea of expected ROI.
SDE multiple, at the same time, is a number that is derived by analyzing market averages of similar businesses along with their unique elements. This multiple is multiplied by the SDE to know the total sale value of your landscape business.
How to value a landscaping business using SDE multiples?
Calculating the total worth of your tree trimming business for sale using SDE multiple is simple.
However, you’ll first need to know your SDE and the right valuation multiple. Thereafter, you can simply multiply the two numbers and get a dollar value for your company.
Wondering how much you can sell your lawn care business for using SDE multiples?
Well, as per market statistics, SDE multiples for landscaping companies range between 2.7x and 3.2x. Meaning you can take a multiple between this average.
For instance, if the SIDE of your landscape business is $711,000, I’ll take 3.1x as the valuation multiple. I’ll then multiply your SDE by 3.1, which will give us a market value of $2,204,100.
SDE x Multiple = Business Value
$711,000 x 3.1x = $2,204,100
What are the advantages of SDE multiples?
SDE multiples are beneficial for those companies that have been in the business for a long time and are consistently generating profits.
For instance, if your landscape business has been operating profitably for the last ten years, I suggest you go for this multiple. That’s because the older your business and the larger your profit, the higher the SDE multiple you’re going to get.
C. Revenue multiples for lawn care business
Lastly, revenue multiples are also an option that you can opt for when valuing your landscaping company. And although I suggest entrepreneurs not to use these multiples, you might still need them in some situations.
As the name suggests, revenue multiples evaluate the total worth of your company relative to the revenue it creates. Herein, you’d multiply the total revenue by an applicable revenue multiple to find the total value of your business.
How to value a landscaping business for sale using Revenue multiples?
Like all multiples in the earnings method, you need to determine the right multiple and multiply it with the revenue of your firm. This will give you the total business value.
For instance, the revenue multiples for landscape businesses range between 0.65x and 0.9x. So, if the revenue of your company is $1,800,000, I’ll take 0.85x as the valuation multiple. This will give us a total value of $1,530,000.
Revenue x multiple = Business Value
$1,800,000 x 0.85x = $1,530,000
Is there any advantage of revenue multiple?
No, there is no benefit of using the revenue multiple unless your company is incurring heavy losses, and there’s no other viable valuation method left.
You see, revenue multiples are often termed as an example of how not to value a landscaping business for sale. And rightly so, as the total value that you get is much lower even if you use the highest multiple.
In fact, even if your landscaping company is making a loss, you can still resort to other methods, such as net asset valuation. That’s because a business like yours is likely to have a lot of assets, which can put you in a comfortable position during a sale.
Net asset validation is yet another method popular among lawn care companies. And contrary to earnings multiples, this method doesn’t go into the revenue of your business at all.
Instead, net asset valuation looks at the fair market value of all the assets and liabilities of your company.
Now, if you’re wondering ‘how much can I sell my lawn care business for,’ net asset valuation can provide you with a precise dollar value; here’s how:
First, a business appraiser like myself will calculate the value of all the tangible and intangible assets of your company. This includes office property, vehicles, lawn care equipment, cash, work contracts, licenses, company website, etc., to name a few.
Thereafter, I’ll subtract the total value of the liabilities, such as loans, from that of the assets. This will give us a fair market value of your business, something you can reasonably quote potential buyers.
What are the advantages of net asset valuation?
As with any business, your landscaping company can also have its period of downturns. In fact, this could be one reason why you want to cash in.
Now, one advantage that landscape companies have over other service sector businesses is the large number of assets that they own.
Meaning that even if your company is not profitable at the moment, you can still use the assets to achieve a high valuation. And this is one of the reasons why I always suggest loss-making entrepreneurs in the landscaping industry opt for asset valuation.
Note: The fact that this method doesn’t factor in the ROI or growth potential of a company makes it less lucrative for investors. So, if your business is profit-making, I suggest you stick to earnings multiples like EBITDA and SDE.
Whether you’re expanding, investing, or gearing for sale, gain insights tailored just for your industry with our expertise in landscaping business valuations.
Lastly, the market method offers one of the most widely accepted solutions to your main question, i.e., ‘How to value a landscaping business for sale?’
You see, this method neither looks at your company’s finances nor does it calculate its total assets. Instead, it evaluates your company’s position on the market against other similar businesses that have been sold recently.
This is a reliable method for both you as the seller and the potential buyers of your company. That’s because the recent business sales value provides the most contemporary figures, which in turn ensures a just compensation to business owners.
What are the advantages of the market value method?
Market value method is considered to be the standard approach as it ensures both sellers and buyers can find a common ground in sale negotiations.
For landscaping businesses, in particular, it also means there’s plenty of contemporary data, given the exceptionally large number of companies that are frequently bought and sold.
Not to mention that it’s also easier to find comparable businesses since there are companies of just about every size.
Note: To derive the most precise dollar value using the market method, I suggest you evaluate at least 8-10 comparable companies that have recently sold. You can easily find comparable landscaping companies on BizComps, among other platforms.
When it comes to valuing a landscape business for sale, there isn’t a uniform approach. And that’s exactly why I suggest sellers settle for a method that not only gives them a desirable value but is also widely acceptable.
For instance, EBITDA multiples are considered the gold standard in the earnings method. So, if your company is profitable, you should definitely go for EBITDA when looking to sell out.
Similarly, market value is also a reliable method, thanks to the large number of landscaping companies that operate in the country.
Not sure how to value a landscaping business for sale or wondering how to sell a landscaping business quickly?
You can get in touch with us! At Arrowfish Consulting, we’re a team of highly seasoned business valuators with wide experience working with landscape companies. Give us a call, schedule a free consultation, and learn how to sell your business for a profit.
Jeremiah Grant
Jeremiah Grant is the Managing Partner of Arrowfish Consulting. In addition to acting as a primary liaison for many of the firm’s engagements, He primarily focuses on business valuation and economic damages expert witness assignments, in addition to forensic accounting and insurance claims analysis.
Discover how to value a travel agency valuation accurately. Learn key factors, methods, and expert tips to determine your agency's worth in today's market.
Getting the right valuation for your agency is key for you to make a successful exit, if you ever need to. To find a property’s true value, you need to look at things like net operating income (NOI) and the capitalization rate. This guide will cover the basics of real estate agency valuation. It will […]
