When it comes to owning a lawn care company, it is no exaggeration to say that you put your blood, sweat, and tears into your work. From dodging weather situations so you can get your work done, to dealing with a hard-to-hold-onto workforce, you need a lot of moxie and innovation to keep your business growing. At the end of the day, you might wonder what it is all worth. If you want to understand how to value a lawn care business, there are only two things you need to worry about: cash flow and multiples. If you have ever taken a moment to ask “How much is my lawn care business worth,” studying your cash flow and multiples will get you your answer.
How to value a lawn care business comes down to one simple tenet: How much money will the new owner receive from this business on day one?
This is the cash flow. There are certainly other items of importance, such as the SDE (Seller’s Discretionary Earnings), EBITDA, adjusted EBITDA, and add-backs, but the most important piece of the puzzle is cash flow. Even if you were using your lawn care business to squelch tax liabilities or for other variables, the amount of cash that flows through your business is the number one element in your lawn care business valuation.
“How much is my lawn care business worth?” is a reasonable question to ask, especially with all the hard work that goes into running your company. Valuing a lawn care company has a lot to do with the add-backs, both recurring and non-recurring.
Another way to think about it is to consider how long it will take you to pay off the purchase price of the business. Two times will take two years, four times will take four years, etc. Most often, larger businesses will have a bigger base of customers, options that are easily diversified, a larger geographic reach, and more ways to garner revenue.
These facts make them more stable and reduce the buyer’s risk. Paying higher multiples is easier in this case because the company is less volatile. The cash flow and multiples grow together.
So how much is my lawn care business worth? Simply stated, multiply the free cash flow by the multiples, and you will have your lawn care valuation. But don’t stop there.
Understand that the buyer is likely purchasing all of the equipment and inventory that comes with the trucks. They are also expecting to purchase your company debt free, so you will need to take care of all debts before the sale.
You will definitely reach an agreement for capital left in the business at closing. And don’t forget about the taxes and fees. When all is said and done, you will likely spend 25-30% of the sale on fees.
In order to ascertain the valuation of your lawn care company, you need to understand all of the variables. Only then can you move forward with a solid sales plan.
At Brentwood Growth, we have made it our business to find the best investment partners for your business sale, and clearly understand how to value lawn care business. If you want to feel secure with seller side loyalty and a company that is able to close a deal, then contact us today.