Lawn Care Business Valuation & Worth

Valuation of a Lawn Care Company

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.

Understanding Cash Flow

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.

Recurring Elements of the Business

Owner’s compensation
Family members’ business compensation
Owner or family member medical insurance
Owner or family member car expenses (insurance, gas, and monthly payment)
Travel, meals and entertainment not 100% business-related
Any costs related to phones
Club dues, such as golf clubs and country club

Non-recurring Elements of the Business

REVENUE ITEMS

PPP or EIDL loans
Sale of asset

EXPENSE ITEMS

Insurance claim losses
Improvements, repairs, purchases
Incurred legal, accounting, or consulting expenses
Any other major expenses
Bad debt

Understanding Multiples

The valuation of a lawn care business is configured based on how much of the cash flow the buyer is willing to pay. The study of the multiples shows that a buyer will pay two times, four times, six times, etc. the value of the business.

First Rules of Multiples

When it comes to your lawn care business worth, size matters, and the initial range size of the adjusted cash flow depends on the variables explained below. Remember, the higher the cash flow, the higher the multiples.

Under $500k free cash flow – 2x-4x / Valuation range $500k – $2m
$500k-$1m free cash flow – 3x-5x / Valuation range $1.5m – $5m
$1m-$2.5m free cash flow – 4x-6x / Valuation range $4m – $15m
$2.5-$10m free cash flow – 6x-10x / Valuation range $15m – $100m
$10m-$25m free cash flow- 10x-20x / Valuation range $100m – $250m
$25m+ free cash flow – 25x+ / Valuation range $600m+

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.

Second Rules of Multiples

Valuation of a lawn care company includes other considerations that will impact a sale. Though they are secondary in nature, they nonetheless will influence the lawn care valuation.

New Construction (the lower the better – aim for less than 20%)
Maintenance Contracts (the more contracts the better – 20% increase is strong)
Growth of the Revenue (number grows each year- 20% increase is strong)
Reputation Management via Marketing (based on star rating and Google reviews)
Generation of Leads (sustainable and frequent lead generation desired)
Technician Crew (the more crew the better, with more than ten being advisable)
Integration of Technology for Workflow (ServiceTitan or HouseCall Pro is a plus)
Ability to Work Independently From Owner (Less owner involvement is good. If the owner can step away for a few weeks it is great. )

So, how much is my lawn care business worth?

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.

Why Work With Brentwood Growth

Access to Buyers

Over 400 private equity firms and consolidators that are actively looking to purchase.

Confidentiality

Ensure the sale of your business remains confidential to avoid disruptions for you.

Industry Expertise

More than 20 acquisitions with transactions from $80 million with an average of $4 million.

Valuation

Learn the value of your business and receive support with pricing to the market.

Negotiation

As your mediator, we work with you and the buyers to make sure both parties are satisfied.

Experience

Lead by a team with 75+ years of experience. Our experience ensures a smooth experience.