What Is My Landscaping Company Worth?

What Is My Landscaping Company Worth?

The US landscaping services market in 2023 is valued at $150-170B. Leading market research firm, Grand View Research, has forecasted a compound annual growth rate (CAGR) of 7.3% through 2030. Landscape & Garden Maintenance and Management, the largest sector within the industry, represents 43% of industry revenues with growth in this sector being driven by consumer trends toward sustainable/’Green’ landscape and garden practices and techniques.

Another fast-growing sector, Landscape & Garden Design and Construction, is fueled by rising demand for design and construction services for both residential and commercial clients in the creation of ‘gathering spaces’ such as outdoor kitchens, fire pits, seating areas, and water elements such as ponds, streams and fountains.¹

With such favorable market conditions, many landscaping business owners are considering selling their business and retiring or buying another landscaping business to expand. In either case the most important first step is to get a valuation of the business.

Valuation Models and the ‘Multiple’

The most commonly used valuation model for small (under $25M) companies is the ‘Multiple of Seller’s Discretionary Earnings (SDE)’ model. See our blog post here to learn more about SDE. For companies in the $25-50M range the ‘Multiple of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)’ model is more typically used.

Both models start with a financial baseline - SDE or EBITDA – which is then multiplied by a risk factor, the ‘Multiple’. This risk factor is an assessment of how likely the business is to continue to thrive under new ownership.  The lower the risk, the higher the multiple and the higher the risk the lower the multiple.

Disclaimer: Industry ranges are determined by analyzing offers and sales of actual companies in the past 5 years. They are presented here for educational purposes only. Seek the guidance of a business valuation professional before engaging in a business buying or selling transaction. 

Calculating a Valuation

Let’s look to two landscaping companies with very similar finances but very different management.

• Company AAA has a Net Profit of $1.5M and an SDE of $2M
• Company ZZZ also has a Net Profit of $1.5M and an SDE of $2M
• The owner of Company AAA handles scheduling and spends most of the day out in the field directing the crews to ‘make sure things are done right’.
• The owner of Company ZZZ has an in-house handles scheduler and two experienced crew chiefs. This owner spends most of the day working on new business and company improvements.

A buyer looking at both of these businesses will see they the same financial benefit ~ but the risk factor, the Multiple, would be very different. Company ZZZ has a strong management team to handle the day-to-day while Company AAA’s owner does it all himself. In this case the buyer would assign a much smaller multiple to Company AAA.

Company AAA: SDE x Multiple = Valuation

• The buyer assigns a multiple of 2.5 to Company AAA
• $2M x 2.5 = a buyer’s valuation of $5M for Company AAA

Company ZZZ: SDE x Multiple = Valuation

• The buyer assigns a multiple of 3.5 to Company ZZZ
• $2M x 3.5 = a buyer’s valuation of $7M for Company AAA

Even though the two companies had the same annual earnings, Company ZZZ was ‘worth’ $2M more to the buyer because of their strong management team.

Can I increase My Valuation?

Yes! There are many strategies and techniques that can be put in to place in a business that will either increase earnings (raise the SDE) or reduce risk (raise the Multiple) – and the best time to start is now.

We specialize in working with our clients to significantly improve their valuation before they sell their company.

 Click here to schedule a free assessment and determine the multiple for your landscaping company and discuss several things you can do to increase it.

We hope this blog post has shed some light on the concept of the Multiple and its importance for your business exit. Until next time, happy selling!