By Kaitlyn Ersek on Jan 19, 2023 10:00:48 AM
Are you considering selling your lawn and landscape company? Are you just curious about the steps involved in selling your company, including setting a valuation?
Earlier this year, we sat down with Holganix CEO & Founder, Barrett Ersek, and Holganix National Sales Manager, Rob McCoy, to learn more about selling a lawn care company. Between both Barrett and Rob, they have sold or purchased 10 lawn care companies and consulted with dozens of others.
In this blog, we discuss the 6 factors you need to know before selling your lawn care company. Start reading the blog, or click the bookmarked links below to skip to the topic(s) that interest you the most!
- Valuation – Getting the most bang for your buck
- The deal – Terms of the deal, structure, and more
- Types of buyers – National vs local players
- Getting ready for the sale – What should you do to make sure you're ready?
- Life-cycle of the deal
- Who to consult about selling your lawn care company?
What's Your Valuation?
The valuation you set (or are given!) for your company is typically a combination of (1) top-line revenue, (2) growth rate, and (3) your cancel rate. However, there are other factors that can affect how your company is valued. These include what your pricing looks like (is your pricing in line with the market?), how many customers you have, the portion of new versus older customers (older, repeat customers are often valued greater), and how large your company is.
What can you expect to get for your company? If you want to spitball an estimate, you can use your topline revenue for a sense of what you may get on the market in terms of valuation. Note: These prices are for lawn care companies that primarily offer lawn fertilizer applications and weed control services. A lawn mowing business, for example, would be valued differently from a lawn care company offering fertilizer applications.
- Typically, if your lawn care company is below $1M in topline revenue, we see a $1 on a $1 revenue, or less, as a multiple.
- If your lawn care company topline revenue ranges between $1M-to-$3M, a $1 for a $1 revenue is achievable.
- If your lawn care company is close to or north of $5M, we often see better multiples.
Want to learn more about valuing your lawn care company? Watch the 6.5-minute video below, featuring an explanation from Barrett and Rob on valuations. If you are reading this blog via email, click here to watch the video.
When structuring the deal, there are two negotiating points: (1) the price and (2) the terms. Do you need all your funds upfront, or can you take it doled out over several years? If you don’t need funds upfront, you might get a higher price for your business. It’s also very common for a portion of your funds to be held back from being distributed to you right away, based on customer retention rates. This protects the buyer in case you are inflating the value of your customer list.
You’ll also need to distinguish what you are actually selling. In other words, are you just selling the customer list? Or are you also selling the trucks, employees, accounts receivable, and other assets?
Want to learn more about structuring the deal? Watch the 8-minute video below, featuring an explanation from Barrett and Rob. If you are reading this blog via email, click here to watch the video.
Types of Buyers
There are national players (think TruGreen) and there are several private equity groups that are currently rolling up lawn care companies. You can also look at local competitors. Sometimes, local competitors provide a more “family feel” and maybe a better cultural fit for your employees and customers.
The cultural fit is often overlooked when selling a lawn care company. You should consider how the buyer is going to help your employees grow and treat your customers right, ensuring a sustaining legacy for your company.
Want to learn more about types of buyers? Watch the 6.5-minute video below, featuring an explanation from Barrett and Rob. If you are reading this blog via email, click here to watch the video.
Getting Ready to sell
Before buyers start knocking, there are different things you can do to ensure your company is kept in a condition that is easier to sell.
- Ensure your data stays clean – Is your customer list solid? Do you have long-term, reoccurring customers? Is your customer list growing? How can you keep your cancellation rate low?
- What does your pricing look like - Is your pricing in line with the market? Or are you the cheapest person in town?
- Build repeatable, reoccurring services – The more repeatable, reoccurring services you can build into your business model, the more profitable your customer list will be. In other words, are you selling grub control as a single add-on service for one year? Or is grub control already built into your standard program as a repeatable service each year?
- A note on financials – Most buyers are sophisticated enough to know that they can value a lawn care company without looking at a P&L, but keeping your financials in order is always a plus!
Want to learn more about how to prepare for a sale? Watch the 3.5-minute video below, featuring an explanation from Barrett and Rob. If you are reading this blog via email, click here to watch the video.
Lifecycle of the deal
You’ve been approached by a buyer, so what is the next step? Here are the basic stages in the life cycle of the deal. Keep in mind that a merger may take 6 months to close!
- Getting approached by a buyer
- Receiving a verbal offer
- Providing a high-level view of metrics – You provide a high-level view on metrics including revenue, your number of customers, etc.
- A loose terms sheet is created. Keep in mind this is non-binding and very loose.
- Attorneys negotiate and a due diligence process occurs where the buyer will ask you for additional information about your company.
Want to learn more about the lifecycle of the deal? Watch the 2.5-minute video below, featuring an explanation from Barrett and Rob. If you are reading this blog via email, click here to watch the video.
Who to consult?
There are a lot of people you should consider consulting before selling your company. Your accountants and attorney are both important players, but you’ll also need to bring in any shareholders you currently have. Additionally, you will need to consult a wealth manager to create a plan for the funds after the sale closes, ensuring a good tax situation. Lastly, don’t forget to consult your peers. Fellow lawn care company owners in other markets can provide their experience with selling lawn care companies and dealing with certain buyers.
Want to learn more about who to consult when selling your lawn care company? Watch the 3-minute video below, featuring an explanation from Barrett and Rob. If you are reading this blog via email, click here to watch the video.
If you liked this blog, be sure to register for our webinar!
Did you know that you could expect 10 to 30% of your current customers to sign up for tree and shrub applications? Not to mention the fact that adding an additional revenue source to current customers means boosting your profit margin. It's like newfound money!
In this webinar, we discuss how to price out applications, what products to use, and how to market tree and shrub services to your current customers.
This webinar will be hosted by Holganix National Sales Manager, Rob McCoy.