Q: What is quick way to get a general sales value for a residential maintenance landscape company? Is gross sales, number of clients, margin the most important component?
A: There is no "quick way" to value any business. Nor are there any bulletproof generic rules. Valuation is an art, not a science. But when all is said and done, the valuation must be based upon the total owner benefits number which includes: Pre-tax Profit + Owner Salary + Owner Perks + Interest + Depreciation less any foreseeable allocation of profit for capital expenditures. In the lawn and landscape business, they usually trade at around 1.5 times this number. But, each business is different: are the financials provable? Are there more commercial or residential accounts? Commercial accounts can bring in big dollars but they can be lost quicker than residential maintenance accounts where you perform the old "Mow, Blow & Go" routine. Are all the employees paid on the books? If not, you need to adjust the profit downwards because you should always run your business legally.
Having said all of this, if you were already in the business, and were buying out a competitor, then you could pay them on a per account basis. Industry averages on the ones that sell for a percentage of sales are usually around 40% - 60% of annual sales but I would recommend staying away from this formula. Profit, not sales are what you take to the bank!
|Get more expert advice in Richard Parker's How To Buy A Good Business At A Great Price - the most widely
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|Richard Parker is the author of: How To Buy A Good Business At A Great Price, the most widely used reference resource and strategy guide for buying a business. He has purchased ten businesses in his career and has helped thousands of prospective buyers worldwide learn how to buy the right business for sale. He is also founder and President of Diomo Corporation - The Business Buyer Resource Center.|