If you have built a successful lawn care business, you may have devoted some thoughts to selling it. Business owners consider sales for many reasons. Perhaps, it is time to think about retirement. Perhaps health issues for you or a family member have led you to think about selling. May be you are just tired of it and planning a new professional direction. Maybe you have been very successful and just want to take some chips off the table.
In this article, we use the term “lawn care” to refer to businesses that primarily engage in fertilization and weed control services.
Lawn care businesses sometimes (but not always) sell for prices that other business owners can only dream of. A few lawn care companies will sell for more than their annual revenue, but that is not as common as it once was. This article includes hints that will help
What does it take to get the best price for your lawn care business? Here is a run-down if some of the major factors affecting the value of a lawn care business.
Size. Larger businesses are going to draw a higher price than other businesses. There are several reasons for this phenomenon. Companies seeking to grow through acquisitions will make more progress with larger deals. The transaction costs are partly fixed, so they are lower as a percentage of a larger deal. Larger corporate-style buyers will find the customers of larger targets easier to retain than those who come from mom and pop businesses.
Location. Lawn care businesses serving desirable locations, such as thriving growing cities will draw higher prices. There are far fewer potential buyers for businesses based in rural areas.
Recurring revenue is one of the things that makes lawn care so valuable. When lawn care customers have a fixed program that they take year after year, that creates value for a buyer. It is even more valuable if services automatically renew year after year. (That may not be possible in locations where annual written agreements are required.) There are additional services which customers may take year after year. Some companies sell these services to customers during the season each year. Others may treat them as part of the annual automatically renewing services, which enhances their value to a buyer.
Pricing Structures Lawn care companies that price their services at or above market levels will likely have the best value to a buyer. Most of the lawn care businesses I have ever worked with have told me they either have typical or higher prices in their communities. Just a few positioned themselves as suoerpremium businesses or value businesses. There have been many times when a buyer ultimately came to a different conclusion – that the seller’s lawn care accounts were really priced below market rates. It may be valuable to study this situation further. One reason lawn care companies have lower than market prices is failing to raise prices periodically. They make quote new customers market rates but leave old customers at old prices. text here...
Industry Standard Programs and Products. Of course, there really aren’t industry standard programs and products, but a potential buyer has to be able to see how the offerings of a possible acquisition will fit into their service offerings. For example, a business with a ten-application program jn a market where most competitors offer a six-application program is going to be a hard sale. In some situations, companies who offer solely organic programs will be a challenge.
Reasonable Marketing Always remember that there is a good chance that one if your competitors will be the best buyer for your business. It is not wise from a long-term to base your marketing on why your competition is terrible. In addition toto creating ill will, it may make it very hard to sell your business.
Customer Density A dense customer base is usually more valuable than a spread-out one. Jt is even more valuable if a buyer services the same area and routes can be integrated producing even more efficiency.
Satisfied Customers. The main reason that a buyer will be interested in your business is to be able to acquire and retain your customers.
Good Records. There are still many lawn care companies out there who maintain customer records on route cards or, more likely, Microsoft Excel worksheets. Buyers will naturally prefer doing business with Sellers which have excellent records and excellent systems. There are many software systems that do a great job of maintaining customer records for lawn care companies. One of the most common is Service Assistant from Real Green Systems. There are many others.
A Protected Customer List. The most important thing that you have to sell as a lawn care business owner us your customer list. You should treat jt like it js a valuable asset. That means keeping it secure and only making parts if it available to employees with a “need to know.”
Noncompetition/Nondisclosure/Non-circumvention Agreements. The most valuable lawn care companies have every employee sign a noncompetition, nondisclosure or non-circumvention agreement. Employee noncompetition agreements are not always enforceable. At a minimum employees who leave should be restricted from calling on your existing customers after they leave – whether or not the business is sold. Thus will help improve the value of the customers and help prevent problems in the event of a sale.
Addressing Red Flags and Problems. Lawn care companies that have problems and red flags will sell at lower prices or not at all. Examples of these problems include sales tax issues, other unpaid or unfiled taxes, licensing issues or lawsuits. Other compliance issues that can cause problems include EEOC, OSHA, wage and hour matters, immigration, pesticides and other environmental issues. Addressing problem areas in advance is usually a good idea. While most issues can be dealt with in an acquisition, it is a big mistake to hide them and wait for a buyer to discover them in due diligence. This will destroy trust and often derail a deal.
Is your business ready to be sold? You can go through the list of value drivers and make your own judgement. It may be wise to have someone you know and trust help you do that. It isn’t always easy to evaluate your own business.
What kind of buyer is best for your business? You hear lots of stories of lawn care businesses being sold to large corporate buyers, but there are regional and local buyers out there too. There are man y factors to consider – pricing, terms, compatibility, and how a transition will affect your employees and customers. Will the buyer want your equipment. If you own a building, will the buyer want to operate from the same location?
If you are ready to consider selling your business, you may wish to speak with a business broker or M&A professional who specializes in lawn care. They can help you put your best foot forward and help you find a buyer, hopefully several, creating competition. They probably know the potential buyers for your business. They can also assist you in negotiating the best possible deal for your business, taking all factors in to consideration.
If you would like to discuss selling your lawn care business, contact The Principium Group or just give us a call at 888-229-5740.
We have worked on over 100 lawn care acquisitions within the past 15 years. We understand the market and know the buyers. We can assist you in understanding the value of your business and determining if the time is right.
If you are planning to explore selling your business in 2020, now is the time to get started.