How to Value a Landscaping Company
Landscaping companies provide a variety of landscape care and maintenance services. This can include planting trees and various plants, and constructing walls, decks, fences, and walkways. The landscaping industry has thrived over the past several years. According to IBIS World, this industry generates over $35 billion in revenue annually. We can expect conditions to continue to grow as residential construction increases. This is ideal if you are buying, growing, or selling a landscaping business. However, this industry is extremely fragmented and competitive. To succeed, landscaping companies need to understand how to increase the value of their business. You can start by learning how to value a landscaping company.
The best way to learn how to value a landscaping company is to receive a business valuation. As part of a business valuation, valuation analysts assess the risks and opportunities of a landscaping business. They will also determine the fair market value of a landscaping business. This information can help you take the next steps in maximizing the value of a landscaping business.
Peak Business Valuation is a professional business appraiser. At Peak, we value many landscaping companies throughout the country. We are happy to provide you with a business valuation for a landscaping company. In addition, Peak is happy to discuss any inquiries on how to value a landscaping company. Schedule a free consultation with Peak Business Valuation below to get started!
How to Value a Landscaping Company
When deciding how to value a landscaping company, business appraisers consider various valuation approaches. Two common methods are the market approach and the income approach. These methods are both effective, however, each uses a different basis of valuation. The business appraiser will determine the best approach during a business valuation for a landscaping business. This often includes using a combination of valuation approaches.
Valuing a Landscaping Company Using the Market Approach
The market approach is a common method to determine the value of a landscaping company. This valuation approach is similar to how a real estate appraiser values a house. Real estate appraisers compare similar homes that recently sold in the area to determine an accurate value. When using the market approach, business appraisers compare similar businesses that recently sold on the open market. If the landscaping company is private, the analyst gathers data from private transaction databases.
Multiples for a Landscaping Company
When using the market approach, business appraisers work with valuation multiples. Valuation multiples are values that reflect a landscaping business’s value based on metrics such as cash flow, revenue, or earnings. To find the appropriate valuation multiples for a landscaping company, experts apply the proper NAICS or SIC code. Below, we highlight SDE, EBITDA, and REV multiples for a landscaping company.
SDE (Seller’s Discretionary Earnings) Multiple for a Landscaping Company
- SDE multiples are common when valuing a landscaping company. This multiple assesses the value of a landscaping company in relation to its seller’s discretionary earnings.
EBITDA Multiples for a Landscaping Company
- EBITDA multiples reflect a landscaping company’s earnings before interest, taxes, depreciation, and amortization. This helps business appraisers understand the return on investment (ROI) a landscaping company can expect.
REVENUE or SALES Multiples for a Landscaping Company
- The REVENUE or SALES multiple measures value based on the total amount of revenue or sales a landscaping company generates.
To learn more about how to value a landscaping company using the market approach, see Valuation Multiples for a Landscaping Company.
Valuing a Landscaping Company Using the Income Approach
The income approach determines the value of a landscaping company based on its future income potential. In addition, this valuation method considers the risks associated with buying or selling a landscaping company. We highlight a few common risks below.
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- Location. It is vital to consider the location of a landscaping company. With a prime location near key markets, landscaping companies can maximize revenue and profitability.
- Financial Planning. Landscaping companies may invest heavily in supplies, machinery, transportation, and tools. To be profitable, it is important for landscaping companies to have good financial planning and budgeting skills.
- Machinery and Equipment. To provide quality landscaping services, landscaping companies use a variety of machinery and equipment. It is vital to ensure that your landscaping equipment is reliable and of high quality. Peak provides machinery and equipment appraisals for landscaping companies.
- Competition. The landscaping industry is extremely fragmented and competitive. As such, landscaping companies need to differentiate from competitors to succeed.
Methods to Value a Landscaping Company Using the Income Approach
Under the income approach, there are two common methods for valuing a landscaping company. The first is the capitalization of cash flow method. The second is the discounted cash flow method. Both of these income approaches assess the future cash flow potential of a landscaping company. Below, we discuss how to value a landscaping company using the capitalization of cash flow method and the discounted cash flow method.
Capitalization of Cash Flow Method
- Generally, the capitalization of cash flow method is ideal for landscaping companies with stable histories. To use this method, business appraisers determine an appropriate amount of cash flow for one period. The valuation expert then applies a capitalization rate to the cash flow. This helps determine a reasonable rate of return an investor can expect. Additionally, the capitalization of cash flow method assesses the risks associated with a landscaping company.
Discounted Cash Flow Method
- The discounted cash flow method is best for landscaping companies with strong financial histories and reliable forecasts. When using the discounted cash flow method, business appraisers project future cash flows over a 3-5 year period. Then, they apply a discount rate instead of a capitalization rate. The discount rate measures the cash flows by taking the time value of money into consideration. Keep in mind, this method is less reliable since it uses future cash flow estimates which can be inaccurate.
Summary
Business appraisers consider several business valuation approaches when valuing a landscaping company. The valuation method they use depends on various factors. This can include the size of the business, the business transaction, and the type of business. To learn which method is most applicable to your landscaping company, receive a business valuation. During a business valuation, a valuation analyst assesses the strengths and weaknesses of a landscaping company you are buying or selling. In addition, they will calculate the value of a landscaping company.
Peak Business Valuation, business appraiser, works with landscaping companies on a regular basis. We are happy to provide you with a business valuation for a landscaping company. Additionally, Peak can answer any questions you may have on how to value a landscaping company. Start today by scheduling a free consultation with Peak Business Valuation, business appraiser, today!
For mor information see also Valuing a Landscaping Company, Value Drivers for a Landscaping Company, and Valuation Multiples for a Landscaping Company.
