Do you own a lanscaping services company? Need to determine the value of your own business or prepare an appraisal for a client? Here are some interesting industry statistics to consider:
Key landscaping industry statistics
Classified under SIC code 0781 and NAICS 56173, there are over 93,680 landscaping planning, design and counseling establishments in the US alone. The industry as a whole generates $53.9B in annual revenues and employs over 596,800 people. Yet an average landscaping company is a typical small business: it produces around $575,000 in annual sales with a staff of 6.
Business valuation of landscaping companies
By far the most objective evidence of what a landscaping company is worth is recent sales of similar businesses. Business appraisers refer to this business valuation technique as the Comparative Transaction Method.
Valuation multiples derived from such business sales offer you an excellent tool to estimate your business value. Here are the typical multiples used for landscaping business appraisals:
- Multiple of gross revenues or net sales.
- Valuation multiple based on gross profit.
- Multiple of net income.
- EBIT and EBITDA based valuation multiples.
- Multiples relating your business value to its fixed or total assets.
- Business value as a multiple of owners’ equity.
Example: valuing a landscaping company using multiples
Let’s take a typical landscaping services firm with the following financial parameters:
- Annual net sales: $600,000.
- Gross profit: $410,500.
- Net income: $56,250.
- EBIT: $57,000.
- EBITDA: $59,600.
- Total business assets: $195,000.
- Book value of owners’ equity: $102,500.
We next pick a set of reasonable valuation multiples to calculate the company value as follows:
|Multiple||Multiple value||Business value|
|Price to net sales||0.55||$330,000|
|Sale price to gross profit||1.2||$492,600|
|Price to net income||8.2||$461,250|
|Business price to EBIT||9||$513,000|
|Price to EBITDA||8.6||$512,560|
|Selling price to total assets||3||$585,000|
|Price to owners equity||5.5||$563,750|
|Average Business Value||$494,023|
Asset and income methods for valuing a landscaping business
To complement your market-based valuation, consider the the well-known Multiple of Discretionary Earnings method. This income-based business valuation technique is especially suitable for valuing owner-operator managed landscaping service companies.
For a business that has excellent reputation in its marketplace, the value of business goodwill can be considerable. To appraise the value of business goodwill, consider using the Capitalized Excess Earnings method, known as the Treasury Method. Many professional business appraisals use this asset-based method to value goodwill as well as determine the total business value.