What is a landscaping and grounds maintenance company worth?

Start by separating two kinds of revenue in a landscaping and grounds maintenance company: maintenance contracts that renew season after season, and design-build or hardscaping jobs that are one-off projects and have to be won again. A useful question for pricing the company is how much of the revenue will still be there after the owner leaves. BDC, the federal development bank, notes that a company’s fair market value is not necessarily the price it will sell for, and that the final selling price can be affected by factors such as market conditions, the buyer’s strategic interests, due diligence and the availability of financing. This guide covers what drives the number in this sub-sector and what pulls it down. It gives no figures, because none can be responsibly quoted without your books in front of a valuator. Read it as a list of questions that can move value, and use it to see where your own company is strong and where it needs work before you go to market. If you are a buyer, the same list shows where a seller’s claims about value deserve a second look, and which documents would settle them. Neither side should treat a general guide as a substitute for the actual contracts and financial statements.

The maintenance book is the asset

Start with the contracts. Ask who the customers are, how long each contract runs, when it renews, and whether it is signed at all. A property manager’s multi-year agreement is a different asset from a handshake renewal each spring, even if both produced the same revenue last year. Ask also whether the contract sits with the company or with a person. Ask too whether any residential route accounts are tied to the owner or a particular crew lead, since an account that follows a person may be harder to hand over. BDC advises sellers to address customer concentration, and says a company will not get full value if a concentration risk is left sitting there.

The fleet is both an asset and a bill

Mowers, trucks and trailers look like value on a list, but they are also a future replacement cost. BDC says a seller will not get full value if equipment is not maintained. Ask for an equipment list showing age, condition and what has been replaced recently, and work out what happens if several units reach the end of their life in the same couple of seasons. The guidelines of the Canada Small Business Financing Program, a federal loan program, list motor vehicles under equipment, so under that program the fleet is a financing question as well as a replacement schedule.

How earnings are recast

A valuator looks behind the profit figure. BDC says a valuator typically reviews financial statements, the prior-year tax return, discretionary and non-recurring expenses, management compensation and the list of employees. In a landscaping company, that means asking what the owner is paid compared with what a hired manager would cost, whether personal vehicles or equipment run through the business, and whether major repairs were expensed or capitalized. If a year included an unusual snow season or a single large installation job, ask to see several seasons rather than one. Check also how crews are engaged, since it bears on what labour really costs: the Canada Revenue Agency says an employee generally works under the direction and control of the business that hired them, while a self-employed worker is free to choose how to carry out the contract.

Why similar companies price differently

Two companies with the same revenue can differ in value, so test the mix: commercial and institutional accounts against residential routes, and maintenance against project work. Ask whether there is a second line of work outside the growing season, such as snow removal, and how evenly cash arrives through the year. A third question is regulated work. If the company applies pesticides or fertilizers, ask the provincial environment ministry whether that work needs a licence, then ask who holds the licence, whether it is current, and whether the company can keep doing that work without the owner. BDC also says owners should make sure the business does not rely on their presence to keep running.

• Ask for each maintenance contract, with its term, renewal date and the name of the customer’s decision-maker
• Split revenue into commercial, residential and project work, and into growing-season and off-season income
• Build a fleet schedule showing age, condition and a realistic replacement timeline
• List what the owner does in a week and who would do it after a sale
• Confirm which regulated work the company performs and who personally holds each licence

The method also matters. BDC describes earnings-based, market-based and asset-based approaches, and says the multiple in a market-based method varies with the industry and market conditions. A business valuator can explain which approach fits your company, and BDC says a valuator’s report can help an owner assess offers. On the buyer’s side, BDC’s acquisition loan page lists the agreed purchase price and how it was determined among the details a borrower provides, so a buyer financing through BDC will be asked how the price was reached. For a related question, see how customer concentration is judged.