What is a tree care and arborist company worth?

Check whether a tree care company sells two different kinds of work under one name. Homeowner removals and pruning may be booked one job at a time, while a utility or municipal agreement, where a company holds one, may run for a set term. Ask a valuator how the mix of the two, the people who can climb, the machines that do the cutting and any storm work affect the number. Nothing here is a valuation or a figure for your company. It describes what moves a number, so you know what to ask a valuator.

Repeating contracts against one-off jobs

The first thing to separate is revenue that repeats from revenue that has to be won again. Ask a valuator whether a multi-year utility or municipal agreement is treated differently from a year of homeowner removals, even when both produced the same dollars. Ask for each contract’s start date, its end date, how it was awarded and what the company must do to keep it. Then look at how much of the year’s revenue came from jobs that began with a phone call from someone new. Ask a valuator how a business whose work has to be won again each season is treated. Also ask which customers have been with the company longest and whether any single customer, including a utility or a municipality, accounts for a large share of revenue. Ask the seller to explain that concentration up front, and check how the contract is renewed.

Credentials and who holds them

Ask who is qualified to do the high-risk work and whether those people will still be there after closing. If climbing, rigging and aerial work all depend on the owner, ask a valuator how that affects what the company is worth to a buyer. Ask which certifications each crew member holds, which ones belong to the individual rather than the company, and what the plan is if the lead arborist leaves. Ask too about training records, and what time and cost a buyer would face to certify a new crew.

Trucks, chippers and what they will cost next

Equipment is both an asset and a replacement cost that is coming. Ask a valuator how a fleet of bucket trucks, chippers and stump grinders nearing replacement all at once is treated, since the buyer would inherit the spending. Ask for an age and condition list, the maintenance records and any replacement the owner has been putting off. The federal Canada Small Business Financing Program guidelines list motor vehicles among the equipment items a term loan may finance. The Canada Revenue Agency says that, depending on your situation, you may have a recapture or a terminal loss of capital cost allowance on the sale of your assets, so ask an accountant how the sale’s structure affects the seller’s tax.

Storm work is income that may not repeat

If the company took on emergency storm jobs, one year’s revenue may look different from the next. Ask a valuator how storm work is separated from normal earnings. Bring several years of statements and mark the storm jobs, and check what a typical year looks like without emergency calls. Be ready to explain every unusual year.

How a valuator turns this into a number

The Business Development Bank of Canada (BDC) says a valuator chooses a method, or a combination, depending on the type of business and the information available. Market-based methods apply a multiple of a metric such as earnings before interest, taxes, depreciation and amortization, and BDC says the multiple varies greatly with the industry and market conditions. Asset-based methods determine the value of assets minus liabilities. BDC also says fair market value is not necessarily the price a business sells for, and that the final price can be affected by market conditions, the buyer’s strategic interests, due diligence, availability of financing and the seller’s eagerness to sell. BDC lists the agreed purchase price and how it was determined among the things a buyer needs to have to apply for its purchase loan, so keep the reasoning behind your number.

• Split revenue into contract work, repeat customers and new one-off jobs, year by year.
• List every certification by person, and mark which would leave if that person left.
• Build an equipment schedule with age, condition and the next replacement.
• Mark storm years separately so normal earnings are visible.
• Ask a business valuator which method fits your mix before you set expectations.