A landscaping company’s price rests on its maintenance contracts

Landscaping companies in Canada typically sell for 3.0 to 5.5 times adjusted earnings, the home services range our valuation runs on. A company whose revenue comes mostly from renewing maintenance contracts spread across many clients lands toward the top. One that lives on design and build installs, or on one large property manager, lands toward the bottom.

Three kinds of revenue in one landscaping company

An owner who wants to sell a landscaping business in Canada starts from the Home & Property Services row of our industry multiple table, at 3.0 to 5.5 times adjusted earnings. Adjusted earnings are the profit with the owner’s own pay and personal costs added back, the figure explained in SDE or EBITDA. Landscaping shares that row with the service trades in what an HVAC business sells for.

A buyer reading your statements then splits the revenue by how it is earned, since each kind carries its own risk.

• Maintenance contracts pay for weekly mowing and seasonal cleanups at the same properties each year. They renew, and a buyer treats them as the base of the price.
• Snow and ice contracts pay for plowing and salting through the winter. Many renew each fall, and the earnings on them move with the weather.
• Design and build work, such as patios and retaining walls, is won one job at a time. It sits closer to construction, which our table prices at 2.5 to 4.0 times.

Put each kind on its own line in your books, month by month, before anyone asks. Otherwise the buyer builds the split from your invoices, and the version it builds will suit the buyer.

Equal earnings, $900,000 apart

Our valuation engine moves the 3.0 to 5.5 range by four answers about the business, each worth a fixed step. Take, as an illustration, two landscaping companies with $600,000 of adjusted earnings each, which places both in the size band our engine leaves at zero. Both are invented for the arithmetic.

The same earnings price $900,000 apart at both ends of the range. Two answers account for two thirds of the gap: the property manager who sends Company B a third of its work, and earnings that swing from year to year.

A property manager usually signs for a portfolio of buildings, and the owners of those buildings can replace it. Read each of its contracts for an assignment clause, which decides whether the contract can move to a buyer’s company in an asset sale, and for a change of control clause, which lets the client reopen the contract in a share sale. Customer concentration and the price of your business sets out both clauses, and the contract register in the commercial cleaning piece works the same way for grounds contracts.

Snow contracts carry the weather and the slip claims

Snow contracts come in two common forms. A seasonal contract pays a fixed sum for the winter, so a heavy year costs the contractor more in salt and overtime. A per visit contract pays for each plow or salt run, and a light year shrinks the revenue. Either way the earnings change from one winter to the next, and a buyer averages several winters before it relies on the figure.

Snow work also carries liability for falls on ice. In Ontario, since January 29, 2021, a person injured by snow or ice must give written notice of the claim within 60 days to the occupier or to the contractor hired to clear the premises, under section 6.1 of the Occupiers’ Liability Act. Keep every notice received and its outcome in one file.

In a share sale those claims stay with the company the buyer acquires. The buyer will read the claims file beside your liability insurance history and may ask for a holdback against open claims. It also prices the next insurance renewal into its view of the earnings, so ask your broker for an indication before going to market.

A seasonal year at the closing table

Adjusted earnings are measured over a full fiscal year, so the season sits inside them. The timing of cash is where seasonality reaches the price, through working capital: receivables and prepaid costs less what the company owes its suppliers. The purchase agreement sets a target level for it, as working capital in a business sale explains, and the price moves by any shortfall at closing.

For a landscaping company that level is low in March and climbs through spring, when crews work ahead of their invoices. A target set as a twelve month average sits above the March figure, so a closing in early spring leaves the seller short and the price comes down by the gap. Ask for a target that matches the month of closing.

Clients who prepay a season leave the company owing work after closing. A buyer counts that prepaid revenue as a debt it takes on and will ask for it to come off the price.

The fleet comes inside the earnings price

The multiple prices the company with the trucks and mowers it needs to earn its earnings, so the fleet is part of the same price.

A buyer then checks the age of each unit. Mowers and plow blades wear out in a few seasons, and a fleet past its replacement date means spending the buyer will deduct from its offer. Keep a list of every unit with its year and hours, and replace what is due a year before the sale so the cost shows in the statements.

Where the fleet would fetch more at auction than the earnings multiple gives, the equipment sets the floor, the arithmetic the trucking piece works through. A company that owns its yard can also keep the land and lease it to the buyer, covered in selling a business and keeping the real estate.

Crews who return each April

Many landscaping crews are seasonal, laid off in late fall and rehired in spring. A buyer is paying for the crew leaders who know the properties, and it checks whether they come back.

Give the buyer payroll records by name for the last three seasons, marked with who returned, and a list of crew leaders with the properties each one runs. A return rate the buyer can count from the records carries more weight than an owner’s account of a loyal team.

Where the owner quotes every job, the clients deal with the owner alone. Selling a business that depends on you sets out the plan for stepping back, and a landscaping owner usually starts by handing estimates and client visits to an operations manager. In our engine that move is worth 0.2, the step from “It would struggle immediately” to “It would cope, with some disruption”.

Pesticide licences belong to the people who passed the exam

Weed and insect control on client properties needs a licence, and the licence rests on a person as well as on the company. These are the rules in Ontario and British Columbia.

• In Ontario, O. Reg. 63/09 under the Pesticides Act sets a Landscape class of exterminator licence, issued to an individual who has completed an approved course. The business holds a separate operator licence, which expires on December 31 of the year it is issued.
• The Ontario operator must keep a licensed exterminator in charge at each location, and one licensed exterminator for every three or fewer technicians or trainees. It also carries at least $2 million of commercial general liability coverage and $1 million of pollution liability coverage per occurrence. A business registered with the WSIB and paid up is exempt from a third requirement, $1 million of employer’s liability coverage.
• An Ontario licence holder reports changes to the information it filed within 10 days, and a new set of directors after a share sale is one such change.
• In British Columbia, the Integrated Pest Management Regulation requires a pesticide user service licence for a business that manages pests of gardens and landscaping for a fee. Section 8 grants it to a company that holds, or employs a person who holds, the matching certificate.
• The BC landscape applicator certificate belongs to the person who passed the exam, and it runs for five years or for one year depending on the mark.

Where you are the only licence or certificate holder, the company’s pesticide work rests on you. Have a crew leader take the course and the exam a season before the sale, so the licence rests on someone who stays.

All of this belongs in the due diligence file, and preparing a business for sale sets out the year of work that moves the price. Buyers can range from a competitor next door to a group backed by private equity, as who buys Canadian businesses describes. In British Columbia some buyers of smaller firms arrive through the provincial nominee program, covered in selling to a BC PNP buyer.

To see where your own company sits in the 3.0 to 5.5 range today, the Quick AI valuation asks the same four questions as the table above and returns a range in a few minutes, before you give anyone your name.

The buyers, due diligence priorities and sector requirements are set out on InvestDeal’s home services M&A advisory page.

Questions owners ask

How much is my landscaping company worth?

Typically 3.0 to 5.5 times adjusted earnings, which is profit with the owner’s pay and personal costs added back. A company with $600,000 of adjusted earnings would fall between $1.8 million and $3.3 million before our engine adjusts the range for four answers about the business, with renewing maintenance contracts worth 0.3 on the multiple.

Do snow removal contracts count as recurring revenue?

A buyer counts snow contracts that renew each fall toward the recurring share, and then looks at how the earnings on them change from one winter to the next. Several winters of results let it judge that swing. In Ontario it will also read the notices of snow and ice injury claims, which must arrive within 60 days of the injury.

Does my pesticide licence pass to the buyer with the company?

The licence rests on the person who holds it. In Ontario the Landscape class exterminator licence is issued to an individual, and the business holds a separate operator licence. In British Columbia the company’s service licence rests on a certified applicator it employs. A buyer will want that person to stay, or a replacement certified before closing.

When in the year should I sell a landscaping company?

The working capital target in a purchase agreement is often an average across the year, and a landscaping company’s actual level is lowest in early spring. Ask for a target that matches the month of closing, and count any season clients have prepaid, which a buyer treats as a debt it takes on.