How to sell a lawn care business
Table of Contents
How much is your lawn care business worth?
I have spent the last thirty years building and selling independent lawn care businesses. It’s not something I planned, I just fell into it.
My passion was building the lawn care businesses. I loved the thrill of the chase when new quotes came in, I was a builder. However, the problem was that at some point I was full and I couldn’t build anymore. Then I became a lawn care operator and I was turning down work.
This was not where I wanted to be, so I decided to package and sell my first lawn care business back in the early 90s. Man, did I make a lot of mistakes back then? I didn’t know how to sell a business and I didn’t know anything about the sale process.
If you want to value your business and sell your business for a higher price, this article is for you.
Brief overview of the lawn care industry
After actively building and selling lawn businesses for the last few decades, I have noticed one major problem when lawn care business owners sell their businesses. Lawn care operators are in the business of mowing lawns, not selling businesses, this means that they usually have no idea how much their business is worth how to go about the selling process, or how the business exit is planned.
It is usually the first lawn care business they have sold and the first lawn business that the buyer has bought. This is pretty much, the blind leading the blind.
The price is pulled out of thin air and the takeover is handled badly. The drop-off rate for the purchaser is high and they are not entirely happy with the transaction.
The first deal I did was not good, a lot of mistakes were made on both ends. The second sale was a bit better and by the time I got to sale number ten, I had it down to a fine art.
This is what I want to tell you about so you can skip the mistakes and get it right when selling your lawn care business.
Importance of understanding the value of a business
When you go to sell your business you need to have an idea of the actual value of your business. I once knew a guy who just plucked a figure out of the air, overvaluing his business value by a lot because he had no idea of the value. The market was hot at the time and his business was the only one in an area. Someone else without a clue actually bought the business. When I was talking to the buyer a few months later he told me he felt like he had been ripped off.
This might not be a concern if you just don’t care and are exiting the industry but we were selling lawns every year without signing a restaurant of trade. We were using our old buyers are references so we could charge above market value for our businesses. You can’t use someone as a reference if they feel the deal didn’t go well for them.
How to determine the value of a lawn care business
When you ask lawn care business owners how they come up with a business valuation, you will get several different methods and formulas. However, if you ask how many lawn mowing businesses they have sold, ninety percent will say none.
Some of the formulas I have heard is
- Ten-times the cut value
- Seven times the lawn price.
- One year’s income (I’ve never seen anyone pull that one off
- Comparing similar businesses that are on the market. Do remember to pay attention to businesses that are actually selling. Not pie-in-the-sky valued businesses that have been listed for months.
I think a good place to start with the goodwill element is 12 weeks’ worth of turnover. This is a standard price that most service businesses use to gauge the value of goodwill. However, this is just the beginning.
Factors to consider when valuing a lawn care business
Now we are going to talk about the variables that will also affect the sale price.
Revenue and profit
Are the jobs well-priced? If your pricing is below the market average then this is going to be reflected in the sale price when you sell the business. This will be looked at closely during the due diligence phase of the sale.
Customer base and recurring contracts
Are all your customers booked for a fixed cycle? Weekly or biweekly is the best for cash flow. If you have a lot of on-demand customers then this will also reduce the value of your goodwill.
The geographic area that you cover.
Put simply the smaller area your lawn care business covers, the better it is to sell. Less travel usually amounts to higher profits. If you have some jobs that are 15 minutes or more in travel distance from your base then they will make your business less desirable.
The time of year.
As they say, it’s easier to sell a boat in the summer, well It’s the same for lawn care companies. In spring everyone wants to be out there mowing lawns and in the winter nobody is thinking of buying lawns. I found that the right time to sell for me was a few weeks before spring hit. They would normally sell in a few weeks and I always got a better price in spring.
Market forces.
- How many lawn care businesses are up for sale?
- What are they selling for?
- Are there many lawn care businesses in your area?
If there are lots of businesses to choose from then it will be harder to find someone to buy your business. On the other side, if you are the only business on the market in your area then it may increase the value.
When looking at businesses for sale around you, don’t pay much attention to greenfield franchises (startups without lawns). Franchises sometimes run those ads for years and they will not divert buyers from an existing business with clients on their books.
I find that independent lawn care businesses sell on average around four times quicker than franchised businesses. Most people like their lawn businesses without any strings attached.
Reputation and brand value
This is a bit harder to put a value on. A lot of the time someone will just buy the clients and use their own business name. Having said that, sometimes the name is worth something and comes into the goodwill valuation.
When I am looking at a brand name, there are a few things that will affect the value.
- Is the business getting a lot of calls without advertising? (organically)
- Is the website ranking well?
- How strong is their “Google My Business” listing
- Does the business have a good reputation? Plenty of five-star reviews.
- Does the business name rank as a keyword on Google? Think of people searching for the term Xerox instead of photocopier and you will get the idea.
If your business ticks a lot of these boxes, this will increase the value of your goodwill. A good starting point for coming up with some ideas of what your brand is worth would be the amount it would cost you to bring in those leads if it was paid advertising.
As another example, our business “Gecko Lawns” ranks in the top ten searches for lawn care in our town of 185000 people. We get ten to twenty calls a week without advertising. If it was a paid lead would cost around $20, so $200-$400 x 52 would be a good place to start for the brand.
How many buyers do you have?
If you have two buyers interested then you may be able to sell for more. When I have had this happen in the past, I have opened it up to bidding via email. When you have a couple of people bidding then the value of your business goes up.
Equipment and assets
Finally, there is your equipment. What kind of condition is it in? Is it rough and ready or has it been serviced and is in good condition?
There are a couple of ways you could go about valuing your gear.
- Take all your equipment, work out the price to buy it all new, then half the price.
- Go through secondhand sites like eBay and see what people are selling the same equipment for. This takes longer but the value is more realistic.
Steps to sell a lawn care business
Now that you have figured out the value of the business you are ready to sell. The next step is to find a buyer for your business. How do you do that? Let’s learn how to sell the business.
Preparing the business for sale
Get your ducks in a row with the business, tie up loose ends, and if you have any jobs that you are on the fence about. Decide what you are going to do with them.
Organizing financial records
Now you need to get your financial records in order. This can be a real killer if you have been doing a lot of work for cash. This is not going to look good. Your potential buyer is going to see that cash the same way a bank will. It’s imaginary money. You cannot prove that you made it, therefore you cannot include it in your turnover figures.
If you do not use an accountant and cannot produce books, don’t worry too much. If you can supply three months of bank statements, and the last couple of tax returns for the business then that should do the trick. The are a couple of things to consider if you go down that road.
- You may get less than you would with a full set of books.
- If the buyer is going for finance, then that may not be what the bank wants.
Customer contracts and relationships
I normally wait until I have found a buyer before I tell the customers. If you tell the customers that you want to sell before finding a buyer, they may decide to find someone new themselves.
Through trial and error, I have found the best method is to find a buyer, and then contact the customers. Tell them the bad news, you are moving on. Then give them a few seconds to think about all the work involved in finding someone new. Now step in and solve the problem. Say something like, However, I do have someone that I know who is prepared to take over and do the same job for the same price. Ninety-nine percent of the time they will be happy to go with your recommendation.
Problem solved all around.
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Finding the right buyer
Many business owners don’t even consider this but I found out early that you need to qualify your buyers, just the same way that you would qualify an incoming lawn care lead.
When I first started selling lawn care business, I would sell to anyone. This is not a good idea. I sold one of my first businesses to a guy that I found a little bit abrasive. I was not 100% happy with him, but hey, I would only have to put up with him for a little while. I should have thought more about my customers.
I had my first inkling that something was wrong when I was showing him a customer’s lawn. I knocked on the door and when the customer answered I went to do the introductions but my buyer had disappeared. The customer and I walked out that back looking for him. We found him having a piss behind the garage. I kid you not.
I unwisely pushed on with the sale. Three months later he rang me wanting a refund because he lost half the lawns. He lost them because he was rude to the customers and didn’t turn up on time. I know because some of the customers contacted me. I offered to buy back the lawns that he had left. He refused and took me to court. He lost and I learned a lesson. Choose your buyers wisely. Your business may take longer to sell but it will be worth it.
Marketing the business for sale
I find that advertising online works well for marketing your business. There are a lot of different places you can go to list your business. Some of the largest players in this field are BizBuySell and LoopNet. A couple of good free methods are Craigslist or a Facebook group. I have a Facebook group myself and I know that there have been a few business sales through that group.
Another good method is to put up a small sign at your local mower dealer or even the local green dump.
Using a business broker or advisor
A broker can be a good idea if you have a larger business. They will negotiate on your behalf which will make things easier. When we had a lawn business with 450 lawns and five vehicles, we initially listed it with a broker. We originally were going to sell the whole lot as a going concern. However, there were not a lot of buyers. The broker found two in a couple of months and they both fell through.
We then decided to handle the sale ourselves and we broke the business down into four smaller rounds of 80 lawns each. We kept the rest and we still have them today. I managed to do four deals back-to-back and get the best price for each round.
My thoughts these days are that the broker model works best for businesses that are larger. Using a business brokerage is a slow and steady method. It can take months to sell a business. However, it usually costs nothing until the deal is done.
Picking the right buyer.
Do not just sell to the first person that comes along unless you have no choice. If you do, you run the risk of ending up in court, like I did. I still sell lawn care businesses today for other contractors and this is what I am looking for in a good buyer.
- Easy-going and likable – If you don’t like the buyer, the chances are that your customers won’t either.
- Reliable – The buyer returns phone calls and does what they say they will.
- Has the funds – I will always deal with a cash buyer ahead of someone who needs finance. That is just adding another step where things can go wrong in the process.
If someone ticks all these boxes then you have found the best buyer for your business.
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Get the buyer to put some skin in the game.
Another mistake that a lot of sellers make is that they put everything on hold as soon as they find someone who says that they want to buy the business. They tell new callers that they have sold the business to another person so it is no longer available. This is a bad idea.
If the original buyer pulls out, you have just lost all the possible buyers they called in the meantime. There are a couple of rules here that guard against this happening.
Rule 1. If the buyer says they want the business, then I need a deposit immediately. I will not put the sale of the business on hold until I see a payment.
Rule 2. Even then I do not stop taking names and numbers. I simply tell the callers that I have a buyer who is waiting on finance and I will get hold of them if the finance falls over. This sounds a bit better if the buyer backs out and you need to contact them.
Legal and financial considerations
The best policy when it comes to selling a business and talking to potential buyers. If you intend to continue trading, be honest with the buyer. In your agreement, you can say something like “I agree not to approach or accept any work from any customers that as on the sell list”. I even had a one-month lawn replacement policy (excluding unreliability or bad workmanship). You may not want to go that far but it does make the buyer feel a lot better about you continuing to trade.
Conclusion
So hopefully now, if you are thinking about selling your business, you have a better idea of how to go about the process. You also should have a good idea of a purchase price that represents a fair market value. You may even have some ideas on how you could sell it for a higher price.
If you need more help, you can always reach out to me for a one-on-one consultation or you could learn more through my course which is designed for buyers and sellers.
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