How Much Is a Landscaping Business Worth?

What makes a landscaping business hard to value?

Landscaping covers businesses that look alike from the street and earn quite differently. A garden maintenance round with hundreds of regular customers and a design and construct firm that builds a handful of large gardens a year may both call themselves landscapers, but they carry different risks, need different working capital and keep their customers in different ways.

Most landscaping businesses are a mix, and the mix drives the valuation. This guide covers the questions we work through, with illustrative figures. The wider list of factors is on our page on landscaping business valuations.

Is maintenance income worth more than design and construct income?

Usually, provided the maintenance income really is recurring, because a dollar of profit that repeats is worth more than one that has to be won again. Garden maintenance, lawn care and grounds work are booked as rounds or contracts, and customers tend to stay unless something goes wrong. The business does not have to win the work again each year.

Design and construct work is won project by project. A design fee brings the client in, construction delivers most of the revenue, and every job has to be priced, scheduled and finished at a margin that holds. Profit depends on the pipeline, on estimating accuracy and on weather and supply delays.

A residential maintenance round is made of many small customers. That spreads the risk, but it makes the value depend on how many of them stay. We look at customer counts, average revenue per customer, how many left in each of the last three years and how the business replaced them.

Neither stream is bad, but they need to be separated. We ask for revenue and margin by stream over several years, the number of maintenance customers and how long they have stayed, and the share of construction work that comes from repeat clients and referrals rather than new enquiries. Our guide to recurring maintenance contracts and business value sets out how recurring revenue is read.

How secure are strata and commercial contracts?

Their security depends on the terms. Strata schemes, property managers and commercial sites are attractive customers because they pay on terms, need regular service and often hold more than one site. But contracts are commonly reviewed by committees or managing agents, sometimes against competing quotes, and the relationship may sit with one person at the agent.

We read the contracts: term and renewal history, scope and pricing basis, termination rights, any provision that lets the customer end the contract on a change of ownership, and the size of the largest accounts. A business where one managing agent controls a large share of revenue has a concentration risk that the profit and loss statement does not show. Council and government work is often tendered, so we also look at when those contracts expire and how the business has fared in past tenders.

How do you read a single year in a seasonal business?

You avoid doing so where you can. Construction work often peaks in spring and early summer and slows in winter and in wet periods, while maintenance may be steadier or may follow growth cycles, depending on region and service mix. The financial year end can also catch or miss a large job by a matter of days.

So we look at three years or more and, where the records allow, at monthly revenue and gross margin. The table shows why. The figures are illustrative.

A valuer would not simply adopt the $255,000 average. We would ask why the second year was so much stronger: one project with an unusually good margin, a cleared backlog, or a change in the business? Maintenance revenue grew in each year, from $780,000 to $905,000, which points to a steadier base. The design and construct stream moved around far more, and that is where most of the uncertainty about maintainable earnings lies.

We also check the timing of jobs around each year end. A project finished in July rather than June can move revenue and profit into the next year without changing the true trend.

Seasonality affects the balance sheet as well as the profit and loss. A business that buys materials and carries plant ahead of the spring peak, then bills in stages, needs funding at particular times of year. We look at working capital at more than one date, not only at the year end.

Why does crew utilisation matter?

Because labour is the biggest cost and the crew is the product. Utilisation is the share of paid crew hours that earn revenue. The rest goes on travel between sites, loading, tip runs, waiting for materials, rework and weather. Two businesses with the same prices can earn very different profits because one fills more of its paid hours.

In the illustration, a crew of three is paid for 5,000 hours a year in total, and each chargeable hour brings in $85 on average. The crew costs $245,000 a year in wages and on-costs. Materials and other direct costs are left out to keep the example simple.

A 15 percentage point gap in utilisation changes the margin on one crew by $63,750 a year. A business running four crews at the lower level would earn $255,000 a year more at the higher one. That is why we ask for timesheets, job costing and route data, and why a buyer will test utilisation closely. It also shows how much of a landscaping profit depends on scheduling and supervision, which are often held by the owner.

Route density belongs to the same story. A maintenance round whose customers sit close together loses fewer hours to driving, and a business spread across a wide area from one depot loses more. We look at the suburbs served and the typical drive between jobs.

How are plant, vehicles and their finance treated?

Trucks, trailers, mowers, skid steers, mini excavators and attachments are needed to earn the profit, so under an earnings approach they are part of the value of the business rather than an addition to it. Surplus items the business does not use are added separately. Our guide on whether equipment adds to business value explains the distinction.

Finance matters in two ways. Finance owing on plant is deducted when moving from the value of the business to the value of the owner’s equity. And hire purchase and lease payments reach the accounts as interest and depreciation, not as the cash that leaves each month, so we look at what it actually costs to keep the fleet current.

We ask for a plant schedule showing age, condition, market value and finance owing. A fleet that is old and fully depreciated can make profit look better than it will be once machines are replaced. Private use of vehicles is a normalisation matter and is separated out.

What does a buyer look at beyond the numbers?

In a design-led business, the designer. If clients come back to a named person rather than to the business, the relationship may leave with that person. We look at who holds the client relationships, whether there are other designers or project managers, and whether the brand, website and referral sources belong to the business. The wider question is covered in valuing a business with heavy owner dependency.

We also look at the people who run the crews. Foremen and leading hands who have stayed, and who can quote and supervise without the owner, make the earnings easier to transfer. Where particular work needs a licence or certificate, such as chemical application, machinery operation or structural elements, the requirements vary by state and we ask who holds them.

Where do you start with your own landscaping business?

With three years of financial statements, revenue split between maintenance and construction, a customer list showing how long each has stayed, and a plant schedule. An independent valuation then rebuilds the earnings, tests the risks above and sets out the reasoning. Our pages on business sale and succession valuations explain what the report needs to address for those purposes. You can read about how we value or start online.