How Much Is an Arborist Business Worth?

What decides the value of an arborist business?

The profit the business can keep earning, how likely the work is to continue after the current owner has gone, and what it costs to keep crews and plant in the field. An arborist with a council panel and authorised crews and one that depends on the owner to climb and quote can report the same profit and be worth very different amounts.

The profit in the tax return is only the starting point. A valuer rebuilds it into the earnings a new owner could expect to keep, then tests those earnings against the contracts, the people and the plant behind them. The factors are set out on our page on arborist business valuations. Every figure in this guide is illustrative and none is a benchmark.

In many tree businesses the owner climbs, quotes, books the crane and holds the key accounts. We deduct a market cost for those roles and ask which customer relationships would stay after a sale. We also ask whether the business could run for three months without the owner, with crews scheduled, climbers supervised, plant maintained and invoices raised.

How is storm work treated in a valuation?

A major storm brings a surge: overtime, hired-in crews, and insurer and council work arriving together. Storms do recur, so the question is not whether to count them but how much. We look at event work over five years where the records allow and adopt what a typical year would produce.

A very large storm year is treated as a spike. A business that has had steady event work every year is not penalised for it, because for that business storms are part of the normal pattern. The report shows the years used and the figure adopted.

Insurers, strata managers and property managers also send repeat and emergency work, so we check which of those relationships belong to the business and which to the owner personally.

Do council and utility contracts add value?

They add value to the extent the terms support it. Panel and term contracts bring steady volume at agreed rates, but they are tendered and re-tendered, and many carry no minimum volume. A contract that supplies a third of revenue is not the same as a third of revenue that is committed.

We read the term remaining, renewal history, schedule of rates, the volume actually received and any clause that ends the contract or needs the principal’s consent on a change of ownership. A buyer must also meet the principal’s prequalification requirements, including safety systems, insurance and references. Whether a particular contract can be assigned is a question for your lawyer. A business that takes a third of its revenue from one principal also carries a concentration risk, which our guide on customer concentration and business value explains.

How does the plant affect the value?

Elevated work platforms, spider lifts, crane trucks, chippers, stump grinders and tippers are expensive and needed to earn the profit, so under an earnings approach they sit inside the value of the business rather than on top of it. They still raise two checks.

The first is cost. A fleet that is old, heavily depreciated and due for replacement flatters profit, because a buyer has to fund the replacement. So we deduct a yearly allowance for renewing plant before capitalising earnings. The second is a reference point. Where plant is a large share of what the business owns, its market value shows what a buyer could assemble independently, and earnings have to justify any price above it.

We also check inspection records and operator licences, because a missed inspection or an unlicensed operator can take plant out of service. Finance owing on plant is deducted only when moving from the value of the business to the value of the owner’s equity. Our guide on whether equipment adds to business value explains the distinction.

What does a worked example look like?

The illustrative business below has a council panel, residential work and one big storm year. We set aside the storm peak, charge a yearly allowance for renewing plant, and compare the result with the plant and working capital the business owns. What is left over is what the contracts, crews and reputation are being valued at.

Of the $770,000, $640,000 is backed by plant and working capital the business owns, and $130,000, about 17%, rests on what sits behind the earnings: contracts, authorised crews and reputation. The valuer then asks whether those are strong enough to carry that amount. A council panel close to re-tender and an owner who does all the climbing weaken the case. A spread of customers and a second qualified climber who can quote strengthen it.

Capitalising the $340,000 of EBITDA at the same 3.5 times would give $1,190,000, which is $420,000 more. That is why plant renewal has to be charged first in a business like this. In practice a different multiple would apply to each measure.

What reduces the value of an arborist business, and what increases it?

What tends to reduce value

• Dependence on one storm year or one principal. Profit that arrived with one event or one contract has to be tested for how much would repeat.
• An owner who climbs, quotes and holds the key accounts. The customer relationships may leave with the owner.
• Old, heavily financed plant. The cost of renewal falls on the buyer.
• A weak safety record. An incident can raise workers compensation premiums and block prequalification for council and utility panels.

What tends to increase value

• Contracts with a renewal history, and prequalification that stays with the business after a sale.
• Authorised crews. Climbers with the right qualifications and line clearance authorisation, who have stayed, are hard to replace.
• A spread of sources. Councils, utilities, insurers, strata managers and residential customers each carry different risks, and a mix lowers the effect of losing any one.
• A yard, and tip or mulch access, that continue under a new owner.

What should you prepare before an arborist business valuation?

Records that show what the work is, who does it and what it runs on. The most useful items are:

• Revenue by customer type for three years: council, utility, insurer, strata and commercial, residential and consulting.
• Council, utility and panel contracts with rates, term and renewal dates, plus prequalification and audit records.
• A plant schedule showing age, hours, finance owing and inspection records.
• Qualifications and authorisations by worker, including line clearance and any high risk work licences.
• Storm and emergency job records for five years.
• Workers compensation premium notices and claims history, and public liability and plant insurance policies.

If you are a tradie weighing up a sale, a partner buying in or a succession plan, an independent valuation sets out the earnings and the reasoning in writing. Our pages on business sale and succession valuations explain what the report needs to address. An Independent Business Valuation is $1,995 + GST, and you can start online.