I'm getting ready to list my 12-year-old commercial landscaping business. Revenue has been flat at ~$2.1M for the last three years, but EBITDA is steady at around $380k. My broker says buyers will discount the historical earnings because they're "not buying the past," and wants me to project 15% annual growth based on two new maintenance contracts I just signed. I'm worried that if I lean too hard into those projections, buyers will dismiss the whole thing as hype and distrust the reliable numbers. How do you defend steady historical earnings without looking like a business with no upside?
Valuation
Successfully defending your historical earnings against growth hype
Your broker is doing you a disservice. Those two new contracts are real, but 15% compounded growth off a flat base is a fantasy. Buyers have seen a hundred of these decks. What they want is proof that the $380k is durable, not a hockey stick. I'd put the historicals front and center and treat the new contracts as a footnote, not the headline.
Flat revenue with steady EBITDA is actually a decent story in landscaping. It says you're not buying work. The new maintenance contracts are recurring, which is the good kind of growth. Just don't let anyone slap a 15% number on them.
Have you had a QoE done yet? That changes the conversation. If a third party can show the $380k is clean after add-backs, you don't have to argue about the past. You just hand them the report. The growth debate becomes secondary.
No QoE yet. Broker says it's premature before we have interest. I pushed back but he's the one with fhe listing agreement. That said, the maintenance contracts are two-year terms, not multi-year. Maybe that's part of my hesitation.
Two-year terms are fine as supporting evidence, but they dont justify a growth multiple. Here's the frame I'd use: "This is a mature, cash-generating operation with predictable repeat revenue. We are not asking you to pay for growth we haven't proven. We're asking you to pay for the earnings that already exist." Then let the new contracts show directionally that you're not declining. If a buyer wants growth, they can underwrite it themselves and pay an earnout for it. That's the cleanest way to protect your historical number without looking defensive.
Earnout is the answer. You defend the historicals as the base price and let the new work be a bonus if it materializes. Everybody stops arguing
Agree with VerdigrisOwl, mostly. One thing though: earnouts get messy when the seller is exiting and the buyer controls the operations. If the growth is tied to contracts you already signed, that's more defensible than growth the buyer has to generate. Make sure the earnout metrics are ones you can actually influence, or you're just handing them a discount.
That's a fair warning. The maintenance contracts are already signed, so at least the first year of that earnout is largely locked. I think I'll tell the broker to pull the 15% projection and replace it with a base case plus the signed contracts shown separately. If he pushes back again I'll ask him to show me comps where flat revenue sold at a discount because of it.
Good move. Also worth checking what your add-backs look like. If your personal expenses are running thtough the business, the adjusted EBITDA might be higher than $380k, which makes the flat revenue less of a problem.
One last thing. Ask the broker what he thinkss "growth" means to the buyers actually looking at your size. At $2M revenue most of them are acquisition entrepreneurs or small strategics. They're not paying for projections. They're paying for a business that runs without you. That's the real defense.