I run a small landscaping business with about 6 employees and roughly $800k in annual revenue. I'm starting to think about selling in the next few years, but every time I look up valuation methods I get overwhelmed. SDE, EBITDA, multiples, asset-based... which of these actually works for a company my size? I don't have a finance background, so I'm looking for something practical that I can actually apply without hiring a $10k consultant. What formulas have you actually used or seen work for small businesses?
Valuation
Successfully valuing your small company using proven formulas
For a landscaping company your size, SDE is probably the most relevant. Basically you take net income, add back your salary, add back depreciation/amortization, and any personal expenses run through the business. Then apply a multiple. For service businesses in the 500k-1M revenue range, I've seen SDE multiples around 2-3x, sometime higher if you have recurring contracts.
EBITDA is more for larger companies with real management teams. At 6 employees and you running the show, SDE is the standard. Don't overcomplicate it.
landscaping with 800k revenue and 6 employees?? your SDE is probably thinner than you think. what's your actual profit after paying yourself a market wage?
There's a reason people pay consultants. The "proven formulas formulas" are easy to find but the hard part is knowing which adjustments are defensible. A buyer will scrutinize every add-back. If you add back your truck lease because "it's personal," they'll push back if it's clearly a business expense. I'd suggest getting at least one prfessional opinion before you list, even if it's just a broker's free valuation. Not the same as a full appraisal but it'll catch obvious errors.
Also worth mentioning: asset-based valuation. If your equipment and vehicles are worth more than the earnings multiple, that becomes your floor. For a landscaping business with a decent fleet, it might matter.
True. And don't forget working capital. Buyers will expect you to deliver the business with a normalized level of receivables and payables. If you've been running it lean, that's an adjustment.
This This thread is making me realize I should just keep my day job. Valuation sounds like a full-time job itself.
One thing nobody's mentioned: customer concentration. If 40% of your revenue comes from one client, your multiple drops. Buyers hate that risk. Also, recurring maintenance contracts are worth way more than one-off install jobs. If you can shift your mix toward recurring revenue before you sell, you'll get a better multiple.
To add to that, keep clean books for at least 3 years before selling. Buyers and lenders will want to see consistent financials. If your books are messy, it doesn't matter what formula you use, the deal will stall.
Also, don't forget to normalize your own compensation. If you've been taking $150k but a manager would cost $70k, the difference is an add-back. That's the single biggest adjustment most small owners Miss.
All good points. OP, if you want a staritng point: SDE = net income + owner salary + depreciation + interest + one-time expenses. Then multiply by 2.5-3.0 for a business like yours. Then sanity-check against asset value. That's the "proven formula" in a nutshell.