Selling Commercial and Residential Landscaping Routes

Selling a Landscaping Company

Before selling a landscaping company, it is critical to understand whether it serves residential or commercial customers. Residential landscaping customers are individual homeowners with written or verbal contracts for regular maintenance service with the landscaping business. Commercial landscaping customers refer to commercial entities representing commercial properties or multiple homeowners such as Home Owner Associations (HOAs). Prior to selling both residential and commercial landscaping business owners should assemble their historical financials and an asset list of physical equipment and vehicles so a business broker may evaluate the business and determine the best valuation. Landscaping companies should always be sold confidentially with the assistance of a business broker experienced in selling residential and commercial landscaping businesses.

Residential Landscaping Routes

  • A typical residential landscaping route serves residential customers in the same local geographic area.
  • These residents are often in very close proximity within just a few gated communities.
  • The ‘tighter’ a residential landscaping route, the more valuable the route since less expenses (such as fuel and labor) need to be incurred for servicing the same amount of customers.
  • Residential customers do not normally have written contracts with the landscaping company, and rarely require proof of insurance, proof of workman’s compensation, or any other company documentation.
  • Moreover, the customers are spread out among dozens or perhaps hundreds of individual customers.
  • This avoids a ‘risk of customer concentration’ because cancellations from individual residential customers will not significantly affect the overall health of the company.
  • On the other hand, having dozens or hundreds of individual customers with individualized customer service issues can put too much strain on the owner.
  • A good customer relations manager is thus essential for a strong residential landscaping company.
  • Depending on the characteristics of the residential customers, the amount of ‘extra’ work (above and beyond the scope of the regularly contracted landscaping work), can be quite high, and even amount to the bulk of the owner benefit.
  • The value of the ‘extra’ work – above and beyond the regular monthly maintenance work – is often a key factor in determining the value of a residential landscaping route.

Commercial Landscaping Routes

In contrast to a residential landscaping route, a commercial landscaping route has far fewer end customers who pay the bills. The customers are large commercial property owners or HOAs contracting with the landscaping business on behalf of multiple homeowners.  The HOAs are usually headed by a manger who handles all complaints, billing, and requests for ‘extra work’ beyond the scope of regular contracted services.  The risk of customer concentration is thus high because an unhappy manager of an HOA who cancels service will significantly affect the overall health of a commercial landscaping company.  Usually, the key factor in selling a commercial landscaping company is how whether the HOA relationships will remain intact after the sale.

Key Differences Between Commercial and Landscaping Routes

The majority of commercial landscaping customers require the landscaping company to provide proof of liability insurance, proof of workman’s compensation, and proof that the employees of the landscaping company are legal residents and paid as W2 employees. As discussed, residential customers usually require none of these items. Owners of commercial landscaping companies must structure their business in such a way so as to meet these requirements. It is often far more costly to run a commercial landscaping company, which usually results in higher prices ultimately charged to the customer.

Structure of Business Sale Differs

A business sale is structured as either an asset purchase or a stock purchase deal. An asset purchase deal is far more common and is almost always used in the sale of residential landscaping companies. In an asset purchase deal, the buyer of the business creates their own corporate entity and buys the assets of the seller’s corporate entity. A stock purchase deal is very rare but is used for many sales of commercial landscaping companies. In a stock purchase deal, the buyer of the business purchases the seller’s corporate entity via purchasing its shares or membership interests. The buyer also inherits the liability from the seller’s corporate entity.

Advantages of Stock Purchase Deal for Commercial Landscaping Routes

Stock purchase deals are rare because buyers of businesses do not ordinarily wish to inherit the corporate liability of the seller’s corporate entity. As such, they create their own corporate entity at little cost. For the purchase of a commercial landscaping route, however, buyers will often use a stock purchase deal because the contracts with commercial customers will remain intact and need not be changed after the closing.  This is because the same company name, tax id number, and bank account of the seller are all simply transferred to the buyer. Also, by retaining the seller’s corporate entity, the buyer of a commercial landscaping route may still retain the seller’s insurance coverages and payroll status that commercial customers require.

Example of Selling Commercial Landscaping Route

  • Joe is in the process of selling his commercial landscaping company with the assistance of a professional business broker.
  • The buyer – Jeff – is concerned that the majority of the company’s customers are used to dealing with Joe and Joe’s company and thus may cancel service after the closing.
  • In order to get Jeff closer to making an acceptable offer for Joe’s company, the business broker suggests structuring the deal as a stock purchase transaction.
  • This way, much of Jeff’s hesitation and fear will go away since the contracts on file with the commercial customers need not be changed or altered.
  • Joe can thus introduce Jeff to the customers after the closing, but Jeff does not have to rock the boat by having the customers sign new contracts with Jeff’s new company.
  • Jeff agrees to buy the shares of Joe’s company, and proposes a stock purchase deal upon terms acceptable for Joe.

In order for sellers of residential and commercial landscaping routes to realize their best possible purchase price, it is imperative to understand the differences and comparative advantages between each type of route. Always consult a professional business broker prior to the sale of your landscaping route.

Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.