Selling a Landscaping Company
Before selling a landscaping company, it is critical to understand whether it serves residential or commercial customers. Residential landscaping customers refer to individual residents. Commercial landscaping customers refer to commercial entities representing multiple homeowners such as Home Owner Associations (HOAs). The differences between residential and commercial customers deeply affect the way that residential and commercial landscaping routes are priced and sold.
Residential Landscaping Routes
- A typical residential landscaping route serves residential customers in the same 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 almost never 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 also may create a headache for the owner because so many customers create many different individualized customer service issues.
- Having 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 for residential landscaping routes, and even amount to the bulk of the owner benefit.
- The value of the ‘extras’ 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 actually pay the bills. The real customers are primarily the commercial entities (such as HOAs) which represent multiple homeowners. The HOAs are usually headed by a manger who handles all complaints, requests for ‘extra’ work, and billing. 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 sticky the relationships with the HOAs will be with the new buyer after the sale.
Key Difference 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 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 obviously far more costly to run a landscaping company in such a manner, 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 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.
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. Rather, they wish to start from scratch and create their own corporate entity which has no liability from the past acts of commission or omission from the previous owner. For the purchase of a commercial landscaping route, however, buyers will often accept this risk. By structuring the deal as a stock purchase transaction and retaining the seller’s corporate entity, the contracts with the commercial customers will remain intact and need not be changed after the closing. Also, by retaining the seller’s corporate entity, the buyer of a commercial landscaping route may still retain the seller’s various insurance coverages and payroll records that commercial customers require.
Example of Selling Commercial Landscaping Route
- Joe is in the process of selling his commercial landscaping company, Joe’s Landscaping Route, Inc., 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 Joe’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 Landscaping Route, Inc., and effectuates 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.