How to sell a lawn mowing business

Selling a mowing service business is essentially demonstrating that someone else could manage your clients, your equipment, and your weekly routine and earn money right off the bat. That sounds pretty simple, but the sales process is difficult because owners often do not realise just how much the buyer is assessing before signing a cheque. How much your company will sell for and who will come knocking depends entirely on how prepared you are before going to market.

This guide outlines the approaches buyers and brokers apply when assessing your lawn mowing business value, what preparations are necessary before putting it on the market, who buys mowing companies, how to negotiate a deal in your favour, and the transition post-sale. If you are seriously considering selling your lawn business and are curious about its value, contact a specialised business broker and get an estimate today.

What your lawn mowing business is actually worth

Every lawn mowing business owner has a figure in mind. It may be an estimate of the price a friend got for their company. Or it might be just a guess. But here is the thing; the buyer does not care about what you think about your company value. The financial statement is all that matters.

Seller’s discretionary earnings (SDE) for businesses under $1 million

If you earn less than $1 million per year from your lawn mowing business, then the most widely used method is the seller’s discretionary earnings (SDE). This method begins by adding the net income, salary paid to the owner, personal expenses of the owner, extraordinary expenditures, and depreciation expense. The sum of all of the above reflects the economic value of the company to an active owner.

For an average lawn-mowing company earning between $250,000 and $400,000 in revenue per year, SDE could fall within the range of $80,000 and $160,000 based on how efficient the company operates and how much salary the owner takes. This will be multiplied by another figure known as EBITDA, which in the case of lawn mowers can range from 1.5x to 2.5x based on the quality of clientele, machinery condition, contract strength, and dependency on the owner. Our guide on how to value a business can help you identify which method applies to your situation.

A grass cutting operation earning $120,000 from SDE income with strong repeat contracts could bring in earnings between $240,000 and $300,000. The same $120,000 SDE but a less consistent customer base and old equipment could only yield earnings between $150,000 and $180,000. All of the bargaining occurs in the multiple because it represents the level of risk.

When EBITDA is the better valuation method

Once your lawn care or garden maintenance company exceeds $1m in revenues with employees managing crew activity separately from the owner, then EBITDA (or earnings before interest, taxes, depreciation, and amortisation) is the metric to look at.

Why? Because large buyers who would be interested in your lawn care company, whether those are your competitors expanding their turf into your markets, or roll-up firms looking to acquire a bunch of similar businesses, don’t want to buy a job. Instead, they want to acquire a profit centre. Lawn care business valuation metrics for such businesses with managerial and multiple crew capabilities would range anywhere from 2x to 4x of EBITDA. The top range is usually reserved for businesses with consistent year-over-year profits and little turnover among customers, as well as the management team that works even when the owner isn’t riding the mower themselves.

You can learn more about how EBITDA valuations work and when this method is most appropriate.

What the “cut value” multiple means and how buyers use it

There is one rule of thumb in the Australian lawn mowing industry that won’t be found in any textbook for business schools: the cut value multiple. It is the common way of doing things in the Australian lawn mowing industry, especially at the bottom end of the scale, when financial statements are difficult to come by.

The calculation for the cut value is straightforward. You multiply the average weekly cut income (not individual jobs but only repeat cut jobs), with no consideration of one-off jobs and garden cleanup, by a multiplier. The normal multiplier used ranges between 30 to 50 weeks, depending on the specific situation. In this case, a weekly cut income of $3,000 with a multiplier of 40 weeks would be valued at $120,000.

How much multiple the purchaser will offer will be influenced by the dependability of the weekly amount. In other words, having an income of $3,000 per week from a steady number of 60 clients with whom contracts have been signed, and all operating in a small radius, will be valued differently than $3,000 per week coming from random work with various clients without any contract in place. The former earns more multiples compared to the latter.

Buyers familiar with the industry will be keen on looking into the schedule and matching it with what you are receiving from your accounts in terms of your weekly cut value. They expect your weekly cut to be stable over a period of 12 months, meaning your business is not making extra money just during a busy season or from a single contract. For someone thinking about selling their business in the future, this will prove to be very useful.

Here is something you should know: the cut rate multiplier does not take into consideration equipment, vehicles, or income sources other than mowing. These aspects are usually worked out independently from the cut rate multiplier, which explains why two companies that have exactly the same weekly income may still have vastly different sale prices.

What buyers look for before making an offer

Buyers in this industry are practical individuals. All that they require is proof that the sales figures are real, that the clients are trustworthy, and that the equipment won’t have to be replaced in six months’ time.

Financial records you need to have ready

The absolute bare minimum that the buyer would want to see is two to three years of profit and loss sheets, BAS lodgements, tax statements and bank statements. When selling a mowing business, your bank statement becomes all the more important since most customers use the option of direct deposits or debit cards to pay. Therefore, every cent of income should be accounted for. In case the business operates on cash income, this becomes a big problem for potential buyers because the income cannot be traced back and, therefore, does not exist in terms of value.

The buyer must be able to clearly identify how your revenue and profits have trended in the last few years and what seasonal fluctuations there might be. Even if your accounts are somewhat messy, cleaning up your record keeping will be worth the cost when hiring an accountant or registered BAS agent prior to listing.

Client base quality matters more than client count

It is better to have an 80-client lawn mowing company where all clients are on contracts than having a company with 120 customers that call whenever grass needs cutting. Buyers value reliability and certainty. They would appreciate being shown a list of clients containing not only names and addresses but also information about regularity of service provision, job prices, and length of cooperation. The perfect buying target would include a high concentration of loyal clients living in one geographic area and requiring services either once a week or once every other week.

This way, travel expenses and time are minimised, resulting in more jobs done during one day. It becomes more complicated to provide good service to a client list that stretches over different suburbs with inconsistent schedules. Two or more years of work with your clients is a definite advantage. On the contrary, frequent change of clientele shows that either the service provided was substandard or too expensive.

Understanding how much someone will pay often comes down to how predictable and concentrated your revenue is.

Equipment condition and what it signals to buyers

Your machinery will be evaluated by your prospective buyer as if they were examining a used car; your buyer wants to know what kind of machine they are buying and how much it will cost them in the first year of use. Well-serviced machines indicate to the buyer that this is a turnkey operation. Old and run-down machines lacking service logs say something different.

Document your equipment servicing as well as replacements; if you have been able to purchase high-quality equipment in the recent past, this is good for your position at the negotiating table. If, on the other hand, your primary mower needs replacing, do so, or prepare your prospective buyer mentally for it.

Getting your business sale-ready

The businesses that sell quickly and make good money are those that have already completed the job before putting it up on the market. It’s like listing your house for sale. You do not put it on the market looking worn down and in bad shape.

Clean up your accounts receivable and balance sheet

Collect all your outstanding invoices and settle any debts that might be past due. An investor performing due diligence would not like to purchase a company with $8,000 worth of unpaid invoices from customers who might not pay. Maintaining clean accounts receivable demonstrates that your customers are reliable in meeting their financial obligations.

As for the balance sheet, ensure that your asset record is accurate and represents the true condition of your equipment. Any private property should be segregated from the business’s accounting records. If you’re carrying business debt, it’s worth understanding the implications of selling a business with debt before you go to market.

Streamline your operations and daily workflows

If your business relies on knowledge stored solely in your mind, you have an issue. Potential buyers need systems to be set out in writing, including a weekly schedule, information on your clients with their services, pricing policies, supplier details, and any other operations procedures that can easily be implemented by the new owner.

Prepare a basic operations manual if you do not have one in place already. This does not have to be anything overly complicated. Having a schedule that outlines what clients are attended to each day, a list of your suppliers, and even just some notes on any clients that have special instructions will take you a long way.

Lock in contracts and reduce single-job reliance

This is also one of the most powerful tools at your disposal to boost the sale price, but many mowing business owners fail to recognise its importance until it’s too late. The difference between an account that pays you via a written agreement on a regular basis for lawn maintenance and a customer who simply calls when they need someone to mow their lawn is huge. Predictable income is always worth more than uncertain income.

If your operation has been running purely on handshake deals up until this point, then now is the time to get these deals in writing. A basic service agreement does not necessarily have to be a 10-page contract, as it may be enough to draft a single page of the letter detailing what services you provide, how much you charge, and for how long.

The difference in valuation can be huge. A business that has 80% of its income from legally binding contractual agreements will fetch a better multiple than a similar firm that has 80% of its income derived through informal oral contracts. If you intend to take action to make yourself more valuable in 12 months’ time when you plan on selling your firm, moving your clients over from an informal to a contractual arrangement is definitely one of the best things you can do.

Who actually buys lawn mowing businesses

Knowledge of who the potential buyer is going to be will determine how you will package the business and even the structure of the deal itself.

Competitors looking to expand in your area

The local competition can make for a very strong buyer, especially when your clientele overlaps with the geographical reach of your competitor’s service offerings. In terms of purchasing your rounds, they would essentially be purchasing your customer list and bringing in the profit that comes with it into their current operations. They already have the infrastructure to handle the volume of work; they just need the client list to come with it.

Local competitors will act swiftly and negotiate aggressively on price since they are fully aware of the value of the customer list in your geographic location. It is possible that they do not need the entire operation; instead, they could simply be after your top-notch clients and no one else.

Franchise groups and new owner-operators

Mowing franchises such as Jim’s Mowing, VIP Home Services, Lawn Solutions, and many others have been known to buy independent mowing services to give out franchises to their new clients. For these franchises, an independent mowing business that has a good customer base in a desirable location is a good acquisition to make. You can browse franchise businesses for sale to see how franchise-based operations are typically structured and marketed.

The second type of buyer profile will be an individual who is quitting their job to start a business of their own. The first time owner operator would find it lucrative to invest in lawn mowing due to its easy entry, instant revenue generation, and simplicity in operation. Such individuals would like to buy your business at a price that may reflect the true market price since they are buying themselves a business ready to earn.

Private equity and acquisition companies

On the upper end, private equity firms and buy-out firms have become very common in the Australian lawn care market. Such buyers usually target those who make more than $500,000 per year with solid organisational frameworks in place, multiple crews, and well-formulated processes. Their goal is to create a portfolio of businesses in the gardening services and lawn care space to grow their businesses.

These buyers generally engage in extensive due diligence processes, have a more complex negotiation process, and may take a considerable period of time before making offers to acquire a business. However, the advantage is that these buyers often pay higher multiples for businesses that demonstrate scalable operations and consistent business growth.

Where to find potential buyers

You have three primary ways of locating a buyer, and the majority of good sales campaigns utilise all three.

Your existing professional network

Begin with what you have right now, the people you already know. Your accountant, your vendors, other operators, or people within your industry might be the quickest route into finding a credible buyer. In the mowing business, the old adage “word-of-mouth marketing” really works. Other operators know what a quality cut is worth, and a simple conversation with an operator in your community could find a buyer for you before you ever try to sell.

Remember, keep things close until it is time to officially list the business.

Online business-for-sale directories

A properly written listing, including the figures, summary, and photographs of your business, will elicit interest. Vaguely worded listings, those with hidden figures, or those that show stock images, do not receive any response.

In crafting your business listing, make sure to include the important figures such as weekly sales, number of steady customers, length of operation, and profit. Online buyers looking at home and garden businesses for sale compare hundreds of listings in a given day. They only contact those with accurate information on their listings. Benchmark is an online provider of a comprehensive listing of home and garden businesses for sale in Australia.

Working with a business broker

A business broker is responsible for the whole process of selling a business, from valuation to negotiating and closing the deal. When it comes to mowing services worth more than $100,000, the use of a professional broker is cost-effective, thanks to the increased selling price and quick turnover. In addition, a reputable broker ensures that your identity remains confidential by filtering potential buyers until they get to know specific information about your business. They will showcase your financial performance in the best light possible and negotiate on your behalf while you continue running your business.

On average, business brokers earn commissions of 8% to 12%, depending on the size of the transaction. However, the commission rate may decrease significantly when the sale value goes up. You can find experienced business brokers Australia-wide through Benchmark’s national network.

How to negotiate the sale price and payment terms

The negotiation process determines success or failure, and it is in this area that new sellers usually feel uncomfortable. However, the solution lies in preparation. In case you are well prepared on both the financial and presentation sides, you have the edge.

Backing up your asking price with financial evidence

Buyers will use the facts to measure the validity of your asking price. For instance, if you are selling the business at a price of $200,000 and have an SDE of $100,000, then buyers will want to see how you came up with the SDE number, as well as your reasons for using a 2x multiple. Make sure your income statement, tax returns, BAS filings, and bank statements are prepared and readily available.

When your asking price is determined using the cut value multiple, have your run sheets prepared. This is where your weekly sales are listed according to clients and linked to bank deposits. When the buyer sees that every dollar of revenue you claim is substantiated with a corresponding bank deposit, he or she will be able to negotiate confidently. Getting a professional business valuation before listing gives you an independent figure to anchor negotiations around.

Payment structures and earnout arrangements

Not every transaction ends with a lump sum being made upon settlement. Many times, transactions within the mowing business have structured payment options, especially for transactions that are large in value. A deposit is first made when the agreement is made (10%-20%), then another larger payment is made at settlement, followed by a retention payment, which is set aside for 60-90 days to account for possible losses due to client turnover during the transition period, and lastly an extra payment after a certain period of time.

Earnout structures do not occur as often in smaller mowing businesses but are more prevalent when the selling price is higher than $300,000 or when the buyer needs to be assured of the continued earning potential of the business after the transaction. Earnout structure involves making a percentage of the selling price dependent on how the business performs over a certain period of time, normally 6 to 12 months. The entire amount is paid if the earnings are maintained; otherwise, it is reduced.

Earnouts must be approached with care by sellers. They transfer responsibility for the deal from the buyer onto you, and the degree of control you have is contingent upon the skills of the buyer in making the transition. Earnouts need to include clear criteria, short periods for evaluation, and achievable performance metrics.

Non-compete agreements and what to expect

There will always be a non-compete agreement included in any sale of mowing companies. This is common practice, and anyone who is a suitable buyer will always ask for one. Non-competes will normally prevent you from starting up another company that competes against your current business in the same geographic location (the suburbs that you service) for a certain period of time (normally two to five years).

Non-competes can be negotiated, but asking for anything too drastic is not recommended. The reason behind this is because the new owner wants to know that you won’t open up shop again somewhere and steal their clients. Try to keep the terms reasonable, ensure that it is limited to a geographic area only and not a blanket ban in the entire state, and ensure that the timeframe is fair to the price that you are getting paid for the sale.

Why timing the sale matters

Sometimes timing is just as critical as presentation. There is a rhythm in the lawn mowing business, and if you list out-of-season, you might lose several months of sales and significant money in terms of value lost from selling too late.

Selling at the start of spring for maximum demand

The best period during which you should put your mowing business up for sale in Australia is late winter to early spring season (August to October). At that moment, the grass will be ready to burst, the run sheet will be starting to get crowded, and prospective buyers will have a clear picture of the profits they can make right in front of their eyes. A buyer who buys the business in September steps directly into the busiest time and enjoys an excellent cash flow.

Putting the business up for sale in autumn or winter seasons is harder since sales will fall off, clients will decrease their use of your services, and your business will look smaller on paper. Buyers always consider the financial records and the lower sales recorded during the winter season.

How long the sale process typically takes

The time from the decision to sell right through to the completion will usually span between three to six months. This can be broken down into an average period of two to four weeks for preparation, two to four weeks on the market garnering interest from buyers, two to four weeks of negotiation and due diligence, and finally two to four weeks for contract signing and settlement.

A properly prepared, accurately valued, and effectively marketed business generally sells more quickly. Ineffective pricing or poorly maintained accounting records could see a business languishing on the market for up to one year, causing problems of their own, such as clients hearing rumours and employees losing confidence, all resulting in a disorganised business while the seller is busy selling.

We have written about why business sales take longer than expected and how to avoid the most common delays.

Planning a smooth transition for the new owner

For a cutting company, it’s all about client relations. In the event there’s not a proper handover, or if the buyer does not do well at the beginning, the clients will start searching for alternatives. The difference between a proper sale and a poor one is a good transition strategy.

Client introductions and handover responsibilities

In mowing operations, the connection that you have with your clients is typically very personal. Your clients do not see themselves as customers of a business; rather, they see you as “their mower.” That makes it important for you to hand over the business face-to-face, and not send out a letter or an email saying that your business has been sold.

What has worked very well in many such transitions is having a two to four week transition period wherein the new owner accompanies you when visiting your clients for mowing services, personally introduces themself to the client, makes it clear that there will be no change in schedules or pricing, and does the first mowing session in the presence of the client.

Schedule the handover process in advance: plan out on paper which clients are to be introduced on which days and how will communication regarding any changes take place. It is very unlikely that clients who are aware and feel included will decide to pull out of the business. A letter informing them of the change of hands in ownership, or worse still, the arrival of an unfamiliar face to their property, will only lead to losing them.

The contract of sale must indicate the duration of handover and what the responsibilities of the seller are, including any retention guarantees that depend on payments. A client turnover of 15% in the first two months after the handover is clearly going to cost the new owner money.

Providing post-sale support without giving away too much

Buyers, particularly first-time owner-operators, will want time for after-sales services. It makes sense, and offering it will help you seal a sale that might otherwise fall through. The accepted practice is to provide up to four weeks during which you answer queries related to client preferences, machinery functions, scheduling idiosyncrasies, and suppliers.

Establish your boundaries at the outset. It is best that your support period be outlined in your agreement, preferably with dates, rather than be an open-ended commitment. State what you include (answering queries concerning operations and making only one set of client introductions as well as handing over your relationships with your suppliers), and what you do not include (acting as consultant or covering for mistakes made by your buyer). You have sold your business. Your part is to share your knowledge.

The one thing that kills lawn mowing business sales (and how to avoid it)

Dependence on the owner. If the company cannot run without your personal involvement, going out there and cutting every lawn yourself, making sure that every relationship with each and every customer is tended to by you alone, then your “business” is simply an expensive job, not a company.

What potential buyers want is a business that earns money independent of you as its owner. What happens when the buyer examines your business model and finds that it depends entirely on your head and the knowledge inside it? Risk! And with risk comes failure or low prices.

Signs of owner dependency are obvious if you’re being self-aware. Are clients calling your cell rather than a business line? Are you the sole individual aware of the weekly routine? Consider what would occur if you were to take a two-week vacation. If the result would be losing clients or shutting down operations, then there is much more to do prior to putting your property up for sale.

The solution requires patience, which explains the value of considering this problem 12 to 18 months ahead of time. Begin with writing out every procedure in detail. Develop a run sheet that someone else can execute. Shift clients’ communications from your personal line to a company phone or other means. In case you have workers or subcontractors, then start introducing them into the client contacts directly so that the relationship isn’t based on you alone. Having a clear exit plan for your business well before you list makes this transition a lot smoother.

While it may not be possible for a sole trader to completely free themselves from personal reliance, it is possible to greatly diminish it. Having an extensively documented customer list, a detailed run sheet, written service contracts, and a handover schedule sends a message to a potential purchaser that your business will continue after the transaction is completed. This does not mean that you will try to act as if you have nothing to do with the company; rather, you need to demonstrate that all the knowledge you possess and all the tasks you handle can be passed on to another person.

Benchmark has facilitated countless numbers of small business transactions, and owner dependency has been the number one problem in almost all cases.

Talk to a broker who knows your industry

Selling a mowing business is not like selling a coffee shop or a clothing boutique. There are different factors involved in calculating the value of the business, and the people who buy such businesses have different needs and wants, compared to other types of buyers. You would be more likely to get the best price for your mowing business by having it handled by a broker who knows the ins and outs of the service industry and understands how to calculate and sell mowing rounds in Australia.

At Benchmark Business Sales, we have been helping Australian business owners buy and sell their businesses since 1999. Our experienced brokers understand how to handle the sale of service-based businesses. Should you be considering selling your mowing business, contact us for a chat. Our quick-start guide to selling a business walks through the full process from preparation to settlement.

FAQs

How much can I sell my lawn mowing business for?

Typically, the sale price of a small Australian lawn cutting service is estimated at 30 to 50 weeks worth of its normal weekly cut or 1.5 to 2.5 times the seller’s discretionary earnings. For example, an individual with a single crew earning $3,000 per week will sell their business for somewhere between $90,000 to $150,000, while a bigger business with several crews making around $500,000 or more each year may be sold for anywhere from $400,000 up to a million dollars, depending on factors such as profitability and business type.

Do I need a business broker to sell my lawn mowing business?

It is not a requirement by law; however, for a lawn-mowing business worth more than $100,000, a business broker will definitely get you a better deal. A business broker does everything from identifying potential buyers to negotiations and the signing of papers on behalf of the owner. A business broker will also know what other similar businesses have been selling at to ensure that you do not undervalue your business or overvalue it.

What financial documents do buyers want to see?

They need at least two to three years worth of financials like profit & loss statements, BAS filings, tax returns, and bank statements. As far as the lawn mowing business goes, buyers will expect to see a list of clients with how often you service them and what you charge. Additionally, a copy of your weekly route schedule will be requested along with details of your equipment and possibly service contracts.

Can I sell just my client list without the equipment?

It’s definitely possible, and surprisingly, this scenario occurs more often than you might think. For example, some potential buyers already have the equipment of their own along with their own vehicles; thus, what they’re really after is purchasing your clients and all the steady cash flow they bring. As such, the transaction value will be calculated purely based on the cut rate, minus any value from the equipment. However, remember that a client-only deal generally brings less money overall.

How long does it take to sell a lawn mowing business in Australia?

Three to six months, depending on how well the business has been prepared and marketed. Properly prepared businesses with good financial statements, reasonable pricing, and proper marketing can usually be sold within three to four months. Businesses that are overvalued or improperly documented can take up to six to 12 months or more. The longer the business has been on the market, the harder it will be to sell at the original price.