When your business involves the great outdoors, planting and nurturing the earth in a landscaping company, the value of your business may seem ambiguous at best. How do you determine the value of your company? A landscaping business appraisal can help, but to fully understand the appraisal report you'll receive it's important to understand the different approaches to appraising your landscaping company. Here's a quick summary to help get you started.
What Are My Options During a Landscaping Business Appraisal?
An asset-based appraisal looks specifically at the value of your company's assets: lawnmowers, real estate, vehicles and similar assets. It's based on the idea that a smart buyer will only pay what the company's assets are worth, but it misses out on a lot of other areas, such as the goodwill you've developed in the community, future income or the market value of your business. This is why this type of appraisal is usually only used by companies that are failing or facing insolvency, because a business outside of these conditions will have some additional value that needs to be carefully considered during a sale, transfer or merger.
Because so much of your company's income is based on the services you provide, an income-based appraisal may make a lot more sense for your business. This type of approach looks at your company's income for the past several years and projects it out into the future. At that point, the value of your future business income is estimated to help determine the company's value. This approach uses a couple of different methods, one of which, capitalization of earnings, is based on regular income and the other, discounted earnings, which is based on irregular income or business growth. In either situation, the appraiser will take into account any unusually high income or expenses, such as a large project or replacing an unusually high amount of equipment, and will provide a journal adjustment entry to normalize the unusual income or expense.
If your business has been very successful in the recent past and there's a lot of demand for your company's services well into the future, an interested buyer may be willing to pay more because of anticipated high future growth. This market-based approach can use a wide range of factors, but will often base the value on a similar publicly-traded company's value. Because publicly-traded businesses have to file financial information, it's easy for the appraiser to match your company's transactions, discretionary earnings or revenue multiples to one of these companies and then make small adjustments to the figures to reflect your privately-held company's expected market value. This substitution provides solid, publicly-available information to back up the estamted value of your business.
By understanding the approaches used in a landscaping business appraisal, you can make better use of the information you'll find in the appraisal report provided to you by your appraiser. However, it's important to only work with a certified business appraiser, who can provide you with an estimate of value for your company that is based on sound, time-tested appraisal practices and methodologies. Make sure to ask your appraiser about their certification, because a certified business appraiser will always be happy to discuss these details with you.