By Erik Ehrhart, CPA / ABV / CEIV / AM & Heather Lyon, CPA of BEAR Business Valuation LLC

There are many reasons to perform a valuation of a landscaping business, but the most common is an ownership transition. Before the company proceeds with ownership transition—whether fractional interest buyouts, employee stock ownership plans (ESOPs), equity incentives, or outright sale—an accurate understanding of the company’s value is necessary.

We’ve gathered our answers to the questions we’re asked most frequently to help you get started.

How do I find a business appraiser?

The best way to find a business valuation expert is to ask for a referral from your tax accountant, attorney, or business broker. What you should be looking for are credentials and experience. There are several professional organizations for business valuators, and each offer rigorous accreditation programs. These organizations also have very similar professional standards that govern the valuation processes and methods, so you know if you hire an accredited professional, the product will be reliable.

In the US, these are professional organizations and the credentials to look for:

  • American Society of Appraisers (ASA) – Accredited Member (AM) and Accredited Senior Appraiser (ASA)
  • American Institute of Certified Public Accountants (AICPA) – Certified Public Accountant (CPA) and ABV (Accredited in Business Valuation)
  • National Association of Certified Valuators and Analysts (NACVA) – Certified Valuation Analyst (CVA)

What’s the difference between an appraisal and a valuation?

No difference at all—the words can be used interchangeably.

What type of valuation report do I need?

There are two basic types of valuation reports, and the type you need depends upon your reason for needing a valuation.

  • Conclusion of Value Report (also called an Opinion of Value Report) – This is a formal report that includes all of the elements needed if you will be filing your report with the IRS or a court. This is also used for ESOPs and incentive compensation plans.
  • Calculation of Value Report (also called a Restricted Valuation Report) – This report is shorter and more informal, and therefore is less expensive. It’s appropriate for management planning, estate planning, partners buying in or selling out, or for planning to sell the company.

How much will it cost?

Prices can vary quite a bit. The price will depend on the size of your business and the complexity of your situation. Remember to verify that you are hiring an experienced, credentialled professional.

The Calculation of Value report is simpler and so you can expect to spend less for it. Rates vary, but a reasonable ballpark range is $3,000 to $6,000.

The Conclusion of Value Report is longer and more involved, so you can expect to pay $4,000 to $10,000, again depending on the size of your business and the complexity of your situation.

If you look online, you may find businesses offering free or very inexpensive valuations. If you are tempted, investigate carefully. These are usually not credentialled appraisers, but business brokers, lenders or insurance companies hoping to win your business in their field.

How long will it take?

Generally 2–3 weeks, not including the time it takes you to gather your business information. Many firms charge extra rush fees if you need it more quickly, so don’t wait until the last minute.

What kind of information will I need to provide?

  • Financial statements and/or tax returns going back 3–5 years, and interim financial statements up to date of the valuation if it’s mid-year
  • The Partnership Agreement or Operating Agreement and a list of owners and their shares
  • Projections of revenue and earnings for next one to five years, if possible
  • Details of how the owners are compensated
  • Details on any income or expenses that are non-recurring, personal, nonoperating or extraordinary
  • Details about your ownership or lease of your facilities
  • A breakdown of how much of your revenue is from recurring work, and how much is one-off projects
  • We would also want to have a discussion about your workforce, including your worker’s compensation rating and whether your workers are documented

Say I mixed some personal expenses in with my business expenses on my tax return. Will you report me to the IRS?

No, we wouldn’t and couldn’t report anyone to the IRS. If your valuation report is going to be filed with the IRS, we can advise you on how to avoid causing problems for yourself. All credentialled appraisers sign on to a code of ethics that includes keeping all of your information strictly confidential. The only reason we would share it is if we were ordered by a court.

My brother-in-law knows a guy who said landscaping businesses are worth 50% of annual revenue. Why pay for an appraisal now that I know what my business is worth?

There are “rules of thumb” out there that people use to estimate value. They’re not necessarily wrong in a very general sense. But each business has unique risks and features that need to be taken into consideration when you’re serious about planning or financial reporting.

I’m thinking about selling in a few years. How can I make my business worth more?

  • Have your financial statements and tax returns prepared by professionals, and be sure that all income and expenses are recorded properly. If a relative is doing your books, this is the time to hire a CPA firm.
  • If your business is large enough, create a management team other than yourself, and work toward them being able to run the company without your daily efforts.
  • Shift toward contracted recurring work as much as possible. Long-term maintenance contracts are golden.
  • Set yourself apart from the competition. Create a brand and communicate it to your customers. Give your customers incentives for referrals.

BEAR Business Valuation LLC is a team of professional business appraisers working with businesses in all industries throughout the US. In addition to valuations of entire companies, BEAR values stock options, preferred stock, corporate notes, limited partnership interests, and provides fairness opinions for SEC reporting purposes. About half of BEAR’s valuations are for tax or financial reporting purposes, approximately 10% are for ESOPs, and the rest are primarily related to the purchase or sale of fractional interests or an entire business. Business Valuation is all we do, and we’re very good at it!