Question: I feel like I’m seeing the word “valuation” used a lot in conversations with other landscape business owners. I’m honestly unclear exactly what a valuation is, and if I even need one if I’m not planning to sell. Can you help explain? — Reader-Submitted Question
Answer: I love this question. With all the news about consolidation in our industry, the term “valuation” has become commonplace. Unfortunately, many business owners don’t understand what it means or if it applies to them. We’ve had many conversations in our ACE Peer Group meetings that have centered on this very question: Do I need a valuation if I don’t plan to sell?
The truth is there’s more to a valuation than just figuring out a price tag for potential buyers.
Think of it like getting a health checkup for your company. You wouldn’t skip your annual physical just because you’re feeling fine, right? Similarly, even if you’re not actively looking to sell, understanding the value of your business can provide crucial insights into its overall health and performance. This information is important for identifying potential pitfalls you can address to add value and to understand how you stand compared to the competition.
So, what do you need to know about valuations? Ask yourself these questions.
- Will you consider selling (now or in the future)? We’ll start with the elephant in the room. The obvious reason you might consider getting a valuation is, of course, you are open to the possibility of selling your business. Before you approach negotiations, you need a clear picture of what you bring to the table. A detailed valuation gives you an accurate financial foundation for the conversation and places you in a position of strength.
- Do you know where you stand? As a leader, you want to create the vision, and you can’t do that if you don’t know where you stand today. As your business grows, it’s important to realize what you’ve accomplished and how the business has shifted. A valuation is essentially a scorecard of how you’ve played the game of business so far. This scorecard helps you understand your company’s financial standing and uncover potential areas for improvement. By analyzing various aspects of your company, such as growth potential and operational efficiency, you can identify areas where you can enhance and even create value. It’s like shining a spotlight on both the strengths and weaknesses of your business, allowing you to make more informed decisions about investment, expansion plans and day-to-day operations.
- How can this benefit my team? We all know retention is a huge issue for the industry. But what does that have to do with a valuation? One of the best ways to keep and attract good team members is to give them a piece of the pie. Whether it’s a profit-sharing or an equity-sharing plan, you need a clear financial picture to be able to build a healthy incentive plan. So, if you’re considering adding an equity-sharing plan for key employees or family members, you have to know the size of the pie you’re sharing.
- Where do I start? Now, you might be thinking, “But isn’t getting a valuation expensive and time-consuming?” Thanks to advancements in technology and the availability of online valuation tools, obtaining an assessment of your business’s worth has never been easier or more affordable.
At McFarlin Stanford, we’ve worked on hundreds of valuations for landscape businesses, so we have seen first-hand how truly enlightening and powerful this information can be. A valuation can provide peace of mind, especially during uncertain times, and the knowledge to make you confident that you’re building a valuable legacy that will stand the test of time. Knowing the true worth of your business can offer reassurance and stability whether you’re navigating economic downturns, industry shifts or other challenges.
It’s not just about putting a price tag on your company; it’s about gaining valuable insights, optimizing performance and being prepared for whatever the future holds.
Have any more questions? Feel free to submit your questions anytime. I’m here to help!
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