Recently, Tom Fochtman, Ceibass CEO, was a guest speaker at J.R. Huston Consulting’s Brainstorming Meeting in Park City, Utah. More than 25 companies and 75 lawn and landscape business professionals were in attendance.
Tom’s topic: Building a Landscape Business with An Exit In Mind.
“Building a business with the exit in mind is a different, more powerful mindset, than say building a business as a lifestyle or building a business as a way to earn a living,” said Tom. “It’s really about building an enduring business, assembling the right team and equipment, with a focus on EBITDA, or earnings before interest, taxes, depreciation and amortization. You want to enhance EBITDA because it’s EBITDA times a multiplier that set a baseline for the value of your business when you are looking to transition it.”
So how do you enhance EBITDA? What are some of the best practices to be in?
Here, in two parts, with a focus on residential contracting, are some of the best practices Tom identified in his presentation:
- Push the pricing envelope! If a buyer will pay $30k to have the backyard landscape – will they pay $31,500? OF course they will. Give yourself a 5% raise. Raise your prices today a minimum of 5%, if not more.
- The market has been hot – you should be raising your prices
- Disneyland just announced an 18% price increase for their theme parks. Why? Because they could and there will be no drop in attendance.
- You can raise your price by 10%, lose 1/3 of your customer base, and make the same money contingent on your margins. Why do you want to do more work and beat up your people and equipment?
- Vital to have Clean Records
- Break out your service lines, costs
- Make sure you’re doing Job Costing
- CPA must bless financials
- Do use WIP reports
- Buyer’s due diligence will be easier if above are met
- Owner is the “Face” of the company – can be a problem in a transition
- Develop an A+ Management Team – it will bring higher multiples. Invest in and develop a strong bench
- If your fleet is not current it will result in a Discount
- Also true for equipment
- Buyer CAPEX = Lower Price
- Sell with density in mind. You should have a density map.
- Say “no” if the job is an outlier
- Less windshield time = more profits
- UPS mostly makes right turns for a reason. They don’t want to wait on a left turn and risk turning into oncoming traffic. Right turns are safer and keeps them moving and delivering more packages.
- Dense routes reduce fleet mileage and expense – much more attractive to a buyer.
…to be continued. Look for more of Ceibass’ best practices to enhance EBITDA in upcoming blogs.