How To Value A Pest Control Business

As a pest control business owner, you may wonder how much your business is worth. If you plan to sell your business, seek financing, or begin the process of succession planning, it’s crucial to accurately assess business value so you can make the best decisions.

An accurate business valuation better prepares you to set a business sale price and leverage negotiations. You can also implement strategies to boost business value and increase the interest of potential buyers.

Read on to find out how to value your pest control business and learn effective ways to increase your company’s value.

Formula: How to Value Your Pest Control Business

Valuation, or an estimation of business worth, includes many factors. Business experts use different financial metrics to help determine business value.

To help you better understand how to use valuation formulas for your pest control services business, find definitions of key terms below.

SDE: Generally used for small businesses with earnings under $1 million, SDE measures business earnings before the owner’s salary and benefits, income taxes, non-operating expenses and income, nonrecurring income and expenses, and depreciation and amortization, according to the International Business Brokers Association (IBBA). To calculate SDE, start with the net profit and add back owner compensation and other expenses to show business earnings.

SDE = Net profit + owner compensation + income taxes + nonoperating and nonrecurring expenses and income + depreciation and amortization

EBITDA: Typically used for medium-sized and large businesses, EBITDA shows business earnings before interest, which includes expense or income, income taxes, depreciation, and amortization. While some metrics use only EBIT, which is earnings before interest and taxes, adding depreciation and amortization makes it easier to compare the profitability with other companies.

EBITDA= Net profit + interest + income taxes + depreciation + amortization

Keep in mind these formulas provide an estimation of a company’s value. Often, professionals apply a SDE or EBITDA multiple, which varies based on several factors, to determine a fair sales price. It’s worth noting if you apply for financing, the lender may require an independent pest control business valuation.

Why is Revenue Not a Good Way to Value a Pest Control Company?

It may seem like a pest control business performs well because of its annual revenue. However, revenue indicates how much money a company makes selling services or products and doesn’t show whether a business operates profitably.

For example, a pest control business may struggle with generating steady revenue streams and experience cash flow fluctuations. Or, a pest control business with high revenue numbers could face an operating loss if its operating expenses exceed profits. In this scenario, a business would not be worth more than its revenue, and finding a buyer would be much more difficult.

Formulas like the two listed in the above section depict a more accurate picture of business value because they show the earning potential of a business and enable investors to compare profitability with other businesses. It allows potential buyers to see important factors of business operation so they can decide if owning the service business is worth the investment.

What Increases the Value of a Company?

Pest management contractors can take several steps to increase the value of their own business, whether it’s a startup or a long-established company.

In the world of business valuation, a market-based approach uses multiples to estimate the fair market value of a business. This approach applies financial data from comparable sold companies to determine the value of another business. To value a business with this method, a company’s SDE or EBITDA is multiplied by the appropriate multiple.

A company’s multiple depends on several factors and varies based on the industry, company size, and other factors. Put simply, a higher multiple translates into a higher company value. To increase the value and growth potential of your pest control company, follow these expert tips below.

Customer base

Establishing a solid customer base remains key to business financial health. Pest control businesses today rely on business management software like FieldRoutes® Operations Suite to enhance customer service and increase customer retention.

With these operational tools, pest control service providers can streamline termite or bed bug inspections, automate appointment reminders and customer communication, and easily maintain recurring service membership, all of which work to increase customer satisfaction and profit.

This helps pest control companies demonstrate low customer turnover rate, one key factor in increasing company value.

Market position

Pest control business owners who establish a solid brand positioning strategy improve the visibility and enhance customer perception of their company.

To do this, you’ll need to determine how your company meets the needs of your target market. You’ll also want to analyze the competition in your area and highlight the unique services or products your company offers. Providing exceptional customer service differentiates your company from the competition and reinforces your company’s positive image.

A strong market position gives your company a competitive advantage and makes it more appealing to potential investors.

Operational efficiency

Streamline your operations with pest control management software to increase efficiency and productivity.

Software built for the pest control industry simplifies scheduling and optimizes routing, streamlines inspection and renewal processes, and automates billing and payments. In addition, it gives you real-time reporting tools so you can make operational improvements and grow.

Pest control companies operating efficiently demonstrate productivity and profitability, which increases company value.

Eco-friendly products and practices

Now more than ever, customers seek eco-friendly options to manage their pest problems. Exterminators offering eco-friendly options and practices along with (or instead of) traditional sprays work to increase their customer base and enhance customer satisfaction.

Pest control business owners can strengthen their business and increase value by offering additional verticals, services, or approaches that appeal to a particular set of customers.

Documentation and systems

Business owners who started their business with a small team may find their company has outgrown its original procedures and processes. It’s important to establish or re-examine operational procedures so your company operates as efficiently and profitably as possible.

Pest control management software, such as FieldRoutes pest control software, helps you establish best-practice procedures, streamline documentation and communication, and manage business performance.

Companies with efficient systems and documentation already in place increase company value and facilitate a smooth operational transfer with a new owner.

Equipment and technology

Innovative technology and equipment increase the value of a pest control business and demonstrate a company’s commitment to providing the best services to its customers.

Pest control contractors with an end-to-end software solution, efficient vehicles, advanced pest control products and equipment, and knowledge of the latest techniques can better manage their company and drive business growth.

Cutting-edge equipment and technology increase a company’s assets and boost the value of a company.

What Decreases the Value of a Company?

Several factors can decrease the value of a company and hinder its attractiveness to potential buyers.

The following includes tips on what business owners should not do because these will decrease a company’s value to investors.

Everything depends on the owner

Implementing operational procedures and a hierarchical structure helps a company not rely solely on the owner for guidance and decision-making.

Set systems in place to improve operational procedures, documentation, and accountability. Business management software streamlines this process, empowering owners to develop a thriving business without their constant involvement.

A strong management team not only helps the business owner obtain a work-life balance but also demonstrates to buyers the business can operate smoothly and profitably without the owner’s continual involvement.

Outdated technology and equipment

A pest control operator (PCO) using outdated equipment and technology limits the services and growth of the company.

Today’s customers seek the most effective solutions to pest control problems, and companies need to remain up-to-date with solutions and products that deliver. Remain competitive with pest control management software to streamline operations and provide effective services and products.

Buyers may be reluctant to invest in a pest control company that requires a significant investment to update equipment and technology.

Customer concentration

As with any service business, it’s risky to rely on a small number of key customers. Broaden your customer base to increase revenue and the number of repeat customers.

To widen your customer base and growth potential, consider offering new services and enhance your marketing efforts. This could include focusing on increasing your online presence with social media posts, targeted direct mail, and customer reviews and referrals.

Relying on a small portion of clients for revenue creates uncertainty for buyers who don’t want to lose those clients after a sale. A diverse customer base eliminates worries about a potential loss of revenue or growth of a company.

Lack of differentiation

Buyers seek companies with a competitive advantage and likely won’t be attracted to pest control companies that don’t stand out.

Give your business distinguishing features by offering unique services and products, providing exceptional customer service, and building a strong reputation in your community. Find out what your customers want, offer those services, and market what sets your company apart from the competition.

Competitive companies attract buyers because it gives them assurance their investment will remain profitable.

Extremely low prices

While you want your pest control company to offer competitive pricing, providing services at rock-bottom prices could present warning signs to a potential investor. It could raise concerns a company doesn’t provide a good value for its services or operates with narrow profit margins.

Pest control companies should establish the right prices for their services so they remain competitive but also profitable. A higher price should demonstrate higher value and service. Companies operating with the right prices reassure buyers the business remains sustainable and generates healthy profit margins.

Invest in Innovative Technology

Now that you know more about how to calculate the value of your pest control business and increase buyer appeal, it’s time to consider how pest control management software increases the value of your business.

FieldRoutes’ all-in-one tools streamline your operations to increase your team’s efficiency and productivity. The software also helps pest control companies enhance marketing efforts and acquire new customers, maximize sales opportunities, and generate more revenue.

Ready to find out more? Schedule a free demo to see how FieldRoutes takes your business to the next level.

Frequently Asked Questions (FAQs)

If you’re thinking about selling your business, you might wonder where you can find a buyer and if you can sell your business on your own. Find answers to some of these questions below.

Where to find a buyer for my pest control business?

It may seem like you don’t know where to start, but you have several options for finding a buyer for your business. A few ideas include:

• Word-of-mouth: Consider local business organizations or regional trade association networks to find an entrepreneur interested in beginning business ownership or business expansion.

• Online listings: Local or nationwide business sale listings get your business noticed fast.

• Hire a professional: Consider hiring a business broker, merger and acquisition specialist, or investment banker to help you get the most out of the sale.

When you’re ready to sell your business, investigate your options so you can make the best decision and find the right buyer.

How long will my business take to sell?

Business experts state it can take anywhere from six months to a year to sell a business, but the time it takes depends on many factors.

Depending on your business structure, size, location, and the market when you decide to sell, it could take just a few months or more than a year to sell your business.

If you’re considering selling your business, it’s a good idea to prepare a year or more in advance, so you can show buyers a clean balance sheet and steady profits throughout several years.

Do I need a business broker?

The short answer: It depends. Hiring a business broker or other professional depends on your business and what you want out of the sale.

Pros

• Provides a business valuation

• Finds interested buyers, including private equity firms

• Assists in the selling process

Cons

• Requires research to find a reputable broker

• High commission cost

• Potential lack of knowledge in the pest control industry

Besides business brokers, other considerations for professional advice include business attorneys and certified public accountants (CPAs).