How to Value a Pest Control Company

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Drew Lund

Customer Success Manager at Cedar Systems. Industry expert with experience in multiple sectors across pest control. Executed successful programs in customer success, operations strategy, business and franchise development, and technical project management.

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How To Value a Pest Control Company and What Can Help You Get Acquired

Whether you’re looking to sell or buy a pest control company, you’ll need to know the value of the company to make the most optimal financial decisions.

Strutting into the market with nothing but hope and a dream will not get you far in today’s economy. To fully understand the value of your business, you’ll need to take a deep dive into the world of industry standards, business valuation approaches, and valuation multiples.

This article has all the buzz on how to: 

  • Value a pest control company
  • Enhance your company’s value; and
  • Optimize your business’ valuation by streamlining your operations

Industry Standards for Valuing Pest Control Businesses

Navigating the market when buying or selling your pest control company can be difficult without a business valuation. A business appraiser may help you understand the value of a pest control company for better negotiation practices. 

There are three types of approaches to valuing a pest control company:

  1. Market approach: Indicates value based on the selling price of similar assets
  2. Income approach: Determines market value based on income stream
  3. Asset approach: Uses fair market value of a company’s assets and liability as indicators of value 

Appraisers generally use the market approach when valuing pest control businesses. 

Whether you are selling or buying a pest control business, understanding how the market values similar businesses can help you:

  • Set a fair offering or asking price
  • Negotiate better
  • Gain financial insight into the well-being of the company you want to buy or sell

The market approach uses the market to determine value through valuation multiples. Valuation multiples are measurement tools that help ratio one financial metric to another to make sound market comparisons.

Valuation multiples are found through formulas that use a standard multiple that reflects the industry value range that is then multiplied by revenue, cash flow, or earnings before interest.

3 Main Types of Valuation Multiples You May Use When Valuing a Pest Control Company

#1: REV Multiples

REV multiples use revenue as the main value to determine the equity of a business. The average REV multiple for the pest control industry is between .97x-2.34x.

The formula for REV multiple valuation is presented as:

  • Revenue X Multiple= Value of the Business

For example, if a business has an annual revenue of $985,000 with a multiple of 1.2x, it would be valued at $1,182,000. REV multiples are generally applied to the appraisal of smaller businesses or start-ups that are not yet profitable or have high growth potential but no solid earnings.

#2: SDE Multiples

Seller’s Discretionary Earning (SDE) represents the total financial benefits an owner receives from a company before interest, tax, debt, amortization, discretionary/recurring expenses, and owner’s salary. 

An SDE multiple is a value that is derived from an industry average of SDEs calculated from multiple companies in the industry. The average SDE multiple for pest control companies ranges from 2.34x-2.90x.

You can use your SDE and the SDE multiple to find the value of your pest control company with this formula:

  • SDE X SDE Multiple = Value of the Company

For example, if you have an SDE of $310,000 and the SDE multiple for your area transacted at 2.5x, your business would be valued at $775,000. SDE multiples are generally used to calculate the total value of a small business that clears around $1 million million in annual revenue. 

For SDE multiples, expenses that may not be incurred by the new owner are added back. Common add-backs include:

  • Recurring business items
  • Non-related business items
  • Personal expenses
  • Fair market owner’s salary

#3: EBITDA Multiples

An EBITDA multiple is a formula that calculates a company’s value by comparing the enterprise value to earnings before interest, tax, debt, and amortization (EBITDA). The EBITDA multiple provides an assimilated ratio for differences in structure, taxation, and fixed assets to make market comparison more accurate. 

To Determine the Enterprise Value and EBITDA:

  • EBITDA = Earnings Before Tax + Interest + Depreciation + Amortization
  • Enterprise Value = (market capitalization + value of debt + minority interest + preferred shares) – (cash and cash equivalents)

The formula to find the EBITDA multiple is:

  • EBITDA Multiple = Enterprise Value / EBITDA

Once you have your EBITDA multiple you can use it to get the value of your company with this formula:

  • EBITDA Multiple X EBITDA = Value of the Company

The average EBITDA range for a pest control company is 3.26x-4.07x. Let’s say a pest control company has an EBITDA of $3,435,000 and it transacts at an EBITDA multiple of 3.76x. Using the above-mentioned formula, the company would be worth $1,259,600. 

EBITDA multiples are generally used to determine the value of medium to larger businesses with an annual revenue of $2-$3 million or more. Unlike the SDE multiple, the EBITDA multiple does not add back the officer’s salary. Instead, EBITDA assumes that the buyer will not directly operate the company so a market rate salary is applied to replace the owner and is added as operating expenses.

10 Factors That Enhance the Value of a Pest Control Company

The market approach can help value your business by using the market data for similar companies. However, this does not mean that your company’s value is solely at the whim of the market’s fluctuating moods. These factors can help you enhance the value of your pest control company. 

#1: Recurring Revenue

Recurring revenue or actual recurring revenue (ARR) is a guaranteed or consistent service or maintenance contract usually between a business and a pest control company. These are generally long-term service contracts or subscriptions that would remain static, even if the company’s ownership switched hands. 

Recurring revenue helps your business look more attractive to potential buyers because it is guaranteed income. One-time jobs provide a cash cushion, but recurring jobs are a cash guarantee.

#2: A Good Reputation

The pest control industry is highly competitive. Any lead you have on your competitors is another cent added to your company’s value. 

You can enhance your reputation by garnering more positive reviews and testimonials.

 You can also:

  • Build your online presence through social media.
  • Enhance the quality of your customer service.
  • Respond to reviews.
  • Post testimonials on your website.
  • Get involved with your local community.

#3: Location

The geographical location of your business can influence your market size and amount of competition. Your company will have more value if you are in a location with high demand for your services and little competition.

#4: A Combination of Residential and Commercial Clientele

Having both residential and commercial clientele will expand your market presence and increase your recurring revenue. 

Residential clients usually request pest control services for one-time-only services. Commercial clientele are more likely to need recurring services especially if these clients involve the service or real estate industry.

 

#5: Maximum Operational Efficiency

When you’re operating at your highest peak, your customer service is unparalleled, your employees are productive and organized, and you are consistently able to adapt to business challenges and changes.  

Streamlining your operations is an easy way to ensure that your pest control company is operating at maximum efficiency. Long gone are the days when you need to rely on mountains of paper and analog techniques to manage your team and service customers.

 Management software makes it easy to:

  • Schedule and assign routes
  • Communicate with customers
  • Process payments
  • Track data
  • Monitor sales

But why would you use any generic management software when you could be using software that is 100% focused on your industry?

Cedar Pest is automation software designed for pest control professionals, by pest control professionals.

The pest control industry is essential and remarkable but inundated with petty tasks, spreadsheets, and disconnected systems. We know this and that’s why we created Cedar Pest. Reduce all of the noise and buzz and streamline your operations into one organized digital pest ecosystem.

#6: Eco-Friendly Pest Control

Environmentally sustainable practices score big with modern consumers. Concerns over chemical pesticides and pest control have risen in recent years. Pest control companies that practice eco-friendly pest control may attract more clientele and be more marketable for potential buyers. 

A survey conducted by TheRoundup.org revealed:

  • 78% of polled individuals felt that sustainability is important.
  • 55% of those polled claimed they are willing to pay more for eco-friendly brands.
  • 84% of surveyed individuals say that poor environmental practices are a big reason for alienating themselves from a company.

#7: A Solid Marketing Strategy

How marketable is your business?

Modern times have presented countless avenues of free self-marketing and in the cut-throat world of pest control — every detail counts. 

If you have made an effort to create a strong, enduring marketing strategy, your company will have more appeal to prospective buyers. A good marketing strategy can help you:

  • Increase sales
  • Connect with your ideal customer base
  • Differentiate your business from the competition

#8: Up-To-Date Equipment and Technology

Do you have the latest equipment and transport or are you constantly dealing with broken-down vans and malfunctioning backpack sprayers? 

Buyers will not want to spend much on a business if they will need to immediately, or some time down the line, replace a lot of its assets. Up-to-date technology can add asset value to your business, as well as show your business’s commitment to providing the best service possible. 

Having the latest technology and equipment can help your pest control business:

  • Reduce downtime costs spent on broken/defective tools
  • Service and respond to customers quickly
  • Decrease time spent on manual or repetitive tasks
  • Provide high-quality service

#9: A Business That Can Run Without the Owner

Three types of buyers might seek to buy your pest control company:

  1. Individuals
  2. Strategic buyers (think big names like Orkin and Massey); and
  3. Private equity groups

All three prospective buyer types are looking to obtain your business, not run it. If you, the owner, are the center of your company and what keeps the ball running, when you leave your business everything may fall apart without you.

A business that cannot run without its owner can scare away potential buyers which could lead to your business being less valuable.

A strong management team and a hierarchical system supported by efficient operating systems demonstrates to buyers that your business will smoothly change hands once sold

#10: Not Having Too Much of a Niche Market

Having a specialty in the pest control industry can be useful. For example, you might be able to obtain licenses and provide services other pest control companies cannot. The area you might operate in may have a high demand for a niche service. 

While having a niche specialty may sometimes be beneficial, limiting your services to one market niche, like termites, may decrease your company’s value and buyer attraction. 

Buyers want pest control companies with a broad range of services and clients. Keeping your specialty, but opening your business to more generic pest control services, will allow your business to have an easier time on the market and an increased valuation.

Cedar Pest Control Software Can Help Increase the Valuation of Your Company

Buyers are looking to acquire businesses that are optimized for peak productivity and efficiency. Out-of-date technology and analog systems may not appeal to the current standards of the industry. 

Certain management systems lack the capacity to meet all of the pest control industry’s needs. Why settle for software that is not tailored to the needs of your pest control business when you can choose software that is designed specifically for pest control? 

Cedar Pest is the premiere pest control management tool that will help you:

  • Streamline operations
  • Manage multiple business aspects from one mobile tool
  • Access relevant data for informed decision-making
  • Attract potential buyers

Find out just how easy it is to increase your company’s value with Cedar Pest by requesting a free demo today.

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