If you’re thinking about selling a maintenance company, a landscaping business, or a painting operation someday, take a close look at your service agreements first.
Why?
Because buyers look at more than just your revenue. They look at where that revenue comes from and whether it’ll still be there after you’re gone.
A contract with a school district or a car dealership tells a buyer something a one-time job can’t. This money is coming back next month, and the month after that. That kind of certainty can raise what someone’s willing to pay for your business.
Why Buyers Look for Service Agreements
If you want to know how to value a service business, one important factor is service agreements.
Buyers want proof that the money will continue to come in after they take over. A one-off paint job or a single landscaping project doesn’t give them that proof. In contrast, a two-year contract with a property management company does. It says the revenue isn’t going anywhere just because ownership changed hands.
That’s why recurring contracts can push your asking price up. Buyers pay a premium for certainty. They’re willing to give you more money today because your agreements lower the risk for them tomorrow.
What Buyers Want to See
When a buyer examines your contracts, they’re on the hunt for both red flags and green lights. Here’s a quick look at what tends to catch their eye, good and bad:
- How long the contract runs. A five-year deal with a hospital is a huge win compared to a month-to-month arrangement with a small office park.
- Whether it transfers automatically. If a new owner has to renegotiate every contract, that could be a deal-breaker.
- How the pricing works. Fixed pricing with no room to adjust for rising costs can reduce profit.
- How much of your revenue comes from one client. If one school district makes up half your business, that’s risk a buyer has to factor in.
- How easy it is to cancel. A 30-day cancellation clause tells a buyer that revenue could disappear with a month’s notice.
Give Your Contracts a Checkup Before You List
Want to know how to sell a landscaping business or another service company and get the best possible price?
Before you put your business on the market, pull out every contract and read it like a buyer would. Look for the boring stuff because that’s what trips up deals.
- Are your renewal terms automatic, or does someone have to remember to send a form every year?
- Does your pricing let you raise rates when fuel or labor costs go up, or are you locked into last year’s numbers for the next three years?
Check who owns the contract if you sell as well. Some agreements are written to a specific person, and a buyer needs to know they’ll transfer with the sale.
If you find weak spots, fix them now. Add an automatic renewal clause. Build in a yearly price adjustment. Make sure contracts are assigned properly. These are small, relatively easy changes, but they will likely impact how a buyer reviews your business’s risk and how much they’re willing to pay.
Thinking of Selling a Business?
If you’re starting to think about what’s next and would like to learn more about a recurring revenue business sale, we’d love to hear from you. At The Batallan Group, we partner with owners in landscaping, painting, and facility maintenance who are ready for a change.