I’m writing this during a hurricane. Don’t worry – I and everyone I know is at home staying safe and dry, but just about every landscaping company in Florida has the day off thanks to a storm that is covering the entire state. I hope they’re getting some rest. Tomorrow and the week that follows are going to be the busiest of the summer as they get extra work cleaning up fallen branches and debris while catching up on regular service to customers.
You may be a business affected by a natural disaster: fire, storms, floods, or full-blown (pun intended) hurricanes. The question is, if you’re selling this year, will a natural disaster – and the business it interrupts or generates – affect the valuation of your lawn business?
The answer is probably not. I spoke to Steve Mariani, an SBA lending specialist at Diamond financial in Raleigh, North Carolina (a state which gets its fair share of big storms.) Steve agrees. Both lenders and buyers understand that, by definition, disasters happen rarely. A disaster affecting hundreds of companies impacts everyone down the line: supply lines get disrupted, business shuts down for a few days, and customers have to get back to normal before things become business as usual again.
“Most of the time, we consider a year with a disaster an outlier and take it out of the financial analysis,” Steve says. “We look closely at the year before and after to see if the sales and profitability normalize and use that information instead.” That’s true of businesses that thrive after a disaster (and there are always some that do), including lawn companies, construction, and roofing. Those boosts in income are factored out of the financial analysis, unless they seem like the start of a new trend that might last for years.
Disasters can sometimes have long-term effects a business owner might not anticipate. Steve says his bank ran into that on a construction project that had been financed and was ready to go. However, a natural disaster in another part of the state prompted thousands of construction workers to move there to pick up the high-paying cleanup and rebuilding jobs that could last for months, even years. Landscape crews are the kind of workers who often cross over into other industries, so worker migration–caused labor shortages might impact costs and affect the company’s ability to grow. Higher insurance premiums and other secondary impacts might also have long tails.
A recent disaster may have more impact than one that happened five years ago, especially for a buyer or PE firm that’s not from the area. That’s because our brains are hard-wired to pay more attention to events that have just occurred. Recency bias is a cognitive bias that favors recent events over historic ones; it’s a memory bias. Recency bias gives “greater importance to the most recent event,” meaning buyers may be more concerned about last year’s storm than the one that happened 10 years ago (which may have been worse.) But the financials always outweigh the emotional impact of the event.
For the most part, a natural disaster’s impact on financial value is like the storm you weathered: messy for a while, but certainly temporary. This too, shall pass.
If you are curious about what your business is with now, click here to get a confidential and complimentary opinion of value.
About the author: Jim Parker
Jim Parker is an experienced business broker specializing in lawn and landscape businesses. His company is based in Clermont, Florida. As an industry leader, he has served as the past president of the Business Brokers of Florida and currently sits on the International Business Brokers Association’s Board of Governors. Jim is a sought-after speaker, teaching others in his industry best practices in ethics, closing transactions, and finding qualified buyers. He has earned over 50 awards and recognitions in his career.
He is a Certified Business Intermediary (CBI), Certified Mergers and Acquisition Professional (CMAP), Masters Certified Business Intermediary (MCBI), and a Mergers & Acquisitions Master Intermediary (M&AMI. He is one of one of less than 20 business intermediaries in the world that have all four of these designations. To contact Jim, visit TheLawnBoss.com or call (407) 927-8999.