10 questions for determining company value

(Photo: iStock.com/Bet_Noire)

As a kid, I would play “10 Questions” to meet new friends. I discovered it was a great way to learn more about people I didn’t know.

I meet pest management professionals (PMPs) often, and they will ask me for a value multiple for their business. My professional answer is “It depends — please let me ask you a few questions.” What follow are 10 questions I would expect them to know the answers to and readily share.

1. What are your yearly gross sales?

• Good – The higher, the better
• Bad – Not a deal breaker, but smaller deals often require a strong market presence to allow existing operations to absorb.

2. What percentage of renewable services do you provide?

Let’s define renewable. My best and very liberal definition is any service that is routinely scheduled by the company, as compared to waiting for the customer to call. There are many gradients to this answer, with the gold standard being automatic monthly credit card payments for quarterly or bi-monthly service based on geographic region.

• Good – 80 percent or better
• Fair – 65 percent to 79 percent
• Poor – Less than 65 percent

3. When was your last price increase?

• Great – They do one every year.
• Good – Six months to a year ago, and they know how much.
• Fair – They do one about every three years.
• Bad – Either they don’t know, or it was more than three years ago.

Few customers care when you wait three years and then increase to try and catch up. Your employees care, however, when they don’t see routine increases.

4. What do you charge for a residential quarterly or bi-monthly service?

• Good – The higher, the better
• Bad – More than 20 percent below what the buyer charges

This is the easiest way to determine relative price. Commercial and one-time services are tricky and difficult to compare. An obtuse answer here is scary. This rate will help determine your value to the buyer. New owners will avoid any significant price increases for at least six months to minimize disruption.

5. What is your commercial vs. residential ratio?

This answer will have a very different impact for each buyer. Residential is more often better, but not exclusively so. Multi-family housing can be a deal killer for some buyers and acceptable to others. Unlike the other nine questions, though, nearly all sellers know this number.

6. Do you do any bid work for municipalities or school districts?

• Good – They never take on that work.
• Fair – They do a few small ones.
• Poor – It is a large part of their business.

Bid work almost always goes to the lowest bidder, and some contracts have stayed the same for more than 10 years. This is not a good model to run your business.

7. What software do you use to run your business?

• Good – They use a reputable pest control business software system. Bonus points if they elaborate on having someone on staff as an expert in using the software.
• Fair – They use a system that is no longer supported.

Not as bad as it sounds – They still hand route or use an index card system. This will require manual data entry for the new owner. I have done several deals for firms like this, however, and sometimes I can pull better notes from the cards than what they may have otherwise entered into a software application.

8. What vehicles do you use?

• Good – Any answer that indicates they are in the practice of replacing vehicles routinely.
• Bad – They haven’t bought a new vehicle in a while.

Vehicles are an important part of running a pest control business. A good business will have a practice in place to replace vehicles routinely.

9. Are you an active member of your state pest association?

• Great –They serve on the board.
• Good – They attend meetings routinely and have several friends there.
• Fair – They’re a member, but rarely attend meetings.
• Poor – They have no interest in belonging to industry organizations.

This speaks volumes about the owner’s commitment to running a growing, professional business.

10. How many employees do you have?

I try to correlate answers back to revenue to get some idea of the efficiency and scale. Many firms are currently under their desired staff count. Depending on the magnitude, this will need to be clarified to assess the impact. I like to hear positive personal endorsements of staff, because it speaks to the owner’s engagement in the business.

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from Pest Management Professional https://www.mypmp.net/2024/09/18/10-questions-for-determining-company-value/
Sacramento CA