Most pest control business owners think their company is worth way more than it actually is.
They see posts online about “three to four times revenue” and do the math in their head. They’ve got a $2 million company, so they think they’re sitting on a $6 to $8 million exit. Then they talk to actual buyers and get offered $500,000.
What happened?
They were looking at the wrong number. Revenue doesn’t determine your valuation. EBITDA does.
After building Pest Badger to over $10 million a year and evaluating dozens of companies for acquisition, I’ve learned exactly what makes a pest control company valuable and what doesn’t. Let me break it down for you.
When Is the Right Time to Sell?
There’s no perfect threshold or magic number.
At the end of the day, it’s totally up to you as the business owner.
I think the right time is when you just don’t have any more passion for it. When you’re not excited about it anymore. When you don’t want to go to work.
But even then, maybe you still want to keep it because it’s making you so much money. It’s hard to say.
For everyone, it’s just a little bit different.
Start Planning Your Exit From Day One
Here’s what I wish more people understood: you should be thinking about your exit from day one.
I know that’s hard when you’re just starting out. You’re worried about getting your first customers, not about selling 20 years from now. But how you build your business from the beginning determines how much it’ll be worth when you’re ready to exit.
There’s a really good book called “Built to Sell.” Start there. That’d be my first piece of advice.
My second piece of advice? When you start thinking seriously about selling, go find a sell-side company that specializes in this. This is all they do. They’ll help you come up with a plan for what you should focus on in your last few years in business and what metrics buyers are looking for.
They can tell you what kind of multiple you’d get if you sold now versus in three years. Because the market could be tanked in three years. Or maybe it’ll be way better. There are so many nuances that could affect your valuation.
Maybe now would be better than selling in three years. Maybe holding for three years would be better than selling now. You need someone who knows the market to help you figure that out.
The Biggest Mistake: Posting Your Company Online Yourself
Here’s what not to do: don’t post your company for sale in Facebook groups or online forums yourself.
Any business owner who says they want to sell their company in one of those groups? I’d say that’s just not a savvy business owner at all.
Go find someone who’s going to make sure you get the best financial situation at the end of the day. Someone who’s going to put your company up for bid properly and get you the highest return.
Yes, it’s going to cost you money to pay someone like that. But they’re going to give you the best return on your money. It’s worth it.
Understanding Multiples: Revenue vs. EBITDA
Let me clear this up once and for all because I see this confusion constantly.
There are so many numbers out there. People talk about “three or four times revenue,” and I understand where that comes from. But it’s not based off revenue. It’s all based off EBITDA at the end of the day.
What Is EBITDA?
EBITDA stands for Earnings Before Interest, Tax, Depreciation, and Amortization.
It’s basically just a fancy word for profit. Your actual cash flow. What you’re really making after all expenses.
This is what buyers care about. Not your top-line revenue number.
The Real Multiple Ranges
Here’s what multiples actually look like based on EBITDA:
Zero to $1 million in EBITDA: You’re looking at around a 1x multiple. Maybe a little higher if you have great metrics, but that’s the baseline.
$1 to $3 million in EBITDA: You’re looking at 2.5x to maybe 3x EBITDA.
$5 to $10 million in EBITDA: Now you’re looking at around 5x EBITDA.
$10 million plus in EBITDA: You’re crossing into 6x EBITDA territory.
Now, there are some crazy numbers out there beyond this. I’ve seen 12x, 14x, even 16x multiples for really big companies with perfect metrics. But we’re talking about strategic buyers and private equity firms paying premium prices.
These are the standard multiples you should expect from normal buyers.
The Different Types of Buyers (And What They'll Pay)
Not all buyers are created equal. Understanding the different types of buyers helps you understand what kind of multiple you might actually get.
Private Equity Firms
PE firms are usually looking for bigger companies to use as platform companies. They typically want companies in the $5 to $10 million range, with their sweet spot being around $10 million.
But they’ll still buy a $5 million company to add to their platform company.
Here’s how PE works: they buy you as the platform company, then they’re going to roll up other pest control or lawn care companies into yours. They’re going to invest some money, keep that company for three to five years, keep rolling up more companies to build something really, really big, then sell it off again in the next seven years.
Whether you want to keep some money in it, whether you want to roll some equity over, there’s a lot of nuance to it. But these are the people who are willing to pay those 12x, 14x, 16x multiples for $20 million companies.
Strategic Buyers
Strategic buyers are big companies already in the market.
Maybe you own a $3 to $5 million company in a specific area that they can’t tap into because your brand carries so much weight. They’re willing to pay more for that because they want to buy into your market. They know they can make that money back in reduced drive time, offering more services to your customers, and eliminating a competitor.
Regular Local Buyers
Then you have regular guys like me. We’re not going to overspend.
Maybe the owner doesn’t want to sell to a big PE firm. Maybe he doesn’t want to see his company get absorbed into some massive operation. Maybe he wants to see someone young and hungry take over. He wants to pass the torch.
Those owners are often willing to give you a decent deal where they make good money and you get to help grow the business. But they’re not going to get those crazy 10x or 12x multiples.
What Makes Your Company More Valuable?
There are specific things you can do to increase your valuation and your multiple. Let me walk through them.
You Must Have a CRM
I don’t care if you think you can’t afford it. You can’t afford not to have one.
If you’re planning to sell anywhere anytime soon, you have to have a CRM. Period.
People say they can’t afford it. Then they wonder why no one wants to buy their company or why they get lowball offers.
That CRM will make you so much money day after day and save you so much time. And it makes your company infinitely more attractive to buyers.
High Profitability
Profit is a big one. The higher the profitability, the more you’re going to get.
It’s simple math. If your EBITDA is $500,000, you’re worth more than someone doing the same revenue with $200,000 in EBITDA.
So if you’re thinking about selling, maybe you slow down growth a little bit and pack more money to the bottom line. Focus on profitability over top-line revenue growth.
Strong Customer Retention
You want your churn rate below 20%. Ideally, you’re at 80% retention or better year over year.
If your churn rate is over 20%, you’re going to lose value. Maybe half a point less on your multiple. There’s a point system for everything.
Consistent Revenue Growth
You want to show that revenue is growing year after year.
If you’re not growing, or worse, if you’re actually declining, it’s probably not a great time to sell. You’re going to get less money because buyers don’t want to buy a shrinking business.
Management Team in Place
Having managers in place is huge.
You want to show that the business can run without you. If you’re the only person who knows how to do anything, that’s a key man risk, and it’s going to hurt your valuation.
Good Client Diversification
This is key client risk. Is your business dependent on only a few clients that make up all your revenue?
If losing two or three clients would destroy your business, buyers are going to pay less for it. They’re taking on too much risk.
No Key Man Dependencies
Every single company out there has some key man risk unless you’re huge. You’re always going to have that to some degree.
But you want to minimize it as much as possible. If the entire company relies on one branch manager or one sales guy, and you lose them, the whole thing falls apart? That’s going to cost you in valuation.
The Point System: How Buyers Actually Evaluate You
Here’s how it really works: there’s a point system based on all these factors.
If your churn rate is over 20%, you’re going to lose maybe half a point on your multiple.
If you’re not growing year over year, you’re going to lose points.
If you’re not showing a lot of profit, you’re going to get paid less.
If you have key man risk, you’re probably going to lose a point or more.
It’s not just one thing that really matters or sticks out. It’s all of them collectively.
You need to go through and make sure you have all these things in place. Work on each one systematically.
Creative Deal Structures: Keeping the Owner On
One thing I’ve done with acquisitions is keeping the owner on as a manager for a transition period.
You can structure deals where they keep some equity or roll some equity. Maybe they’re willing to provide you the loan themselves. Maybe you have a different exit plan where if they help you grow the company, they get a portion of the next exit too.
There are literally a thousand different ways to make deals happen.
This is especially useful if there’s key man risk. If the owner is the key man, keeping them on for a year or two can help you retain customers and transition the business smoothly.
Who You Need to Consult With
Don’t try to do this yourself. You need experts.
Mergers and Acquisitions Expert
Find a company that specializes in selling businesses. Not buying and selling. Just selling. Sell-side only.
Some companies, all they do is help sell companies. That’s their entire job. These are the people you want representing you.
Wealth Management Advisor
What are you going to do with your money? How can you save on taxes?
This is not my realm, but I know the people around me that can help with this. You need someone who understands tax planning for big exits.
Business Transaction Attorney
Get a lawyer who specializes in business transactions. Not just any lawyer. You need someone who does this specific thing all the time.
Yes, it’s going to cost you more money to hire all these specialists. But it will save you a lot of money in the long run.
The Biggest Mistakes When Preparing to Sell
Let me tell you where most people go wrong.
Mistake #1: Not Growing the Company
Most people, they don’t want to grow their company. And that’s okay. There’s nothing wrong with running a lifestyle business.
Just know that if you took $100,000 a year out of the company for the last 20 years and you didn’t grow it, it’s just not going to be worth a whole lot when you go to sell.
You might have to just hand it off to a kid or sell it for not much money. But at least you sucked all the money out of it along the way.
Versus building it to where it’s producing $400,000 or $600,000 or $800,000 worth of cash flow. Then you’ll get some good money for that company.
Mistake #2: Not Doing Enough Homework Early On
People don’t know what to look for. They don’t do enough homework early on about what makes a company valuable.
Then they get three months away from wanting to retire and they realize their company isn’t worth what they thought it was. Too late to fix it now.
Mistake #3: Not Having a Clear Vision
You need to know where you want the company to go from the beginning.
Are you building to sell for $1 million? Or are you building to sell for $5 million? That changes how you run the business day to day.
Mistake #4: Not Reinvesting in Growth
You have to keep reinvesting in the business.
Instead of taking every dollar out, reinvest in growth. Build the company to be worth $5 million instead of $1 million. The math works way better when you sell.
All the Factors Work Together
Here’s what you need to understand: it’s not just one thing that makes your company valuable.
It’s having a CRM. And strong retention. And consistent growth. And high profitability. And good management in place. And diversified clients. And minimal key man risk.
You’ve got to have them all in place. You’ve got to be working on each one. And there’s a lot to it.
But if you do the work, if you build the business right from day one with your exit in mind, you can get those higher multiples. You can turn a $3 million EBITDA company into a $15 million exit instead of a $3 million exit.
That’s the difference between doing it right and doing it wrong.
Final Thoughts: Build It Right From the Start
If you’re reading this and you’re early in your pest control business journey, start thinking about your exit now. Not in 20 years when you’re tired and ready to retire.
Read “Built to Sell.” Understand what makes a business valuable. Build those systems from day one.
If you’re reading this and you’re already established, take a hard look at your business. Where are you weak? Customer retention? Profitability? Key man dependencies? Pick one area and fix it this year. Then fix another next year.
And when you’re ready to sell, hire the right people. Don’t try to do it yourself. Don’t post it in Facebook groups. Get a real sell-side advisor who does this for a living.
Your business is probably the most valuable thing you own. Treat the sale like it matters.
Want to learn more about building a valuable pest control business? Join over 2,000 other pest control business owners in our free Facebook group, Pest Control Millionaires. And grab a copy of Zip Code Kings for the complete marketing playbook that’ll help you scale to seven figures.
Now go build something worth selling.
