How Is an Irrigation & Sprinkler System Business Valued in New York?

Most sprinkler company owners can tell you last year's revenue to the dollar. Ask what the company is worth and you usually get a guess, or a number a friend got for a different business fifteen years ago.

The method buyers use is no secret, and it fits on one page. Below is an irrigation business valuation for a New York company, worked start to finish with made-up numbers, so you can run your own at the kitchen table tonight.

Step 1: Find What the Business Really Earns

Buyers begin with Seller's Discretionary Earnings, or SDE. It answers one question: if you owned this company outright and ran it yourself, how much money would it put in your pocket in a year?

Your tax return doesn't answer that. Your accountant built the return to keep taxable profit low, which is the right job for a tax return and the wrong starting point for a valuation.

Take a Suffolk County irrigation company doing $1.1 million a year. The return shows $96,000 in net profit. Here is what gets added back:

• Net profit on the return: $96,000
• The owner's salary: $85,000
• Owner's health insurance, paid by the company: $18,000
• A personal truck and its fuel on the company card: $9,000
• A one-time cost, replacing a stolen trencher: $14,000
• Depreciation: $22,000
• Interest on the equipment loan: $6,000

Add the column and you get $250,000 in SDE. That's the company's real earning power, and it is more than two and a half times what the tax return suggested.

Every item on that list is normal, and every buyer expects to see a few. The only requirement is a paper trail. If your bookkeeper can point to each add-back and say what it was, it counts. If it's cash nobody recorded, it doesn't.

Step 2: Apply the Range

Established irrigation and sprinkler system companies in New York generally change hands between 2.5x and 4x SDE. On $250,000, that works out to:

• At 2.5x: $625,000
• At 3.25x: $812,500
• At 4x: $1,000,000

Same company, same earnings, and a $375,000 spread. The rest of the valuation is deciding where inside that spread the business belongs.

Step 3: The Four Levers

Four things set the sprinkler system company SDE multiple. They are the same four we listed in our Long Island irrigation guide. Here is how each one moves the math.

1. The size of the signed seasonal book

Count the properties on a written spring start-up and fall blow-out agreement. If that work is 60% or more of revenue, a buyer can see next year before it happens. If most of the revenue is new installs for builders and landscapers, next year has to be won again from scratch. This lever alone can account for a full turn of the multiple, which is $250,000 in our example.

2. The renewal rate

Of the properties you opened last April, what share did you open this April? Above 85% says the book is healthy. Under 70% says you are refilling a leaky bucket every spring, and a buyer prices in the cost of refilling it.

3. Route density

During the October blow-out rush, how many stops does a tech finish in a day? Twenty-two stops across Smithtown and St. James is a different business than eleven stops spread from Great Neck to Riverhead, even at the same revenue. Margin lost to the Long Island Expressway never shows up in SDE in the first place.

4. How much lives in your head

Zone maps, controller locations, the valve box buried under the hydrangea, which customer wants a call first. Written down in a customer file, that knowledge is an asset a buyer pays for. Stored only in your memory, it's a risk a buyer discounts.

Put the levers together and the spread makes sense. A company with 1,400 properties under agreement, 90% renewals, and a tight route sits at 3.5x to 4x: $875,000 to $1,000,000. A company with the same $250,000 in SDE that lives on install work sits at 2.5x to 3x: $625,000 to $750,000.

What About EBITDA?

You'll hear both terms, and owners often compare an SDE number to an EBITDA number as if they were the same thing. They aren't.

SDE assumes the owner works in the business. EBITDA assumes the owner has been replaced by a paid manager, so it subtracts that salary. If a general manager for our example company costs $90,000, the sprinkler business EBITDA is about $160,000.

EBITDA multiples run higher than SDE multiples, so both methods tend to land in the same neighborhood. For an owner-run company of this size, most buyers work in SDE. The thing to check is that the multiple and the earnings figure someone quotes you belong to the same method. A "5x" offer on EBITDA and a "3.2x" offer on SDE can be the same check.

What Doesn't Go Into the Multiple

• Trucks, trenchers, and compressors. The equipment needed to run the route is assumed to come with the business. A buyer checks that nothing needs replacing in year one. A tired fleet can lower a number; a new wrap won't raise it.
• Revenue by itself. Two companies at $1.1 million can sit $375,000 apart, as the example shows.
• Next year's install pipeline. Signed agreements count. A list of builders who "usually call" does not.
• What another owner told you he got. His book, his route, and his records were different from yours.

How to Value Your Own Irrigation Business This Week

You need three things: your last three tax returns, a count of properties on a signed seasonal agreement, and the number of those that renewed from the year before.

Build SDE for each of the three years the way we did above. Average them, leaning toward the most recent year. Multiply by 2.5 and by 4. Then take a hard look at the four levers and mark where you'd fall.

That gives you a working range for what your irrigation company is worth on Long Island or anywhere else in the New York area. It won't be exact, and it doesn't need to be. Owners with crews in two counties can find the local detail in our Nassau and Suffolk guide, and if most of your customers arrive by word of mouth, the referral question has its own answer. Pool route owners will recognize the same checklist in what a buyer looks for.

If you'd like a second set of eyes on your arithmetic, send it over. We answer every message personally, and asking the question commits you to nothing.

The right transition lets you retire from your business and keep your legacy alive. The name stays, the crew stays, and the customers get their start-up call in April like they always have.