Question on Buying a Business

[lsylvain]

How much would you pay for a business with

73 accounts residential and small comercial year round

3 exmark w/b with sulkies 60",48",36" all under 20 hrs
16' enclosed trailer
86 Dodge 1ton dump
1 vericut
All the little stuff


The price it's listed for seems cheap. Wanted some prices to compare.

[Joe W.]

What is it listed for? I would question the "under 20 hrs",they didn't do alot of mowing for all that new equipment.

[bob]

Do a search on this subject. But for just the accounts, I'd pay no more than 2 months gross.

[awm]

If he is selling a buisiness he should be able to show you last yrs records,bills of sale or titles etc.
If I were going to buy hed have to visit the customers
or at least let you pick some out at random to visit.
If most are good money makers,dont give him more for equipment than you think you can sell it for.If you know
an honest dealer he can probably give you ballpark figures.
Add up all projected income from accts .Some probably not worth much.some worth alot.Visit the ones that look the
best, and see if you think they really will stay with you.
As far as how much to pay .That depends totaly on the figures you came up with . Also how bad you wantum and
how bad he wants to sellum.GOOD LUCK

[Fantasy Lawns]

2 months on Monthly income .....year round ....is good ;->

I bought 50 about 3 years ago (guy was moving up north) we still mow about 40 of em' ....they were bidded good .....all they wanted was good service ....BUT that first month or two a few still sent him the check or a few had pre-paid with him ....so be sure to check each one with the seller BEFORE you pay

also depends on how long they been doing em' ....do they know what's going on ..are they willing to work with you while you meet the customers ....all you ever get in a deal like this is the opportunity to show them what you can or can't do ....after the first impression they will stay or go

good luck

[lsylvain]

He said he will stay with me until everything is settled basically he'll take me to all of the accounts and introduce them to me. I'm going to try and convince him to let me work with him for a few weeks to get a feel for how he has been treating his customers.

I havn't seen his financial statements yet so I'm not sure what his gross was.

Thanks for the info

[bob]

How much is he asking for them?

[lsylvain]

okay, I talked with him last night here is the complete list

73 accounts Totalling $60,000 per year last year
he gets them mowed in 4 days with 2 guys

1986 Dpdge pne ton dump
16' enclosed trailer
60" Exmark 20 hrs mulching kit and velke
48" Exmark 16hr with bagger
32" Exmark 12hrs with mulching kit and velke
Shindiawa pole edger
shindiawa t-27 whip
shindiawa t-230 whip
2 sthil backpack blowers
Lwsco Hedge shears
Sthil chain saw
Back pack prayer
Lesco blade grinder
Lesco spreader
Verticut machine (Robin)
Sod cutter and trailer
Auger

He and his crew will work with me for 1 month to get me settled.

about half of the accounts he has had for about 10 years

The deal is he has 1 large business and is getting rid of all his residential and small comercial accounts and keeping all the big one's and opening a nursery. That's why all the new equipment he just got all new equipment.

he is asking $38,500 $30,000 cash

[lsylvain]

He also just picked up 9 more accounts this week

[Fantasy Lawns]

this is a ?? only your going to be able to answer you'll get lot's of input ....

even with 2 months gross ...10K all that equip depending on the over all "real" condition might come in at another 10k-15k

him & worker for one month ....williness to help ...he's been doing them for many years ....calls are coming in ....he'll float $8.5k

sounds like he is sincere ....maybe a quick "peek" as his last 2-3 years books will help you decide ....I'm not saying don't try to "haggle" him down aleast 5K ....especially if you can show him you have the $$ to back you

Good Luck

[SLSNursery]

I would pay Zero for that operation. I don't really have a fancy explanation for why, but here's a quick one.

73 Accounts - each yielding less than 1000 gross. This is not a good sign.


The equipment list - seems ok, and represents all of the value of any deal. Problems with the truck will probably out do any savings on the mowers. In the past we sold a mower, and gave away 20-30 accounts with it, to a start up, with the deal that I don't even want any phone calls from the customers. These accounts are not producing for him, so he is moving on. You should too! Be very cautious.

Cash - he wants cash probably because he doesn't want the hassle of dealing with the fact that you probably won't retain any of the customers by the time you adjust your prices. He was probably unable to raise revenue from them.

Options - if he is getting rid of them as a group, they probably know it because chances are his service level on them was lower than par. Each one of these people probably has a backup service in mind, or would pick you if you marketed your own operation well.

[LoneStarLawn]

Originally posted by SLSNursery
I would pay Zero for that operation. I don't really have a fancy explanation for why, but here's a quick one.

73 Accounts - each yielding less than 1000 gross. This is not a good sign.




Why is that a problem? Do you know how many cuts he does..? Do you know how large or how small the accounts are? Do you know the profit margin percentage? Do you know the market in his area?
The guy he is buying them from has been in business for 10 years and is opening a nursery; I would say he did something right...It's funny seeing how people think other people's gross is too low when they dont know what their profit margin is or how the market is in their area...

[Edited by LoneStarLawn on 03-26-2001 at 07:49 PM]

[Stinger]

I agree with Lone Star looks like this guy is on to bigger and better things. Out of all the years in this biz I have never had anyone hold my hand by introducing there customers and much less offering to stick around and show you the ropes for a whole month. This is the most honest cutter I've ever heard of. Can't say I would buy any of his equipment, got burned there before. But I would pay him what the accounts gross over the next couple of months. That way if you just totally piss someone off it doesn't cost you, good luck!

[SLSNursery]

73 accounts in 4 days with 2 guys

4 days, 2 guys @ 10/hour each = $ 640.00 per week. (4*2*8hours=64*10/hour) I don't think I'm too far off on the dollars, and I'll assume about a 30 week season (even though he said year round). That equals 20,000 in payroll before taxes. Is it realistic to think that 2 men or women in West Virginia will work full time mowing for only $ 10,000 per year? I don't think so, but I could be wrong. I think you might be able to keep a couple workers interested for about $ 15,000 each per year.

60,000-30,000 = 30,000 gross profit.

Lets assume that insurance is cheap - on the truck it will be a couple of thousand for a decent policy, comp and gen. liability maybe another 1500-2000. We'll say 4000 Total.

30,000 - 4000 = 26,000

Maintenance on equipment - shouldn't be too bad, since the equipment is new. Maybe just tune ups, quick repairs, 2000 on the year is getting away easy. Probably with the truck alone he'll dump 2000.

26,000 - 2000 = 24,000

Fuel Costs - to run an older one ton dump, I'll figure that it uses 100/week for the truck and the equipment. That's 3000.

24,000 - 3000 = 21,000

Office time and other overhead - you need to bill 73 people, with stamps, envelopes, collections, etc. This will take time and some money. Let's say about $100.00 per month to cover all costs associated with the office (We'll assume a 10 month year from start to finish).

21,000 - 1000 = 20,000

Taxes = Payroll, unemployment, income - 20% - This number could be argued , but is a fair assumption for this example, I think, no matter where you are.

20,000 - 4000 = 16,000

Now, you own the company, and as was expressed he and his guys will work with me. I assume you will be a working owner, and need to get paid. If you work for $10 per hour as well, for about 50 hours per week (since you probably have to work more than the guys) - 50 hours * 10 = 500 per week * 30=15,000

16,000 - 15,000 = 1,000 profit before you have any major breakdowns or problems.

Of course you could get extra work, and then you would have more revenue, but not at a cost. Keeping up with 73 account of any size (assuming that they take 4 days as shown) does not allow for too much extra running around or other work. Unless you have a better system than the previous operator, it is a losing proposition at this point.

Further, how can you count 9 more unqualified accounts in your calculations?

[Getmow]

I recently sold my business and here are my thoughts.
1- check the books from the previous 2 years. Profit and loss statements are a start but look a little deeper and job cost each property, then check expenses.
2- Go to each property and double check the figures on time,costs and work.
3- Go over the equipment.
4- If you think that this is still looking good then;
5- Make an offer in the 20-25k range and get a no compete clause in the sale that stipulates that he can do no residential work for a certain time.
6- Have all contracts renewed or at least positive contact with most clients.

[LoneStarLawn]

Originally posted by SLSNursery
73 accounts in 4 days with 2 guys

4 days, 2 guys @ 10/hour each = $ 640.00 per week. (4*2*8hours=64*10/hour) I don't think I'm too far off on the dollars, and I'll assume about a 30 week season (even though he said year round). That equals 20,000 in payroll before taxes. Is it realistic to think that 2 men or women in West Virginia will work full time mowing for only $ 10,000 per year? I don't think so, but I could be wrong. I think you might be able to keep a couple workers interested for about $ 15,000 each per year.

60,000-30,000 = 30,000 gross profit.

This is based on cutting each week of the 30 week season?

Say they are on a every 2 -week schedule...

So employees would be $10,000 TOTAL....(Again this is for only THESE accounts to the addition to other work and other accounts he may have already...Plus as well do we do the work so employees could be taken out all together)

so...60,000-10,000 = 50,000

As you can see you can still do the numbers the same way here on out and come out with 20,000 more..


Again every person situation is different...That is why some make it some don't....

This may work for some and it may not work for others...

[VLM]

Am I missing something or did someone already challenge his numbers on the hours on machines? They total about 50 hrs! What is that, about a months worth of work? Are these brand new machines or are these the same he has had for years? If so, he is not being truthful with you about the hours on them.

[jrebeiro]

VLM

He already stated the equipment was new

[lsylvain]

They cut 36 times a year roughly. Southern, FL

In WV the going rate for a rocket scientist is $5.00 an hour with no overtime or benifiets plus you have to pay at least on bill a month for the company. If you pay 2 bills a month they might only lay you of 6 months a year and not 11. Maby it's not that bad but close. :)Ha

I should be able to handle all the accounts myself. When you subtract the drive time of the extra man it's about 52 hours per week. I work 68+ hours a week as it is between school and such. Only going on 2 hrs of sleep today, so excuse any incohearent remarks.
My G/F helps me out part time also.

60,000
-5,000 gas
-2,400 insurance
-1,000 Liability
-5,000 Repairs
-2400 Phone and yellow pages
-6,000 Advertizing
-3,000 Office expences
-2,600 intrest expence
-5,000 other

27,600 left for me
1 part time guy 20 hours per week say 10,000
17,600 left
This may not seem like much but, it doesn't include any jobs picked up durring the year or extra work for current customers. With $6,000 worth of door hangers/newspaper plus the contacts I have in that area. (news paper editor, local surgen with a huge practice, and a realestate agent that sells 2 of so properties a week.) I think I could pick up quite a few jobs just from them.

[brandy]

Accounts that account for less then thousand a year, unless the jobs are really small and you can cut them in one or two days don't take this deal. You will lose money paying two guys and your self to take care of them. 60,000 gross is nothing unless they are all paying cash!!!!!!

[LoneStarLawn]

Why does bottom line mean so much to people than profit margin? Why does everyone think that because you are not getting enough from an account then there is no profit? Every person has their own overhead, number of employees, gas prices, market value and work efficiency. Forget bottom line...just make sure you are getting a good percentage in profit.

[SLSNursery]

Lonestar - I agree that the margin is important. I just think that the gross determines what is available to attain that margin. Furthermore, there are industry standards, and figures which are considered to be averages. These need to be accounted for before one spends 30-35k on a business. The money could be spent developing a new business with a better plan.

Using Lsylvain's numbers, the amount for him was left to 17,600 before paying himself. From a business operations point of view, he is an employee. His 52 hours per week at 10/hour are worth about $ 520 +/- per week. And, unless he can manufacture more time, I'm not sure what time is left for other extra jobs. The $520 * 36 weeks (if I read it correctly) = 18720. Therefore the profit margin is nill. Not only is there not enough money to pay him, there is nothing factored for replacement cost, etc.

I have treated this as somewhat of a devil's advocate. I know and understand that there are subjective reasons and unforseen benefits. However, I believe it helps when someone is forced to figure out the whole deal instead of just the quick once over.

[LoneStarLawn]

I agree with you SLS ....In my opinion I would never purhase a business but establish it myself.