To Buy of Not To Buy....

[greenngrow]

I got a phone call the first of December. My competition wanted to know if I would be interested in buying his business.

He is mainly into Application part. (Fert & Squirt) His total gross income for the last two years averages around 140,000.00 in applications and the rest of his business is around $30,000.00. Making a total business of $170,000.00
My application business was $47000.00 this last year.
His customer base is 650 customers and I have 150 customers.

He also has some equipment for sale
Lesco seeder 2003 ($2500)
Lesco slide in 300 gal sprayer 2002 ($2500)
750 tank and 2 hose reels and a hypro pump and honda motor. ($5000)
Z-sprayer 2003 with 500 hours. ($6000)
Lesco push spreader.$400.00

Now for the asking price

He wants $115,000.00 for the business and $16400.00 for the equipment.

He said there is some wiggle run but not much.
What would offer if you were in my shoes ????

[PMLAWN]

Equipment is easy- just shop and compare with others.
Business. How many employees and do they stay with you.
No compete???
Will he show books over the last 2 or 3 years showing gross and net. How many other people would buy the business in your area, Will he sell to another or just close shop and leave all his customers out there for you to get for free.
Do you need the equipment or would it duplicate what you already have.
What is the cap rate of the business?

These are just some questions I would be asking???
Happy hunting

[rodfather]

That would be quite an expansion for sure.

Not fully knowing the extent of your own business, my initial thought would be what else I can provide in ways of service to these 650 clients. You said he's mainly into apps., But are there other means of generating reveune with these as in maintenance, aerating, mulch, etc.?

That's is what I personally would be thinking about as well along with the buyout price.

[TURF DOCTOR]

Geez can you handle the work load.

[greenngrow]

Geez can you handle the work load.

Doc,

I think this is the reason for him wanting to sell. He doesn't have the work force.

He offers renovations, seedings and some mulching.

A little on my back ground.

I have a operation that has grown into a quite a big part time job.
Installs and renovations $50000.00
mulching and cleanups $10000.00
mowing $20,000.00
snow removal $10,000.00 (if we get snow)
Spraying $47000.00
This year is my best year so far. I have presently 3 guys on the payroll. All of them want to be with me next year to grow the business.

So you can see i have my plate full. I want to get more into the spraying side of the business. That is where I started and feel that is where the most profit is.

I have recently purchased 2 older Tru Green trucks. I also have another spray truck.

Yes I could use his equipment. I have shopped around and he is a little high on his asking new price on the used stuff.

As the good faith on the customer base. What is the going price for this????

Diffently will be a no compete clause.

He only has one employee at this time. LOL The guy worked for me only a couple of days... He said that he did not want to work weekends ....

So no employees will come with the business.

[muddstopper]

business gross, $170,000, selling price, $115,000+16400= $131,400

thats about 23% below total gross sales. Gross is money before profits, is his profit margin 23% or greater. If not you will be in the hole the first year and every year after. Look at this as a return on investment opportunity. You are investing $131,000, now if you invest this amount of money in some other investment tool, what rate of return would you expect to recieve. If the rate of return is greater in some other investment instrument, forget about buying the business. This is not to mention that the only real property you are recieveing is the equipment, customers are not guaranteed to stay with you, and can up and quit you in the blink of an eye. You also are not getting any employees, this means you are going to have to learn the routes and properties by yourself, 650 is a lot of properties to learn in the first weeks of spring and you will have to train others applicators as well, while taking care of your 150 properties that you already service.

There is a value for this business, I am not convinced that the value is $131,000. You need to do a present value to future value comparison to determine what the business is worth. Take the numbers to an accountant and let them do the math. My guess is that the actual value will be closer to the 23% of gross instead of the 77% asking price

[J Hisch]

Muddstopper has some very good points. I would also ask yourself this one big question. What if you just spent 30,000 on marketing your own business how much could you grow? The average cost to accquire a new customer in Lawncare is 40.00-60.00 dollars per new customer. I would do a number of things. First 650 customers and truning 170,000 is really low money. He isnt cross selling very well or all 650 are not active customers. Next I would tell him to send out his pre-pays, and get his comittments see where his projected revenues are with that. Then I would probably give him 75 percent of cash value for those customers due to chemical cost. Next I would probably give him 57 dollars for each non financially committed customer. Also I would work it where you could use his name for at least a year. Yes his equipment is high. Remember you can spend your own money and not near what he is asking to build your own base up.

[DUSTYCEDAR]

some good replys on this
i would pry just market on your own and grow with your own pace

[hoyboy]

His price is in line as long as his customer prices are at market value. Fert companies tend to sell around 1x gross including equipment. Adjust a little up or down depending on his prices and equipment condition.

In these situations, seller financing is almost as important a factor as price. If he will stretch payments over a 3 year period, that makes life a lot easier on you and you can afford to pay more. If he wants to cash out, I'd discount it considerably.

good luck.

Dan

[muddstopper]

I am not familar with what fert and squirt companies net after gross, but I think 1xgross for just about any business is to high. If you pay gross for a business, this means you are already in the hole because not only have you paid the entire next years projected income, up front, but you also have to finance all overhead that first year, which could result in a negitive cash flow. Now if the business has a good profit margin you might pull it off, but remember if you finance it you will have interest charges. If it takes you 10 years to pay the loan off, you have to look at how much money your original investment, plus the interest you paid, would have made if you had chosen some other type of investment.

Of course you can grow your way out of debt, but that is going to take good marketing and more investments in the business, while at the same time you are maintaining what you have already bought, plus what you already own. If you have the marketing skills to keep growing the company that you bought, you have the marketing skills to grow the business you already have. The rate of return over that same 10 year period will probably be larger if you just grew your own company. $170,000 will buy a lot of equipment and advertising, it doesnt have to be spent all at once, and you wont spend as much of your profits in interest payments.

[sheshovel]

If he has 650 cust accnts and you have 150..he is not your competition lets get that right first thing.
If he is doing 650 monthly sprays alone with a guy who helps once in awhile...Something aint right.
Those numbers do not compute with the value he puts on the biz,the equipment and the customers base he says he has.

[nocutting]

If he has 650 cust accnts and you have 150..he is not your competition lets get that right first thing.
If he is doing 650 monthly sprays alone with a guy who helps once in awhile...Something aint right.
Those numbers do not compute with the value he puts on the biz,the equipment and the customers base he says he has.
What is this guy? His yrly cost per client seems to be in the "Chemlawn Range"-$225 per year isnt alot by any standards? [ unless all his clients are under 4000 sq ft?] and his route is super tight.........I wouldnt buy it with a 10 ft pole, I'd rather pay the $60 per new client cost getting my own:blush: and sell them $1-2000.00 of my own work [ my avg client contract w/ out mowing, mulching or snow removel, tree work]......think its time to just sit this one out and enjoy a cool one:drinkup:

[Precision]

What is this guy? His yrly cost per client seems to be in the "Chemlawn Range"-$225 per year isnt alot by any standards? [ unless all his clients are under 4000 sq ft?] and his route is super tight.........I wouldnt buy it with a 10 ft pole, I'd rather pay the $60 per new client cost getting my own:blush: and sell them $1-2000.00 of my own work [ my avg client contract w/ out mowing, mulching or snow removel, tree work]......think its time to just sit this one out and enjoy a cool one:drinkup:

your base of 150 clients pulled in just over $300 per client in fert.

his base of 650 clients pulled in just over $200 per client in fert.

I don't see any point in obtaining clients that pay 33% less than what yours pay. You raise rates and they go away.

When the competition calls (unsolicited) to see if you want to buy them out, something is fishy. They are losing money big time or they have a desperate need for cash or they can't handle it and want to sell before they implode or something. If you really want this, I would suggest giving consideration to no more than 50% of his offer price. Get his numbers (certified) and run them through your accountant. it will be the best $500 you ever spent.

First off I don't see the point in being in that business at all, at those gross amounts. My average on a 1/4 acre properties with 4 apps (and I sub it out) is $480 per year in fert (I keep $120). plus $1200 in mowing and about $500 in misc. I am getting about $2000 per 1/4 acre client per year. I realize fert is much less labor intense than mowing, but $200 per year can't cover labor and chemicals and equipment.

[greenngrow]

your base of 150 clients pulled in just over $300 per client in fert.

his base of 650 clients pulled in just over $200 per client in fert.

I don't see any point in obtaining clients that pay 33% less than what yours pay. You raise rates and they go away.

When the competition calls (unsolicited) to see if you want to buy them out, something is fishy. They are losing money big time or they have a desperate need for cash or they can't handle it and want to sell before they implode or something. If you really want this, I would suggest giving consideration to no more than 50% of his offer price. Get his numbers (certified) and run them through your accountant. it will be the best $500 you ever spent.

First off I don't see the point in being in that business at all, at those gross amounts. My average on a 1/4 acre properties with 4 apps (and I sub it out) is $480 per year in fert (I keep $120). plus $1200 in mowing and about $500 in misc. I am getting about $2000 per 1/4 acre client per year. I realize fert is much less labor intense than mowing, but $200 per year can't cover labor and chemicals and equipment.

I have to agree with you on the the unsolicited part of your reply. I was wondering why he is wanting to sell. So I asked him. His reply was that he realize that it took so much time. He is having problem with labor. Besides his wife family is having health problems and taking her away form the business.
He just bought this business back mid summer of 2004.

The guy he bought off of had about the same customer base (500). He purchased the business including the equipment and two trucks in the $90,000 range. I spoke with the other owner on the 27th. He had the business for around 13 years.

The Weed & feed business here in Ky is somewhat different. I can personally purchase the Fert and Chemical and wholesale prices or below. Not trying to brag. I am also in the A retail market. I have been this arena for 20 years.
I am looking to get out in the next 2 years and go full-time in the LCO.

As for your mowing here in KY that would be very low. I mow smaller areas and get 30.00 per cut. You have a longer window but it all works out the same.

ANOTHER update......

Last night I was talking to a good friend of mine that has his own Landscaping & Nursery business for several years. He is one that everyone likes the area. I have only known this guy for about 3 years... In the past year we have become real good friends. Any way got to talking about this deal...
I telling him how this spray company had the area sown up. He tells me no he doesn't.... I said then who does...????? HE then asks me how much business do I want???? I said what??? How much business do you want he asks again.....I said well that is a hard question to answer...

He then tells me that he knows of at least 300 customers of this company....
All he would have to do is to write a letter to them referring me as the preferred LCO. Now there are no guarantees, But this guy is very well liked in the area and has more business than I can imagine.

All I have to do is pay for the postage.... That is better than shelling out all that money.....payup

[nocutting]

I have to agree with you on the the unsolicited part of your reply. I was wondering why he is wanting to sell. So I asked him. His reply was that he realize that it took so much time. He is having problem with labor. Besides his wife family is having health problems and taking her away form the business.
He just bought this business back mid summer of 2004.

The guy he bought off of had about the same customer base (500). He purchased the business including the equipment and two trucks in the $90,000 range. I spoke with the other owner on the 27th. He had the business for around 13 years.

The Weed & feed business here in Ky is somewhat different. I can personally purchase the Fert and Chemical and wholesale prices or below. Not trying to brag. I am also in the A retail market. I have been this arena for 20 years.
I am looking to get out in the next 2 years and go full-time in the LCO.

As for your mowing here in KY that would be very low. I mow smaller areas and get 30.00 per cut. You have a longer window but it all works out the same.

ANOTHER update......

Last night I was talking to a good friend of mine that has his own Landscaping & Nursery business for several years. He is one that everyone likes the area. I have only known this guy for about 3 years... In the past year we have become real good friends. Any way got to talking about this deal...
I telling him how this spray company had the area sown up. He tells me no he doesn't.... I said then who does...????? HE then asks me how much business do I want???? I said what??? How much business do you want he asks again.....I said well that is a hard question to answer...

He then tells me that he knows of at least 300 customers of this company....
All he would have to do is to write a letter to them referring me as the preferred LCO. Now there are no guarantees, But this guy is very well liked in the area and has more business than I can imagine.

All I have to do is pay for the postage.... That is better than shelling out all that money.....payup
Your Landscape / Garden Buddy, is soooooooooooooo Rite, a "Letter" like that is worth its weight in "Gold", I've done that with a few select Maintance Guys, and its worked Purrrrrrfectly,......[His clients now get a premium service provider and a relatively lower cost, than a call off the street].....You guys complement each other ion a regular basis, and the Client feels Well Taken Care Of:) ....who can beat that?payup

[greenngrow]

Your so Right ........

We have formed a relationship that could be great for both of us.....

We have done several jobs together in the past year. One was over 28 acre job. My part was over $38000.00payup payup

[muddstopper]

I telling him how this spray company had the area sown up. He tells me no he doesn't.... I said then who does...????? HE then asks me how much business do I want???? I said what??? How much business do you want he asks again.....I said well that is a hard question to answer...

He then tells me that he knows of at least 300 customers of this company....
All he would have to do is to write a letter to them referring me as the preferred LCO. Now there are no guarantees, But this guy is very well liked in the area and has more business than I can imagine.

All I have to do is pay for the postage.... That is better than shelling out all that money.....payup

Exactly what I was talking about. If you can market his business, you can market yours. You have just doubled your business without spending even a fraction of the asking price of the other business. You can now take that $135,000 and do something useful with it. (Like invest it in your own company):drinkup:

[DUSTYCEDAR]

the real reason the guy is selling will leak out the more u look at it
and if u have someone that will hook u up with free word of mouth great

[Reliable Lawns]

I got a phone call the first of December. My competition wanted to know if I would be interested in buying his business.

He is mainly into Application part. (Fert & Squirt) His total gross income for the last two years averages around 140,000.00 in applications and the rest of his business is around $30,000.00. Making a total business of $170,000.00
My application business was $47000.00 this last year.
His customer base is 650 customers and I have 150 customers.

He also has some equipment for sale
Lesco seeder 2003 ($2500)
Lesco slide in 300 gal sprayer 2002 ($2500)
750 tank and 2 hose reels and a hypro pump and honda motor. ($5000)
Z-sprayer 2003 with 500 hours. ($6000)
Lesco push spreader.$400.00


Now for the asking price

He wants $115,000.00 for the business and $16400.00 for the equipment.

He said there is some wiggle run but not much.
What would offer if you were in my shoes ????

I read this the same as Sheshovel, it just wasn't adding up in my common sense mind, but if looks as if you have found a great solution, best of luck in 2006!!!