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View Full Version : To buy or not to buy...


WaterGuru
01-20-2009, 01:52 PM
Hey guys, need some advice.


I have moved to a different market with the plans of starting a new company from the ground up. I have just about everything in place to start this spring (just need to hit the advertising and make a million phone calls)

I have come across an install/service company for sale for a reasonable price (the equipment is being valued a lot higher then it is worth) This business is over 20 years old and has consistently done over 200k a year for the last 7 years. The owner is looking to retire.

My question is, being that all the equipment is old and they are trying to value it's worth very high, would I be better served taking the money it would take to buy this business and just use it to start my own.

On one hand I think there is no way I could get 200k worth of business with the investment it will require (lets just say it is less then 200K but more then 100K)
On the other hand, I can't see paying for a bunch of old equipment that may break down this coming season (I have no reason to think it would) and think that it should not take too long to get to 200k a year in less then 3 to 4 years (with a little luck and a lot of work)

so the question is, buy an existing company that has a great client base and great track record, or start from scratch?



GO STEELERS!!!!!!!!

Wet_Boots
01-20-2009, 02:00 PM
How many clients does 200K get you?

DanaMac
01-20-2009, 02:04 PM
How many clients does 200K get you?

there are still a lot of variables to be heard. As WB asked, how many clients? $200k in sales, which relates to how much in net profit? How much does the owner pull? Are there employees? Will they stay on? Do you need the equipment? Can you sell it if not? Service or install or both?

WaterGuru
01-20-2009, 02:10 PM
The active client base is around 700 (there are over 1500 in the data base). It is install and service. I think they did a 70/40 service/install split.
2 employees stay if I want them
Can't say I need all the equipment as I have most of what I would need myself.

I can't really get into the net and all that as I am still going over all the paper work. But I can see that there is a lot of room for improvement in the way they have run the business.
Not to mention the fact that all they do is service and install. I plan on adding a few more services, like lighting, auditing, snow, ect.

Mike Leary
01-20-2009, 02:46 PM
so the question is, buy an existing company that has a great client base and great track record, or start from scratch?

Having built my business from the ground up and selling it a few years ago,maybe I can be of some help. I'm going to assume you've looked at the books.My guy did not know jack about sprinklers, but he had a established lawn service that trucked in the same market. He was smart and likable; I figured it a good fit; I've seen too many businesses go down when either it changed hands or "sonny" took it over, so this was important to me as I was going to hold some paper for many years. How do you know it's " a great client base?" Have you checked each site out? Looked at payment history? The guy that bought my biz did that; he also hired a business lawyer to look deeper and draft the contract. Will the owner stick around, introduce you to the client's? Are you of the same personality that kept the seller's clients sticking with him? It's easy to lose a client base; I had to do some fancy footwork on a couple of clients that felt they were not getting the type of service they felt (and were right), they deserved. The buyer of my business once said, "I figured the only way to learn the trade was either spend ten years building a business, or buy one." Carrying the paper is the touchy part; for us, it's worked perfect!

Wet_Boots
01-20-2009, 02:53 PM
Snow? In Florida?

I know the Global Warming controversy rages back and forth, but this sounds like a bit of a reach :)

Mike Leary
01-20-2009, 02:57 PM
Snow? In Florida?)

Maybe that's what they call sand down there. :rolleyes:

bicmudpuppy
01-20-2009, 11:28 PM
He did say he had moved to another market. We must have tempted him to much with the winterization thread :)

Listen to Mike. From what I have seen, I would expect you to lose 25-50% of that active client list, depending on the retention rate the company maintained before the sale. Is one of the employees a repair tech? Keeping the repair techs through the transition would be essential in my opinion. Having the current owner ride out Spring turn on with you would be a must. The last thing I would be most concerned with, unless you are stealing the company, is terms. I would hope that a majority of the funding would be based on sales YOUR first year, and not his last year. If he grossed 200K last year and is asking 100k, then I would expect him to stand behind you managing a percentage of that 200K this year. What is the "real" value of the equipment being acquired? Can you sell a mix of what is there and what you have to get the best combination, but free up some capital?

AI Inc
01-21-2009, 07:51 AM
200k isnt much.Most companies can do that just on start up/ winterizing. The customers ( the real ones ) are worth about what you would bill out for 1 yrs winterizing. The equitment is worth what its worth.

bicmudpuppy
01-21-2009, 08:21 AM
200k isnt much.Most companies can do that just on start up/ winterizing. The customers ( the real ones ) are worth about what you would bill out for 1 yrs winterizing. The equitment is worth what its worth.

I worked for an outfit ten years ago that had 650 irrigation customers when I started and over 800 when I left. I ran over 150K in service through just my truck.

FIMCO-MEISTER
01-21-2009, 08:30 AM
I worked for an outfit ten years ago that had 650 irrigation customers when I started and over 800 when I left. I ran over 150K in service through just my truck.

Ditto

The avg service truck in Dallas IMO should do 175,000/year
Biggest obstacles to this are lousy techs and/or bad scheduling
In Dallas you have 205-215 solid work days a year. Figure avg billing of 6-7 hours in a 10 hour workday. So at 95/hr 617.5/day that is about 130,000 and add materials of about 30,000. Then figure some part days and 200,000 for a hard working tech is achievable. A tech that can pull off 200,000/yr should get paid in the 65,000-70,000 area imo.

Wet_Boots
01-21-2009, 08:44 AM
I wouldn't count on much winterizing money in a Florida business.

bicmudpuppy
01-21-2009, 11:36 AM
Ditto

The avg service truck in Dallas IMO should do 175,000/year
Biggest obstacles to this are lousy techs and/or bad scheduling
In Dallas you have 205-215 solid work days a year. Figure avg billing of 6-7 hours in a 10 hour workday. So at 95/hr 617.5/day that is about 130,000 and add materials of about 30,000. Then figure some part days and 200,000 for a hard working tech is achievable. A tech that can pull off 200,000/yr should get paid in the 65,000-70,000 area imo.

Its been almost 12 years since I left DFW, but when I first got there 14 years ago, I had no problem billing 3-5K/week working out of an Isuzu Pup. It had a short pipe rack and sub floor over the wheel wells with lots of parts crates, but it was still a mini truck. I have put 400 mile on a truck in one day working my way across the metro and still managed to average my hourly rate. They charged a $40 service call that included the first 30 minutes, and then $40 for every hour after that. I usually billed around 125% of the hourly rate in labor. Parts is a crap shoot, but usually works out to double the hourly. If your marking up 250% of cost, that means a 60% gross and everything is GOOD :)