PDA

View Full Version : Have you ever bought another maintenance business?


New Leaf Maint
01-29-2011, 09:41 PM
I'm looking into buying another company and was wondering if there is any one out there who has, or has looked into buying another company who would have any advice for me. The other company does about 200K in sales per year. I figure that their equipment is worth 30-40K. My accountant looked into valuing a lawn maintenance company and came up with these rules of thumb.

1. 50 – 60 percent of annual sales plus inventory/equipment

2. 1.5 times SDE plus inventory (SDE is (sellers discretionary earnings) calculated as net income before primary owners compensation, other discretionary, nonoperating, or nonrecurring income or expenses, depreciation, interest and taxes.)

Does this sound reasonable to you? If we went for the first rule the company should be worth 130K-160K. That seems a little high to me but it is in line with what he is asking for his company.

He has mostly commercial accounts. For the most part the contracts aren't going to bind his customers to me if I buy the company. We both offer good quality services that aren't the cheapest in town and so I think that most of his clients should feel that they are getting the same or better quality services from my company and hopefully stay with me. He is also willing to have a transitional period where he will work with my company so he will still work with his clients so they should get to know my company while they still work with him.

How would you place a value to his company? Any thoughts would be appreciated.

grassyfras
01-29-2011, 10:47 PM
I bought a company and also sold a company. No where near the sales or equipment your talking about but this is what I have learned from it.

Selling a company is not fun. You have pissed off customers at your for doing so, and they seem to hold you responsible for the quality of the person you sold your company too.

When buying a company your really not guaranteed the accounts or work. You will inherit PITA and loose a good deal of the percentage of accounts. What I think your really buying is the equipment. When I bought a guy out I only did it for the equipment because it was a really really great deal.

I would take a different approach on valuing a business to buy. Consider what it would cost and take you to grow your business to the point of where the other company is at. I would bet that you can grow your company for much less money that it costs to buy. The only x factor is the time it takes to grow that much.

Cajun Cleanin'
01-29-2011, 10:57 PM
You are gonna pay over 100k for 30k to 40k worth of used equipment in the hopes that his accounts stick with you?

This is not a business that transfers value like some others that may have signed multi year deal that go with the sale.Why are you buying?If you are trying to grow I would advertise and beat the pavement.

New Leaf Maint
01-30-2011, 02:13 AM
I'm worried about the clients staying with me but what if I only paid him so much down and then depending on how many of his clients sign on with me for the next year pay him the rest accordingly.

If I do it that way should I give him one offer for the equipment and another for the clients. I've read other threads about buying contracts for a months maintenance or what not. Would you price it like that? Is that what I should offer?

He's also saying that he'll pass along his past clients list along with contact info for them and about what price their paying for their services with the other companies. He's also got some good employees that would most likely stay with me over the move for what ever that's worth.

DiscoDave
01-30-2011, 11:15 AM
I have bought several companies and have had some good and some bad experiences.

My opinion is... if you are a startup then buying is a great way to get get established.

If you are already established.... hiring a good salesman to grow is a lot cheaper, fewer headaches and no worries about transition shock from your customers. A salesman should only cost you between $30,000.00 to $40,000.00 for $200,000 in sales.

I sold $650,000.00 for my employer last year at a fraction of what you are thinking about buying those accounts for.

New Leaf Maint
01-31-2011, 12:13 AM
Last night I had the same thought about just hiring a salesman. I'm an established business but only for two years. Ive grown my business to over a 100K/year gross in that time but I look at buying the company as a 3-4 year quick start.

I don't get a lot of leads coming in, at least not to get 200K of work in one year so if I got a salesman he'd be doing a lot of cold calls. Have any of you had much success with cold calls? Also how much marketing would it take to generate that much income? What kind of return do you get on any type of marketing you do? I do mostly commercial, apartments, HOA's with a few residential clients and am looking for more clients in those areas.

Also one of my reasons for wanting to buy the business is to take over part of the market share in our small area of 100,000+/- population that if I don't get it he'll ether just stay in the business as he said he would and be a competitor or it will go to one of my other competitors.

Green Feet Lawn
01-31-2011, 10:01 AM
I sold $650,000.00 for my employer last year at a fraction of what you are thinking about buying those accounts for.

Do you need a job?

DiscoDave
01-31-2011, 02:18 PM
Do you need a job?

lol... thanks. I get asked that a lot.

New Leaf Maint
02-01-2011, 11:21 PM
What information would you want to know about the business to make a decision to buy it? I think gross sales, tax returns, balance sheet, profit loss statements for the past 5 years. I signed a non compete with him so he'll give me at least part of his customer list.

What other information would you want?

Gone Green
02-17-2011, 11:26 PM
Having an accountant do a valuation can be problematic in my experience. I don't say this lightly so please consider that big boys make gobs of money buying companies. there is a technique to do it right, I am not intentionally being elusive just don't have all the answers. Revieww www.LawnBusinessSales.com and post your thoughts?

DLC0806
02-17-2011, 11:40 PM
expanding your business in your own area yourself! until its big enough to
have someone run it for you!

Then....

buy out well known companies in other cities!
of course no fly by night operation, but buy a company
that has labor, and managers in place!

Thats a free tip for everyone! :)

I charge a $1 a question!

Brodie
02-18-2011, 08:47 AM
You mentioned in your first post that the sales price is around the 130-160k mark.

What you need to look at is what do you actually get for that money. Sure you get clients and equipment but what else.

Do you get his yard to keep all the new equipment or do you need to find additional storage space either at you current yard or hire or buy a new yard?

Will you have to hire someone to manage the phones and office to cope with additional clients that you get from him?

Are his staff going to be coming over to you once the business is sold or will you have to re-staff?

Are the clients he currently has quality clients that are worth keeping and are they likely to stay with your service if you were to raise the price?

Just a few of the things that I would be thinking about if I was buying. Hope this helps a bit.

tradeyouraccounts
02-19-2011, 02:17 PM
Things to note about Account Transactions,these are some common procedures normally taken during account transactions. http://www.tradeyouraccounts.com/thingstonote.aspx

mdvaden
02-19-2011, 02:30 PM
I have not bought or sold, but a friend sold a small maintenance company about 16 years ago. Mostly lawn mowing accounts.

He told me later, that the guy who bought it, lost about 80% of the customers in a few years.

But nothing was shared about the buyer. Knowing my friend though, he would not have sold the company to the first person who came along. So my guess is that the buyer was pretty decent as a people-person and with basic lawn care needs.

New Leaf Maint
02-21-2011, 12:48 AM
Thanks for all the thoughts guys. Keep it coming. My main concern is the fact that customers will leave. Even in my own business it seems that I get about 10% of my customers that don't return the next year. With the equipment being about 40K that leaves about 95K to pay for the rest of his business ie. current clients, past client list, his employees who will probably make the move over, a known company name which at some point I will probably change to mine anyway and him working for the company for a month or two during the transition.

Most people on here who buy contracts say there worth 3-4 mows etc. The price of 95k is much more then that. However based on his net on P & L statements the net profit will pay the loan off over a period of 5 years and I should make about 10-20k on top of that each year. However clients will leave but isn't my job to get more clients and won't more trucks and people out there help with that.

Yes I could grow to that size myself but if the deal pays for itself why not do it? And then on top of that still keep the company growing. What do you think?

mdvaden
02-21-2011, 07:27 PM
Was just looking at your user name.

New Leaf Landscape was the first name I ever registered and used like 1980. But I went to work for golf courses and chose to switch names in 1980 when I started business permanently.

Like the name though.

snomaha
02-22-2011, 06:32 PM
Thanks for all the thoughts guys. Keep it coming. My main concern is the fact that customers will leave. Even in my own business it seems that I get about 10% of my customers that don't return the next year. With the equipment being about 40K that leaves about 95K to pay for the rest of his business ie. current clients, past client list, his employees who will probably make the move over, a known company name which at some point I will probably change to mine anyway and him working for the company for a month or two during the transition.

Most people on here who buy contracts say there worth 3-4 mows etc. The price of 95k is much more then that. However based on his net on P & L statements the net profit will pay the loan off over a period of 5 years and I should make about 10-20k on top of that each year. However clients will leave but isn't my job to get more clients and won't more trucks and people out there help with that.

Yes I could grow to that size myself but if the deal pays for itself why not do it? And then on top of that still keep the company growing. What do you think?

Will you be paying yourself a fair market wage?

Are you figuring pre-tax profits or after tax profits on the note pay back over 5 years? (Hint - you pay back debt with after tax profits)

Is the existing company going to hold any portion of the note and will they prorate the price based on attrition the first year?

Will the current owner sign a long term non compete/non solicit for the customer list? Are his employees bound by a non compete/non solicit?

It sounds like mowing contracts? How long are the contracts for? Bankers love long term contacts attached to reoccurring revenue.

Is the equipment something you need?

My experience in buying companies has been that i would like a ROI in 2-5 years based on projected after tax profit. Would always want the seller to have some skin in the game by holding the greatest % of the note. Lots of others Questions but these are what I would start with.

CLS LLC
02-22-2011, 07:38 PM
I think in this industry until a company has at least 2 crews and a manager with $500,000 in sales it has very little value. Short of that you're essentially just buying a list of pre-qualified sales leads and some equipment.

If I were the property manager at a commercial property and my contractor sent me a letter saying that they are selling their company to "New Leaf Maintenance" I would take that as a sign that it is the perfect time to take bids for the upcoming season. The way I see it, I'm getting a new contractor either way I may as well check prices while I'm at it.

I know it can be tempting but I think $95,000 for a list of sales leads is just too much. Any signed contracts he has will probably be with signed with his company so unless you take his companies name and keep the company as an existing entity (which I don't think is your plan) the contract will technically be void when you take possession.

I realize the numbers may work out. But that's assuming 100% retention for 5 years, which is highly unlikely. I honestly think you are better off using that $95,000 over the next five years for marketing. I think $19,000 a year in marketing will bring you in a heck of a lot of customers.

That's my opinion, take it or leave it.

New Leaf Maint
02-22-2011, 08:29 PM
Will you be paying yourself a fair market wage?

Are you figuring pre-tax profits or after tax profits on the note pay back over 5 years? (Hint - you pay back debt with after tax profits)

Is the existing company going to hold any portion of the note and will they prorate the price based on attrition the first year?

Will the current owner sign a long term non compete/non solicit for the customer list? Are his employees bound by a non compete/non solicit?

It sounds like mowing contracts? How long are the contracts for? Bankers love long term contacts attached to reoccurring revenue.

Is the equipment something you need?

My experience in buying companies has been that i would like a ROI in 2-5 years based on projected after tax profit. Would always want the seller to have some skin in the game by holding the greatest % of the note. Lots of others Questions but these are what I would start with.

I hadn't thought about some of those factors like pre-tax and after tax. I'm hoping to be able to use depreciation to eliminate most profit and reduce most tax but I'll have to take a look at that. Also I guess his employees might not have an anti compete so that might be something I should require in the contract if I do the deal.

If I do the deal I will require a non compete from him for at least 5 years. I guess I can ask to see if hes willing to hold a note on it. I thought that it might also be good to hold some $ in escrow until the end of the season that he doesn't get if say 10% or more of the clients walk. I think that some of his clients contracts are up at the end of this season and others have been up for a while and he just continues to service them. No long term contracts though.

I don't need all of his equipment as he is equipment heavy but hopefully some time in the near future I will.

When you said that you would like a ROI in 2-5 years based on projected after tax profit does that include paying yourself a wage for the increase work you yourself will need to do? Or do you make the profit when the note is paid off?

Thanks for the thoughts

davidal23
02-22-2011, 08:38 PM
You may want have a lawyer draft out a guarantee clients retention plan with a deadline date of contract submission by clients. Work out the buyer price with a client percentage ratio, thus safeguarding yourself should a client withdraws his contract before the deadline date you subtract the percentage price from the principal. Also have your lawyer put a quote in contract that if a client doesn't use your service for a certain period(6-8 consecutive months from signing the contract) then another percentage rate should be deducted.

Good luck!!

New Leaf Maint
02-22-2011, 08:42 PM
I think in this industry until a company has at least 2 crews and a manager with $500,000 in sales it has very little value. Short of that you're essentially just buying a list of pre-qualified sales leads and some equipment.

If I were the property manager at a commercial property and my contractor sent me a letter saying that they are selling their company to "New Leaf Maintenance" I would take that as a sign that it is the perfect time to take bids for the upcoming season. The way I see it, I'm getting a new contractor either way I may as well check prices while I'm at it.

I know it can be tempting but I think $95,000 for a list of sales leads is just too much. Any signed contracts he has will probably be with signed with his company so unless you take his companies name and keep the company as an existing entity (which I don't think is your plan) the contract will technically be void when you take possession.

I realize the numbers may work out. But that's assuming 100% retention for 5 years, which is highly unlikely. I honestly think you are better off using that $95,000 over the next five years for marketing. I think $19,000 a year in marketing will bring you in a heck of a lot of customers.

That's my opinion, take it or leave it.

I can keep his companies name and I might if it makes sense. I've thought about the fact that I could probably get a lot more clients with that much money for advertising but I don't think that a bank will like the idea of lending me that much money to market the company. But your right and I wish that I could do that much marketing.

I could also do more sales and cold calls but I don't have the time with my current business that I have. I have one crew me and another employee. I'm hoping that if the numbers make sense that with his crew and hire another worker for my crew that they can make enough $ for me to start doing full time sales, customer relations and other management responsibilities. It's just really hard to grow a company when your working in it and I'm hoping that this could solve that problem.

GrassesGuy
02-25-2011, 01:29 PM
Ok you guys say people leave right? Why is that? Do you tell the customer that someone else owns the company. If your buying out a guy that big why do the customers even neeed to know that he got bought out. Keep the trade name the same and operate two lawn buisnesses, after a few years decide on whether merging the two into one name etc.

GrassesGuy
02-25-2011, 01:39 PM
Getting a bank loan is not hard when it comes to buying a profitable buisness assuming you got 20 percent down and solid credit. All the bank cares about is that the buisness is profitable. Of course you will most likley have to use equiptment as collatoral. I would just secure a buisness loan to grow your own buisness and advertise the **** out of the market with Radio, Tv, internet etc. The old fashion way is always better. Or tell the seller all the things we have said on here and get him to accept a lower price. Becuase if you lose alot of the accounts your up **** creek and downsizing fast and if your married your wife won't be happy. :help: