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View Full Version : Buying out small fert company


MacLawnCo
11-20-2002, 04:30 PM
Yesterday, I talked to a guy that fertilizes 3 of my properties. He has been talking about getting out of the bus and is interested in selling his 25 clients to me. I am not too sure of the details because we are going to be looking at the deal in detail on Sun.

What I am interested in from you all is what things do i need to be aware of while looking at this deal? I am going to have my accountant look this over and am going to speak with a few of my bus professors about the details. I have never bought out anything, so I need to know what red flags I may need to be aware of. Thanks

Fvstringpicker
11-20-2002, 05:32 PM
As you know from your business classes, you are essentially buying an annuity or a stream of cash flows (you have to work for) . My advice as a CPA --set up a spreadsheet and conservatively estimate your monthly revenue stream, factoring in loss of customers, in a row across the top of the sheet. In another row estimate your monthly recurring costs from operations (salaries, including yours, supplies, materials licenses, etc.) Include the cost of any equipment that may be replaced or any other incremental cost related to the purchase of these customers. The difference is obviously your net cash flow derived from the purchased customers. Compare this to the purchase price to estimate your payback. From here, you can add income from other services you may be able to provide to these customers. Keep in mind that you are buying his customers which, like most, are fickle at best.

Fvstringpicker
11-20-2002, 05:36 PM
One other thing. Check with your state on any licenses you may need. Here in Georgia, I understand that you need a commerical applicators licenses to put down weed & feed fertilizers.

KLR
11-20-2002, 06:59 PM
i would also call each account, since there is only 25 this won't take long at all.

ask customer if they been satisfied, assure them you will carry all proper insurance/license. feel these customers out, will they hang in there with new management? If they have had disappointments I'm sure they will tell you, assure them you are making note of their complaint and will be sure to correct situation.

25 fert. customers is like 1 days work per round...it ain't a big deal, but you got to be sure you're getting your moneys worth.

good luck

DLS1
11-20-2002, 07:23 PM
I remoember seeing a subject sometime this year about someone buying a lawn business and best way to buy it.

From what I can remember the best suggestion to me was buy the business based on how many customers you have over a certain periods of time. If you still have all 25 customers for first 3 months of season then the guy gets 25% of sales amount you agree to buy it for, next 3 months he gets another 25% of the sales amounts go to the purchase and this goes on till end of first year until he gets the full amount of the purchase price from the gross sales based on % or he only gets whatever you earned each quarter times 25% of gross. You need to find that thread since it was explained better than I am saying here.

Also get a none compete clause for 1 or 2 years if possible so he doesn't undercut you after he sells it to you. The above idea about certain % of gross sales each month or quarter goes to him to buy the business sounds good since it also helps stop him from getting a buddy going in to take away the customers. He would have a vested interest in not trying to undercut you once you buy it with the % gross sales idea.

MacLawnCo
11-20-2002, 11:11 PM
Good call LSDLS. I did a brief search, but it did not turn up anything successfully. I will search again this weekend when i have some downtime.

Thanks for the ideas thus far Fvstringpicker, KLR, and LSDLS. I appreciate the thoughts.

mcambrose
11-22-2002, 01:47 PM
I also looked at buying out a spray company a couple of years ago. I would have, but my day job is too busy during wrong times of year. However, I gleaned some good information in the process. Chemlawn was willing to buy spray businesses in our area for 50% to 100% of one year's gross receipts. I believe this is way over priced. One small operator in our area tried for a couple of years to sell his for 100% of a year's gross receipts, but was never successful. He did finally sell it before Chemlawn arrived, but I don't know what price.

An older gentleman who is a PHD agronomist had a spray business for about 15 years. He offered it to me at 1/3 of a year's gross receipts plus the equipment cost. I would have bought it at that price, but as I said my work schedule would not allow. I believe that is a fair price. Note that you are only selling good will. The customers do not have any obligation to you. In fact, some of his customers were yards that I already mowed. I have picked up some of them because they were not happy with the new owner/operator.

Randy Scott
11-23-2002, 03:43 PM
Getting 25 new clients would not take much effort or money with just basic advertising. I wouldn't waste my time "buying" someone elses accounts. Besides, when he quits, they'll be up for grabs and they will have to call someone. I just think for only 25 it isn't worth buying them from someone. Just my opinion.

AztlanLC
11-30-2002, 01:59 AM
Is He selling you his company or only the customers he doesn't want to take care anymore?, 25 customers is like 2-5 days work depending on the size and distance does he apply liquid or granular? liquid you have to invest good money on the equipment.

Insurance & Equipment doesn't really pay off with 25 customers.

Just my opinion

MacLawnCo
12-01-2002, 12:14 AM
Here is the deal.

If I do it, I would be purchasing the entire business. He has a job in the Agricultural industry, so this is a side job for him. What he wants is $1700 for the entire list of 25 clients that were with him this year, which he is confirming for next year sometime within a few weeks. Along with that list of active clients comes 75 other clients that became inactive due to various reasons. All the clients are within 15 miles of my home. He said it takes him 10hrs with a ztr spray/fert set up. If i do it, it would be with a WB spreader and WB sprayer.

I am leary that his prices are low and his actual measurements are low as well. I am going to find out for sure tomorrow. In our conversation, he mentioned a few things that were seriously studpid business moves. I am not sure that he is into it or has been motivated for the last few years.

As far as his apps,
1st-28% @ 2% and 12-00-26 @ .5%
2nd-28% at 2% and Thio-sul @ .5% and Eliminate
3rd-Nutra Soft
4th-Liquid Cal. 11-0-0-12
5th-18-46-0 granular

I dont know exactly what that crap means, but his program is effective.

Your thoughts are appreciated

KLR
12-01-2002, 04:51 PM
personally, if i were you, i'd pass on this deal. $1700 for 25 active accounts = $68 per account, thats a bit high.

our typical advertising cost us $50 per account on average.

plus he has a list of 75 inactive accounts, i question why so many inactive compared to only 25 active??

with minimum effort and $$$ you could secure 25 accounts on your own.

my opinion

MacLawnCo
12-01-2002, 09:01 PM
Originally posted by KLR
plus he has a list of 75 inactive accounts, i question why so many inactive compared to only 25 active??

with minimum effort and $$$ you could secure 25 accounts on your own.

my opinion

The man is really lazy. He told me that if a client wanted him to come back and do spot srays, then he would just drop them:confused: He also said that he hiked the price about 20% last year. I check the numbers, and he is getting arround $4/K. Not too bad IMO.

I totaly agree that i could get the clients much cheaper on my own. I am in the middle though on that aspect. Kinda sitting the fence now. He will get back with me and i may try to haggle him down. He has wanted out for the last 10 months so he may be willing to negotiate.

MacLawnCo
12-06-2002, 12:49 AM
^
bump, any new thoughts?

bruces
12-06-2002, 09:54 AM
Without knowing what the gross per account is, I don't think that $68 per account is that high. Granted, you might be able to pick up accounts cheaper through your own efforts, but it would take a little while to pick up 25. Here, you are picking up 25 at one time.

If you buy them and they are profitable accounts, you will make back the $68 by the second application.

Stictly my opinion, but I don't think it is all that high.

Try to make a deal to pay part down and balance as you service the customers.

MacLawnCo
12-06-2002, 10:20 AM
Bruces,

that is what i am thinking.

Approximately 1/3 of his clients pre pay for the year, so he is thinking that he will take his chunk out of that ammount and then the rest who are pay per app will be my money. We will wait and see. He is currently getting contracts from his clients so only time will tell

LCC350
01-02-2003, 09:51 PM
.......25 accounts.......you've already spent too much time and energy. Also the national estimated average per coustomer is around $60.00 per account. Whats more troubling is that you refer to the progarm for supplying products to coustomers property as, "...crap you dont know much about...", maybe you should first educate yourself on the basics of lawn fertilization before considering this wasted venture. At least for the coustomers sake.

Evan528
01-02-2003, 10:39 PM
Originally posted by AztlanLC
Insurance & Equipment doesn't really pay off with 25 customers.

Just my opinion

I would have to disagree. When I got my pesticide license and added that service to my general liability insurance it only raised my premium 20 dollars per year. The equipment to handle only 25 accounts is not a signifcant purchase either but I very good money maker.