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grassmasterswilson
08-01-2012, 03:21 PM
So I'm meeting with another business owner about buying his business. I'm wondering what info you would expect to see or take home at the first meeting.

Obviously I will want to run the numbers so I was thinking I would need the following.... detailed client list showing sqft, what apps done, and price per app(not looking for names or addresses for now, just enough info to run numbers against my overhead), last few years balance sheet?,

What else would you want to see or expect him to offer?

ztman
08-01-2012, 04:09 PM
So I'm meeting with another business owner about buying his business. I'm wondering what info you would expect to see or take home at the first meeting.

Obviously I will want to run the numbers so I was thinking I would need the following.... detailed client list showing sqft, what apps done, and price per app(not looking for names or addresses for now, just enough info to run numbers against my overhead), last few years balance sheet?,

What else would you want to see or expect him to offer?

tax returns for last five years and any contracts he has. Are you buying the business and continuing with the business name, or buying the assests and accounts?

grassmasterswilson
08-01-2012, 04:17 PM
If it works I would just be buying the accounts and assets. I met with him back in the spring and didn't feel we could get things done in time to make a smooth transition. So I contacted him and hope we can get the deal done so I can start fresh in 2013, if we can get on the fast track maybe late 2012 although there may not be much to do.

When we met I couldn't get much info out of him. He showed me some numbers, but wasn't too eager to tell what he did per round or what he charged. Not sure how serious he is.

The reluctantcy to show or talk about the details of his business makes me wonder if he really wants to sell.

ztman
08-01-2012, 04:43 PM
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olcllc
08-01-2012, 05:44 PM
So I'm meeting with another business owner about buying his business. I'm wondering what info you would expect to see or take home at the first meeting.

Obviously I will want to run the numbers so I was thinking I would need the following.... detailed client list showing sqft, what apps done, and price per app(not looking for names or addresses for now, just enough info to run numbers against my overhead), last few years balance sheet?,

What else would you want to see or expect him to offer?

Balance sheet for sure, although your operating expense may differ. A detail profit and loss statement for the past three years is the best way to see accurate net earnings. I used quickbooks pro and can print that information off in a matter minutes. It will include each customer and should show all transactions they have done with the customer. P&L statements are good to show their actual work. Anyone can tell you they do this much work or that much... but i would want to see documentation.

I recently sold my business and provided all this to the interested buyers. I sold my active accounts and client list.

RigglePLC
08-01-2012, 09:01 PM
Lots of people are reluctant to share close business secrets--but keep probing--he knows that eventually you have to learn all these things. You will not buy at any decent price, unless you have the business data--all the data.

There is a slight advantage to buying now and making the transition in summer or early fall. Customers are seldom shopping for a new company in the fall-the transition is easy. You don't have the problem of huge low-ball marketing pushes and thousands of competitive brochures and flyers being passed out to your newly acquired customers

The main thing you need to know is his prices and square feet. Naturally you will want to measure a few yourself--or at least with aerial photos. And you want to call a few to check and see if they are really customers or just names pulled out of the phone book. After that you don't really care about his chemical and labor expenses, or his overhead. Your expenses are the only thing that matters. Naturally do not buy accounts that are too far away to service profitably, (except at a big discount).

Naturally you will want to talk with some of the local fert dealers and see if his business reputation is good. Dealers are reluctant to release this info...but if the guy owes them money--the dealer is angry, and will usually tell you. If his account is current--they are usually happy to tell you that. Be nice to your dealer--he may have information that you need.

Purchase of his equipment us usually a spearate deal.

You may want a non-compete clause.

You may want to pay him over a period of 6 months--in installments with interest. Many banks will not finance your outright purchase. They want to finance equipment--something they can repo if necessary.

huntergreen
08-01-2012, 09:15 PM
I would also find out how his customers pay him. Do they write him a check, credit card, auto draft into his account (which would have to change). How many customers have prepaid or are they billed at the end of each month, treatment, etc. I just went through this but I did not buy the business. The deeper I got the worse it looked. Most of the time unless the individual is ready to retire there is a reason they want out. If everything looks good I would also involve a lawyer to make sure everything is done properly.

grassmasterswilson
08-01-2012, 09:22 PM
Thanks guys. When I met him this past march I think he was asking 75k which from his gross numbers was over 100% of yearly gross. He had included a lot of customers who were one time or per call customers. He also thought it was worth more because he did not mow and that could easily be picked up.

I think it's overpriced and will need to somehow show I'm interested enough to get him to print out a customer history report and hand it over.
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Florida Gardener
08-01-2012, 10:25 PM
Thanks guys. When I met him this past march I think he was asking 75k which from his gross numbers was over 100% of yearly gross. He had included a lot of customers who were one time or per call customers. He also thought it was worth more because he did not mow and that could easily be picked up.

I think it's overpriced and will need to somehow show I'm interested enough to get him to print out a customer history report and hand it over.
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One time or per call is worthless to me. So what if he thinks it's worth more bc he doesn't mow. Your paying him for what he has, not what he thinks he could get.
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ztman
08-01-2012, 10:25 PM
If it works I would just be buying the accounts and assets. I met with him back in the spring and didn't feel we could get things done in time to make a smooth transition. So I contacted him and hope we can get the deal done so I can start fresh in 2013, if we can get on the fast track maybe late 2012 although there may not be much to do.

When we met I couldn't get much info out of him. He showed me some numbers, but wasn't too eager to tell what he did per round or what he charged. Not sure how serious he is.

The reluctantcy to show or talk about the details of his business makes me wonder if he really wants to sell.

Just something to consider, for you and others. When you buy the assets and the accounts, but not the company, unless the contracts with the customers say they are assignable the customers are not bound to stay with you

grassmasterswilson
08-03-2012, 10:02 AM
Ok so I went and met with the guy this morning. Didn't get much info that would be helpful in making an offer. He wants to get a confidentiality agreement in order to see his quickbooks and financials.

He showed my a gross number and a lower number that was for reoccuring income. His price came up to 1.5 x reoccuring income - 15% customer loss = asking price. I thought this was very high. He also has increased his asking price since I met with him 6 months ago.

So i'm getting a confidentiality agreement drawn up and I need a good list of what info you would like to see that would be helpful in seeing if an offer was possible. I was thinking of asking for the following....

1. p & l the last 3 years
2. detailed customer report last 3 years with sqft, what apps done, what price for each app(this could be the estimate form he uses which breaks down each app and gives a price)

Think that would be a start to see if I could make any money. Anything else that would be good to see or ask for?

ztman
08-03-2012, 10:17 AM
Ok so I went and met with the guy this morning. Didn't get much info that would be helpful in making an offer. He wants to get a confidentiality agreement in order to see his quickbooks and financials.

He showed my a gross number and a lower number that was for reoccuring income. His price came up to 1.5 x reoccuring income - 15% customer loss = asking price. I thought this was very high. He also has increased his asking price since I met with him 6 months ago.

So i'm getting a confidentiality agreement drawn up and I need a good list of what info you would like to see that would be helpful in seeing if an offer was possible. I was thinking of asking for the following....

1. p & l the last 3 years
2. detailed customer report last 3 years with sqft, what apps done, what price for each app(this could be the estimate form he uses which breaks down each app and gives a price)

Reading your comments about dealing with this guy raises a few red flags and would make me want to be skeptical. If you want to proceed with a business transaction, do yourself a favor and get some professionals involved on your behalf. Spending a few hundred dollars now could save you thousands. Dont try to draft legal docs on your own.

Think that would be a start to see if I could make any money. Anything else that would be good to see or ask for?


Reading your comments about dealing with this guy raises a few red flags and would make me want to be skeptical. If you want to proceed with a business transaction, do yourself a favor and get some professionals involved on your behalf. Spending a few hundred dollars now could save you thousands. Dont try to draft legal docs on your own.

grassmasterswilson
08-03-2012, 12:01 PM
Reading your comments about dealing with this guy raises a few red flags and would make me want to be skeptical. If you want to proceed with a business transaction, do yourself a favor and get some professionals involved on your behalf. Spending a few hundred dollars now could save you thousands. Dont try to draft legal docs on your own.

Thanks. Fortunately my father is an attorney. I don't ever sign my name without him reading it first.

While the asking price may be a little steep. I really can't tell without seeing his cash flow and other info. I was upfront after we talked that I wasn't about to make an offer without some details.

I agree that I need to go into this very skeptical since he is really unwilling to show any info. I respect privacy, but the quickbooks p&l sheet doesn't show much. I at least thought I would get that. I get the feeling that he wants to sell, but like all of us is reluctant to just give it away. guess it will take baby steps....

turf hokie
08-03-2012, 07:14 PM
He is my 2 cents.

I wouldnt get my hopes up on making a deal with this guy.

His starting point is WAY too high and this really wasnt your first meeting, so there should have been a little more information given. And add on the fact that his price went up at the end of the season is the exact opposite of where it should have gone.

Look, we are all proud of what we built, I get it, but there is a reality of what our companies are worth...

I know of a few companies that were making top dollar that went for 1-1.25x yearly gross or 3x net, they should be around the same roughly..... and that is for everything, customers, biz name and equipment....

I am in the middle of negotiating a deal, we both agreed in the spring we were too far apart on the dollars, so we agreed to revisit it in the fall. He is serious about getting out but wants a fair price, I am serious about buying but am serious about what i feel its worth, there is middle ground somewhere and I know we have a better shot this fall because he is willing to lower his price at the end of the season because I will be sitting on a business that I cant begin to recoup my money on right away. I am sure there will be some negotiating still to do....

But that being said, our 1st meeting was just to get a feel for each other and see where he was with selling and price. 2nd meeting was for him to show me his books, I dont need addresses...yet, just numbers....3rd meeting was offer time....4th meeting was negotiate offer....5th meeting was negotiate offer and decide it was not going to work right now with an agreement to sit down after the season....

you have not gotten anywhere yet which does not bode well......good luck, let us know how you do...

Efficiency
08-03-2012, 10:20 PM
3x net? Wouldn't consider for less than 5x EBITDA plus a value for our trademarks and IP
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turf hokie
08-04-2012, 08:59 AM
3x net? Wouldn't consider for less than 5x EBITDA plus a value for our trademarks and IP
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wouldnt 5x put you into this particular sellers 1.5x reoccurring revenue asking price?

grassmasterswilson
08-18-2012, 04:42 PM
Is $1.00-1.25 per yearly gross revenue dollar on the app side in line?

He also has some mowing, pruning, and mulching jobs. I was thinking about $0.30-0.40 per revenue dollar for reoccurring jobs.
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cwc257
08-18-2012, 09:33 PM
I read an article by Jim Huston earlier this summer where he talked about valuing a business and gave 2 ways he did it. It may help or atleast lead you to more info on the subject.
http://www.lawnandlandscape.com/ll0612-mergers-and-acquisitions.aspx
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grassmasterswilson
08-19-2012, 09:16 AM
saw the article and have gathered the same info in my research.

I'm curious how long people have dragged out the payments? 6, 12, 18 months??

The company i'm in talks with has been around for 20+ years but doesn't have a website, truck lettering, or direct mail. I do and making the deal would put me in a completely different market that I'm not in.

So I'm trying to figure out what the cost of picking up 30ish account(if they all transfer) and the added fact of my truck and mailers being seen.

I'm haveing a hard time grasping the potential of having to pay more than 1 years gross, but entering the market may allow my to pick up even more work.

Duekster
08-19-2012, 09:36 AM
saw the article and have gathered the same info in my research.

I'm curious how long people have dragged out the payments? 6, 12, 18 months??

The company i'm in talks with has been around for 20+ years but doesn't have a website, truck lettering, or direct mail. I do and making the deal would put me in a completely different market that I'm not in.

So I'm trying to figure out what the cost of picking up 30ish account(if they all transfer) and the added fact of my truck and mailers being seen.

I'm haveing a hard time grasping the potential of having to pay more than 1 years gross, but entering the market may allow my to pick up even more work.

The trick here is to make a down payment then pay based on the remaining client base at various intervals.

Personally, I would rather just grow my business with the same amount of investment.

grassmasterswilson
08-19-2012, 06:45 PM
The trick here is to make a down payment then pay based on the remaining client base at various intervals.

Personally, I would rather just grow my business with the same amount of investment.

I have no intentions of an upfront payment. I'd do a small down payment and then a sturctured plan of multilpl payments every x months based on the percent that is still with me. I'm going to protect myself! So half the customers drop me...he gets half the money.

I'm going to continue to grow through advertising, but don't think I could invest the same money and get the same return as buying another business. This guy has been around for a long time and seems to have a small dedicated client base. So he doesn't advertise or work for new business.

I've got to figure what the cost of my lettered truck, application signs, offering of mowing(which he doesn't do), customer referrals, and entry into a new market would be valued at. That alone could be $10k in additional work and $2k in advertising cost, but i don't know.

I keep looking through everything and thinking...if I pay 1.5 times gross that means I got to work for free for 1.5 years unless I can drum up some new business or upsale to the current list.

I'd love for others to chime in on their thought.

lawntennis
08-19-2012, 07:19 PM
Talk to your bank about a loan for 8-10 years. See what the payment would be. Decide if the excess profit over the monthly payment is worth the extra work. If it is I would try it, if not look elsewhere. Do not be put off by the fact doesn't want to give you info. That is to be expected. He wants to protect himself.

Duekster
08-19-2012, 07:42 PM
Talk to your bank about a loan for 8-10 years. See what the payment would be. Decide if the excess profit over the monthly payment is worth the extra work. If it is I would try it, if not look elsewhere. Do not be put off by the fact doesn't want to give you info. That is to be expected. He wants to protect himself.

You just need a loan calculator ... but good point.

Raymond S.
08-20-2012, 12:52 PM
If you pay 1.5 times gross you will be working longer than 1.5 yrs for free. You have to calculate material costs as well. I haven't read the whole thread to know exact numbers but...for example. $50k gross, you pay $75k. If there's $20k in materials he's making $30k. It's going to take 2.5 years until you're back to making money again. It's not as easy as buying mowing accounts.
For the record, I bought out about $70k gross income in fert accounts plus Z-spray and enclosed trailer for $35k. I'll be making money after the 4th round this year.
Hope this helps you out a little
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robertsturf
08-20-2012, 01:23 PM
Weighing in here! I think the asking price is way out of line. I would offer 1 round of applications totals. We have done that with mowing customers in the past and worked out great. Put in a "no compete" clause and split the payment in 1/2. Base the final payment on customer retention. You have to take away the "wow" factor in looking at this decision, other-wise you will be working for nothing for a long time. If you are adding equipment to the purchase I would go with far market value. My 2 cents! Good luck.

RigglePLC
08-20-2012, 02:21 PM
I don't think he will agree to receive less if some customers cancel. Keeping the customers happy is your responsibility, and its in your control--only you have your books and internal records.

Be sure to send out a good letter to your new customers (hopefully) assuring them that you will take good care of them. Promising top-quality service. Pointing out the advantages of service from your company. Explaining how you use better equipment, and better products. Explaining how your people are well-trained and highly skilled. Offering to solve any complaints by yourself meeting personally with them.

grassmasterswilson
08-20-2012, 02:32 PM
Thanks guys. From my searching here an online I've found that $1.00-1.25 x gross for applications and 0.30-0.40 x gross for mowing, pruning, etc.
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Efficiency
08-20-2012, 04:09 PM
buying a book of business is no different than buying any other income producing asset. You have to assess a value on the future cash flow generated from that asset, in this case a bunch of clients.

Questions to help guide this: what is your current and projected new gross margin, net margin, EBITDA. Run worst case, expected, and better than expected numbers through a pro-forma income statement to see what the value TO YOU is.

Dont forget, that unlike the shiny pickup or mower most dont bat an eye at purchasing, this asset actually appreciates in value and will in turn be worth something to your buyer one day too.

grassmasterswilson
08-20-2012, 04:41 PM
For those who have done this. What do you expect the drop rate to be in the transfer of whose doing the apps?

I'm going through his numbers but his program is all over the place. So I'm trying to see what I would charge them. So it may be that I need to present my program and prices to eah potential customer in order to see who stays.

I see lots of potential but also see lots of negatives when deciphering the info.
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Raymond S.
08-20-2012, 06:18 PM
I would expect 10%. Higher percentage for fewer accounts, lower percentage for more accounts. How many accounts does he have? We bought around 150 fert/squirt accounts, lost about 20 immediately when we sent out the prepays and merger letter but picked up about 15 or so in the next few weeks from existing website and "presence." This business had a strong presence in a specific part of town and good traffic on website, so there was more value than just what was on the books at time of purchase.
Don't overthink the process. Do your homework but remember this. You can lose more money avoiding losses. There are always intangible assets of a company to consider, such as "opportunity." Opportunity cost is different for everyone. If this deal would be the one to take you to the next level then you have to be willing to maybe spend a little more if that's what it takes. Only you can decide what's affordable for your company and if these type of accounts are where you want to be in the future.
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grassmasterswilson
08-20-2012, 08:31 PM
I would expect 10%. Higher percentage for fewer accounts, lower percentage for more accounts. How many accounts does he have? We bought around 150 fert/squirt accounts, lost about 20 immediately when we sent out the prepays and merger letter but picked up about 15 or so in the next few weeks from existing website and "presence." This business had a strong presence in a specific part of town and good traffic on website, so there was more value than just what was on the books at time of purchase.
Don't overthink the process. Do your homework but remember this. You can lose more money avoiding losses. There are always intangible assets of a company to consider, such as "opportunity." Opportunity cost is different for everyone. If this deal would be the one to take you to the next level then you have to be willing to maybe spend a little more if that's what it takes. Only you can decide what's affordable for your company and if these type of accounts are where you want to be in the future.
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Helps a bunch! This is a small company with 30 application accounts and also does some landscape maintenance. Been around a long time but no truck lettering or website.

The upsale is there for mowing(which i do). Like you said the prescence of my lettered truck and application signs, website, and other up sales/customer refferalls has a price also.

Efficiency
08-21-2012, 05:39 AM
Helps a bunch! This is a small company with 30 application accounts and also does some landscape maintenance. Been around a long time but no truck lettering or website.

The upsale is there for mowing(which i do). Like you said the prescence of my lettered truck and application signs, website, and other up sales/customer refferalls has a price also.

If we are only talking about 30 clients, I would argue that light of dollar volume will skew the multiple down significantly. Here is why: when we are talking 100s or thousands of clients, you simply cant replace that growth through organic customer acquisition; purchasing becomes the only way to grow that much in such a short period of time - that puts the power in the seller's hands. Also, when you have such a large base, you have enough to watch the %s work out in terms of who drops, who upsells, etc.

Since you have some experience in direct mailing or organic customer growth otherwise, you have to ask yourself: what would it cost to gain 30 clients through traditional marketing? For us, using just direct mail alone its about $4500. For you, its likely another. At any rate, its only a short period of time and much less than 1-1.2 times gross.

Trust me, I when I purchased my 2nd company, that at the time, was doing about 200k in maintenance, I was so gung ho about it, even my most trusted sounding boards and mentors couldnt warn me of the danger signs. The deal went badly and I ended up paying full price for less than half the dollar volume. I say this to warn you: you seem very excited about paying top dollar for a very small business. Dont assume the rules of thumb of buying a $3M business apply to a $30k business.

grassmasterswilson
08-21-2012, 06:45 AM
If we are only talking about 30 clients, I would argue that light of dollar volume will skew the multiple down significantly. Here is why: when we are talking 100s or thousands of clients, you simply cant replace that growth through organic customer acquisition; purchasing becomes the only way to grow that much in such a short period of time - that puts the power in the seller's hands. Also, when you have such a large base, you have enough to watch the %s work out in terms of who drops, who upsells, etc.

Since you have some experience in direct mailing or organic customer growth otherwise, you have to ask yourself: what would it cost to gain 30 clients through traditional marketing? For us, using just direct mail alone its about $4500. For you, its likely another. At any rate, its only a short period of time and much less than 1-1.2 times gross.

Trust me, I when I purchased my 2nd company, that at the time, was doing about 200k in maintenance, I was so gung ho about it, even my most trusted sounding boards and mentors couldnt warn me of the danger signs. The deal went badly and I ended up paying full price for less than half the dollar volume. I say this to warn you: you seem very excited about paying top dollar for a very small business. Dont assume the rules of thumb of buying a $3M business apply to a $30k business.


Wise words and good advice. I have a number in my head but not sure the seller will like it. I'm looking at this as more of a way to create a base of customers in a new market that I can then do direct mail to and build. Ive seen steady growth where I am now but think to my self "if I get into his market and have the same or better return" what could happen.

He is selling mostly some weed control accounts and some landscape maintenance(pruning mulch etc). Not much mowing-maybe 1-2 accounts. Most properties are in high end areas so the opportunity to upsale mowing is there. If things work out I'm hoping that will ease the payment burden.

I'm only goin to pay based on customer retention. So if I only get 15-20?app accounts that still becomes a reason or starting place to head over there and work. I'm also going to structure the deal so I need at least a minimum of his clients to stay.

Like you said the power is in my hands.

Thanks for everyone's help.
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Raymond S.
08-21-2012, 12:30 PM
30 accounts? Have you found out gross sales yet? I can't think that generates more than $25k and that's being very generous. Of course it all depends on size of the lots. Thing is if you start getting even a couple drops that significantly diminishes your rate of return. If you're prepared to spend well into the thousands for this I'd seriously think about planning an aggressive marketing strategy vs. Purchasing these dew accounts. Just doesn't seem like enough on the table to really justify a whole lot of risk.
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