Selling your business

[fastlawn]

Guys, I have been seriously considering selling my business. Full service landscape construction, mainly residential but some commercial. No maintenance at all. Gross $230k net around $75k past two years, and business has no debt. Business is finishing its fifth year and has grown every year. Extensive equipment list value over $100k. If anybody has experience with this, what would you place (ballpark) the value at. Reason for sale: I have other business interests.

[tiedeman]

may I ask what your other business interests are?

The price of the business can vary. Talk to an accountant, talk to a lawyer, and talk to a business man, they all have different opinons on what the price could or should be

[Keith Howells]

The business would be worth the depreciated price of the equipment unless you have signed contracts.

[Team Gopher]

Hi Fastlawn,

Here is a great quote from user Clay.

" Only good service will keep a customer long term... not a contract! What do you do when the annual contract is up??? You try to get another??? Well, guess what... that's a perfect opportunity for the customer to shop around.... Why even put yourself in that position???

I thought long and hard on contracts when starting and decided against them.... And with over 500 accounts served (over 1,000 residents with the associations), and well over a million dollars billed out in labor, I have only had a few hundred in bad debt...

If you have a signed annual contract with these people and don't show up for 30 days will you still get paid??? Of course not... If you show up and do a great job will you get paid... almost certainly....

I've read too many times how important contracts are and how a good business in not worth more than a few weeks or cuts.... Well, that's simply BS.... I've personally started, built and sold 8 "quality" landscape maintenance businesses in 12 years.... Sold them all for 50% annual gross plus equipment value, and out of the over 500 accounts sold, have had only one quit due to the transfer of sale (and that one I replaced for the new buyer with one of greater value)...."

Another point of view to consider.

[T.E.]

Gopher, Good post, This the postion I take on contracts as well most all have an out clause and so whats the point.

[fastlawn]

Gopher thanks for that post, and I would have to disagree with Keith that the only value is in the equipment. This business has regular customers, although they are not on contract. If the purchaser is knowledgeable and is customer service oriented, they will do well and increase revenues and profits in the first year.

[Keith Howells]

So what I'm hearing from those who say contracts are unimportant is this: You have a signed two year agreement with a commercial account worth 200K in gross revenue per year with payment terms spelled out and liquidated damages included. Another guy has the same type of account but he has a two year understanding with the owner. Nothing in writing - no payment terms, no liquidated damages etc. Other than the contracts, both businesses are fundamentally the same.

A buyer comes along and evaluates both of them for purchase. He decides business two is worth just as much as business one? I would find that hard to believe.

I agree with Gopher. Good service keeps an account - long term. Accounts can decide not to renew contracts. However, in the purchasing phase of a business, when a guy plunks down his hard earned money, if he's got any smarts at all, he'll want at least some assurance that the customers won't take a hike after the old owner is gone. Contracts do that. Banks also look at the contracted revenue stream when deciding how much to loan on a business.

[T.E.]

Keith I agree with both view points and yes I would like to get my accounts on contract. At the same we have in my area lost more jobs according to national stat. in the last year than any other place in the nation. Tell them you want a contract they will say take a walk.

Another thing is this I owned a janitorial biz. for a few years The only ones that ever gave me trouble was the ones that required a contract. Went in one night to do the job boom they were gone. To try to get the rest of what I was owed would have cost more, than what I would have got, plus the time I would have in the chase. Just my thoughts thats all. Tony