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View Full Version : Determining the value of a Mowing Business


mowinmoney
01-09-2004, 12:42 AM
Has anyone dealt with purchasing or selling your mowing business. If you have how did you determine the market value and/or selling price?

Avery
01-09-2004, 12:53 AM
I have never bought or sold one, but I would say figure it based on equipment only. His contracts are not worth diddly as they can change LCO's at anytime. You cannot count on them staying with you if you buy.

Phishook
01-09-2004, 01:46 AM
I guess the value would be what ever it is worth to you.


If you are buying, get a copy of his taxes to have proof of the income. A wise man told me 10-20% of the annual income was average.

Figure the equipment separate. Don't buy every thing if you don't want it.


example= business income $40,000. His selling price of equipment $10,000.

So 10-20% could be anywhere from 4 to 8000. It just depends how confident you are, and how in need or willing he is to sell.
So say 12.5 %($5000) because the accounts aren't high end, and you'll have more travel time because of your location.
Then the equipment is up to you. If you don't want something, don't take it.

Team Gopher
01-09-2004, 09:09 AM
Hi Mowinmoney,

Here is a quote from this post (http://server2.lawnsite.com/showthread.php?s=&threadid=56201).

"6 months gross, plus equipment value... (in a 12 month climate zone)"

Barkleymut
01-09-2004, 10:21 AM
I disagree with Avery, if your contracts are worded correctly they would be enforceable. If you are trying to sell your biz, make sure all your contracts are up to date.

Avery
01-09-2004, 10:39 AM
Originally posted by Barkleymut
I disagree with Avery, if your contracts are worded correctly they would be enforceable. If you are trying to sell your biz, make sure all your contracts are up to date.

They may be but at what cost? Would you want to keep working for someone you had to take to court? What do you think the chances are of them signing up for another year? Or paying on time? If you start trying to enforce contracts when a customer wants to drop you you will damage your reputation. Not worth it IMO. If I was looking to buy a business the contracts would be worth nothing to me. Been in the business for over 20 years. I have seen lots of guys buy a thriving business only to have it flop after they lost some or most of the contracts. It can and does happen. Like Phishook said value is whatever it is worth to you. And to me another LCO's contracts are not worth the paper they are written on.

Mustang
01-09-2004, 02:31 PM
What is the value of any business based upon? Businesses are bought and sold all the time. Predominantly, they do not have contracts with their customers. That does not mean they have no value. The value comes from a business' track record; its ability to generate a profit or its potential to generate a profit. It aggravates me to no end when someone in this industry says a business is worth nothing. To those that say this, is your business worth anything? Are you devoting all your resources to an entity that will have no value in the end? Why then do you not just go out and get a job? A whole lot more benefits and way less aggravation. If you can purchase a business that allows you to make $100,000 a year is that worth nothing???? Or $50,000, or $150,000? What difference does it make whether they have contracts or not if that business can prove they have made a certain level of profit every year. (I'll certainly agree contracts with customers will enhance the attractiveness of any business) Why are other businesses worth money and not landscaping businesses? I think a good part of the reason is a lack of respect for our industry. It is bad enough that the general public gives us no respect but the other half of the problem is that many of those involved in the industry do not give it any respect either. (sorry for the rant!)

Back to the value of a business. July issue of Inc. magazine. Page 78. They did an article on what your company is worth. Very interesting. Now, the figures to follow were compiled from only 10 transactions so they are statistically insignificant. But they are a start.

Median sales= $198,000
Median sales price=$180,000
Median Valuation multiples:
Equity price divided by EBT =3.92 (EBT= Net Income + Taxes) Equity price divided by Gross Cash Flow=3.18 (Gross Cash Flow=Net Income + Noncash Charges)
Equity price divided by Net Income=3.92 (Net Income= After Tax Net Income)
Equity price divided by Net Sales=.60 (Net Sales= Annual Gross less Returns & Discounts)

GarPA
01-09-2004, 03:00 PM
well said Mustang....like you, I go ballistic sometimes when I hear what flops out of the mouths of some of our "peers" in this industry. Somtimes I want to jump thru the pc screen and look and see if there really is a void between their left and right ears...

Some of us do get respect, because we conduct ourselves and our business in manner that generates that respect. The rest, and unfortunately far too many, create the stereotype that we are constantly striving to be apart from.

Does an established small local fert company that gets purchased by TruGreen, have a value when its sold to TG?...uh-huh. An acquaintance of mine was just paid a nice amount to sell his local fert biz to another larger fert company.

How about a small garage repair shop that is bought by a new owner....the customers of which, only come in once or twice per year. Does his "business", aside from the brick and mortar have a value?? uh-huh

No different for what we do. If its an established land/lawn biz, it has a revenue history....and that history will generate future sales, and therefore has a value. When I decide someday to take down my shingle, I'll be damned if I'm going to give it away. What % to use for valuation is open for debate. But zero, isn't one of the options.

rodfather
01-09-2004, 03:06 PM
The value of a full time, well established Lawn Care Operation? Simple...a full year's revenue. Equipment, trucks, trailers, etc. are extra IMO. Period

Avery
01-09-2004, 03:30 PM
No need to get bent because not everyone agrees with you guys. I know what my business is worth....with me running it. Could a new owner make just as much? Maybe. He may even be able to do better. But he could also loose all the contracts and go bankrupt. Stop by a bank sometime and ask the loan officer exactly how much the business contracts are worth. Past revenue will help you some, but not as much as you might think. I plan on retiring and selling the business in appx. 5 years. I would love to be able to sell based on my income or contracts. But I realize that is not gonna happen. Banks gonna loan based on tangibles...stuff they can foreclose on. They cannot repo. contracts or past years income.

I think you guys are reading too much into this. I am not saying your contracts are worthless. They are worth a lot to you. What I am saying is that they are worthless to a new owner (if he has any sense). Why would someone pay you for something that is not yours? Sure you have the contract this year, but if I want it bad enough you will not have it next year. Why would I be willing to pay you for something I can get without you?

And for everyone that puts such value in contracts...call me in about 5. I will make you a heck of a deal on a turn key business! :)

Fantasy Lawns
01-09-2004, 03:36 PM
I was getting worried there for a minute .... thought that all I have worked to build up was only going to be a yard sale

A bank may not give them value .... but a bank is not going to buy my buiness .... either n established LCO wanting to expand or a young gun or early retire with some loot will

My business is my 401k .... when I sell ... it IS "turn-key" .... that's how I've been building it ..... I've removed my self from the daily labor aspect ...... sure in the summer I go out bout 20 hrs to help out but I could get that covered .... I just like the extra savings

Any owner whom has no direction to build their business towards such a direction is only in the "business" to replace a regular hourly job .... fore some thats all they want .... some extra $$ .... n for the most part this our basic "solo even with 1 helper

Down the road they may decide to get more ... build something

After my 1st year ... I bought a solo whom was established 5 years but moving north ....50 accounts ...2 months gross n some more for equip ... we got on a payment plan (let him keep the 1st month so the customer could judge our work ... than sent the next months billing which went to me ... up to him ...lost under 10% ....n to this day I still have bout 50%

Would I take 2 months for what I have today .... I don't think so .... more like 8-10 months .... do I think I can get it .... yep

Avery I'm sure you know your numbers .... you have profit correct? Is not that profit based on your customer paying your invoicing .... I'm sure when you do sell you will want something for that ..... other wise you better have over $500K in equip with another $500k property

I have a strong customer base ... we are on monthly billing .... I have resi customers over 7 years ..... WITHOUT a contract .... does this have value? .... I'd say so .... BUT we are on year round cutting .... if I had a winter break I'd insist on contracts N I'd have the snow removal of the same job

My guys show up ... we do the work .... they send a check .... month in n month out .... when I sell ... they will hardly even know ... n when I do I'll still be around as a "consultant" to smooth any change over

Phishook
01-09-2004, 03:40 PM
Originally posted by rodfather
The value of a full time, well established Lawn Care Operation? Simple...a full year's revenue. Equipment, trucks, trailers, etc. are extra IMO. Period

So if my business brings in 100K, and I have a 40K shop and 50k in equipment IYO it'd be worth $190,000.

I don't see making a profit off a purchase like this. I'd sure sell it though.

rodfather
01-09-2004, 04:07 PM
Originally posted by Phishook
So if my business brings in 100K, and I have a 40K shop and 50k in equipment IYO it'd be worth $190,000.

I don't see making a profit off a purchase like this. I'd sure sell it though.


Basically, yes. Profit for who btw? You or them?

rodfather
01-09-2004, 04:09 PM
Originally posted by Fantasy Lawns
... n when I do I'll still be around as a "consultant" to smooth any change over


Good thinking. That helps greatly with the "transition" and reassures the customers too btw.

GarPA
01-09-2004, 04:23 PM
man Rod I can only imagine what you'd ask for your empire down there in DINK land.....I'm not sure there's a bank around that would lend anyone that kind of moola to buy your gig...ha

rodfather
01-09-2004, 04:30 PM
Originally posted by GarPA
man Rod I can only imagine what you'd ask for your empire down there in DINK land.....I'm not sure there's a bank around that would lend anyone that kind of moola to buy your gig...ha


That's how I am going out that way Gary. In fact, it might be sooner than I expected...then you can "color me gone"

jwholden
01-09-2004, 04:39 PM
The value of your business is whatever you can get someone to pay you for it.

GarPA
01-09-2004, 04:41 PM
oh no ...first the Mower Babe....and now YOU.......hmmmm

GarPA
01-09-2004, 04:44 PM
right on JW...its like people who collect things....the "appraised" value might be X....but its only "worth" that if you can find somebody willing to buy it, and at that price...

John B Laidlaw
01-09-2004, 05:01 PM
Standard 2.5 times monthly rev + depreciated equipment... this from an accountant that services LCO's. installs, Ect

I purchased 18 accounts for 3k and within 1 year was up to 45 accounts. Eventually took 15k worth of beesknees and turned into 46k. When I sold, I got burned but thats another story:(

Bottom line is set a price and go from there.
J

rodfather
01-09-2004, 05:16 PM
Originally posted by John B Laidlaw
Standard 2.5 times monthly rev + depreciated equipment... this from an accountant that services LCO's. installs, EctJ


Sorry to disagree with ya John, but I am NOT going to let my accountant determine my sales price. BTW, he is also a CPA and my only brother, and many years ago helped me with the start up of my company.

Bottom line...I determine the selling price...not the buyer or anyone else for that matter. Next thing is then having our customers determine what he/she thinks is "fair" to have his/her lawn mowed. I think NOT.

lawnman_scott
01-09-2004, 05:59 PM
You may determine the selling price, but the buyer will determine the purchase price. If i could get 1 years revenue, i would throw in the equipment for free.

Avery
01-09-2004, 06:11 PM
A bank may not give them value .... but a bank is not going to buy my buiness .... either n established LCO wanting to expand or a young gun or early retire with some loot will

True, but a bank is going to decide how much they will lend you based on equity. Mowing/landscaping contracts are not equity to a bank. And when someone buys my business they are going to have to have a bank loan....a BIG bank loan. My equipment is probably only worth around 200K, but I do have more than the 500k in property you stated.

Mustang
01-09-2004, 07:20 PM
I wouldn't let what a bank will loan anyone affect my view of a business' value. If that is a determining factor then one's selling price is going to be severely diminished. Chances are, to get maximum value, the seller is going to have to take a note on a chunk of the selling price.

As far as property and equipment is concerned, they are much easier to sell and/or finance in a conventional manner.

Avery
01-09-2004, 07:32 PM
Chances are, to get maximum value, the seller is going to have to take a note on a chunk of the selling price.

No way I would do that...way too much risk.


K. I give up. You guys just don't seem to be getting the point I am trying to make. :(

Mustang
01-09-2004, 07:44 PM
Taking a note is a personal decision we will each have to make. Personally, I'm of the thought that one's selling price is going to be diminished if they will flat out not be open to taking a note. I can certainly understand why you would choose not to do this. But isn't this a decision to be made at the time? What if you were to find someone that was relocating and had owned their own LCO for the past 15 years grossing over 2,000,000 per year? Would you consider holding a not then? What if they only asked you to hold a note for 20% of the purchase price? Wouldn't your stance possibly change given the terms of the deal? What if you had to finance 50 % of the deal and there were no other buyers? Either take this deal or walk away with nothing (assuming conditions forced you to sell)? What if that 50 % note was secured by the business itself? Buyer misses 2 payments and you get the whole business back plus keep whatever monies had been transferred?

Not trying to be a wiseguy here at all. Just saying there are a lot of conditions and terms of sale that come into one's thought process on the sale/purchase of a business.

Avery
01-09-2004, 09:00 PM
No, I can honestly say I would not hold the note. What if the guy decided to walk away after a certain amount of time? Could you be sure how he had been servicing his accounts? In this business we live/die by our reputation in the community. It has taken me many years of hard work to establish my name. That is priceless to me. So he walks away and you get the business back...what is it worth if he damaged the company image? I would sell of the equipment piece by piece before I would hold a note for anyone. I have other things in place to assist with retirement. I am not relying entirely on the sale of the business. Fact is I am not expecting that to play a big part at all. But when it is time to sell I will ask appraised or bank value for it. Not what I think it is worth. If I could get that I would sell tomorrow! :)

Fantasy Lawns
01-09-2004, 09:24 PM
Avery I respect n hear what you are saying .... that is how you feel .... I just see it that my customer base does mean for something when I have hard numbers of past years showing clear true profit

A business loan is gonna be based on the applicants …. Character ==> criminal past, ties to the community, how one sells them self to the banker ….. Credit==> having good credit means something when applying for a loan …. Than last but not least is Collateral ==> this is what Avery is talking bout …. Yes they love equipment & land … even inventory counts for something

Next the smart applicant develops a Business Plan …. Within that plan beyond the normal descriptions, mission & strategy, short-long term goals, competive & market analysis, break even analysis & much more

Fore a Going Concern ==> they like to see at least +2 years of profitable operation …(this is were that customer list comes into play) …. When getting a loan for a present concern …. The actual business history DOES have merits

How does ANY service business get a loan to expand or grow … the baker, hairdresser, bar or restaurants, clubs, theaters so much more n more n more

I have GREAT credit … long term ties to my community n even a fair amount of collateral but when I sell it will be for more than just hard value of equip & land … my business is a living S corporation which has many years of profitable numbers

At the present ….. I’m with a group of people whom is going into a new business venture …. This is fore a large classy bar ….all I’m gonna say (I’ll even post photos to back up this as we break ground any day now n should be open in 4 months) …. Yes we had to put up money (they luv to see the business owner but up $$ the more the better ... as we have no real present day collateral) ….but with our business plan, good credit & character as well as the ability to sell ones self we have secured a loan into the 6 figures …. This is why this is close to me …. 1-3 more year's n I’m done

Barkleymut
01-09-2004, 10:21 PM
By Avery- "What do you think the chances are of them signing up for another year? Or paying on time?"

1. I have 3 year contracts, so I'm not worried about next year unless it is the 3rd. And even then it renews automatically.

2. I kind of prefer they don't pay on time. I get 20% + $40. As long as all of my customers don't decide to be delinquent at once I do quite well on past due balances.

CNYScapes
01-09-2004, 11:21 PM
I bought out two small LCOs my first couple of years in business. The first one was just to get me in the business full time and the second was to increase sales. One came with equipment and one without. I paid between 15%-20% of the yearly revenue plus the value of the equipment. It worked out for me and I have had almost all of those customers for several years now. If you balance the cost of advertising versus the cost of buying someones business, I decided at that time I wanted the immediate income generated by the business purchase, but the answer to that question is all yours. Anyway, good luck.

Mustang
01-10-2004, 12:13 AM
Avery,

Sounds to me like you are a smart man. I agree; to count on your business' value as a retirement plan is a risky proposition. However, not everyone may feel as you do with regard to holding a note and the potential that has to enhance a company's selling price. Just comes down to different strokes for different folks. And I understand and respect your position.

The only issue I had with an earlier post was that our companies were not worth anything more than asset value. Companies sell for way more than asset value all the time in all different industries and if those within our own industry do not advocate company worth, how can we expect anyone else to see value in what we have worked hard to build?

This is a great thread. Brings out all the different positions and viewpoints.

It also lends itself to another interesting discussion. Rather than go off topic I'll start a new thread. For anyone interested it's titled "Own your own or a job".

kootoomootoo
01-10-2004, 12:30 AM
smart aquisitions are the fast track to the millionaire club!

Avery
01-10-2004, 01:20 AM
I agree...great thread! I am really enjoying hearing different points of view. Even though I seem to be in the minority here! :)

Plus as with everything in our industry what works in one area may not work in another.