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View Full Version : Re:Determining value of business--Hypothetical story problem/You make the call....?


mowinmoney
01-10-2004, 08:24 AM
I posted a question earlier that brought many ideas and opinions to light and want to take it one step further with a "hypothetical" situation, if you are experienced and know what your doing your logic would be greatly appreciated.....you make the call

Company of 2 workers currently maintaining 129 accounts is approached by local "friendly" competitor. Wants to sell and move to FL. His company has 38 "high end" accounts that he has had 5-7 years. His jobs are well clustered and minimal drive time each week. The company being approached to buy has accounts in the same neighborhoods as the seller, so there would be little time spent arriving to sites. Now the numbers:

--Seller has averaged 55k gross past 3 years, running the business solo,
--he has $8500 bookvalue in mowers/trailer.
--His customers are not picky and the buyer knows this do to the fact that the buyer sees the sellers finished product every week.
--35 residential jobs
--3 commercial(2 cut check day of service)
--seller currently outsources all landscape maintenance, but could bring it in house
--seller works 45 hours a week, wife helps occasionally so say 15 hours a week
--buyer has been approached by 2 of residential customers already to take over lawns if current seller ever quits.

Sellers asking price: $45k

In the buyers market, this seller is dealing with customers that have service from April 14-Thanksgiving. The seller is simply mow and go, no cleanups, trims monthly simply mow and go and only blows walks and drives bi weekly. Seller states he is all about productivity....
he is however a great talker and has built loyalty towards himself and not his service.
Very good potential for the upsell and price increase as his customers have money, question looms however are they happy with the half assed service or blinded because the most of the neighbors lawns look the same do to the fact that sellers maintains rows of houses in neighborhoods.

The plot thickens as there are competitors looming to obtain this sellers business as to try to eat up local market share.
From the buyers side:

Enough capacity equipment wise, doesnt need sellers equipment but could trade in or sell
Would need to hire 1 more FTE
Has purchasing power
Seller will self finance over 1 year if necessary
Would bring 25% growth with 100% retention
Increased minor landscape maintenance
Longest established LCO in area with great rep for quality.
Buyer wants to grow his company but doesn't want emotion to overtake sound business practice because the lawns would be great to maintain.


If you were in the buyers shoes what would you do and why....

Avery
01-10-2004, 11:25 AM
Well I got blasted in the other thread about what a business is worth. Let's see how I do in this one!


I would offer him 10K. No way I would pay what he is asking for a business that only does 55K. If he takes that great! If not and you still want the accounts then approach the clients and bid them. As far as I am concerned there are only two kinds of accounts. The ones I have and the ones I don't want. If I wanted his accounts bad enough I would get them. It does not seem like a big enough operation to be too concerned with. $8,500 in trailers and mowers? That is not enough to get you one decent trailer and Z mower. 35 residential and 3 commercial account only bringing in 55K? I think these would fall in the accounts I do not want. Sound way underpriced to me.

From the limited info. and numbers posted this business would have very little value to me. I would only offer the 10K because you stated his route is near yours. Maybe you could up sell the clients and raise the price little by little to make them profitable. That and I like having the largest market share in my area.

sildoc
01-10-2004, 01:35 PM
I am some what with avery. Equiptment is worthless if it is only 8500 worth. Heck a good walk behind is half of that. 10000-15000 max. 45 is out of the question if he has 35 res and 3 commercial. If purchased I would plan on loosing the 3 commercial and 1/3 of the residential. So now you are left wit maybe 20000 per year. first year you are working for half.
To much iffyness. Wait till he moves and then bid the customers properly. No money out of your pocket and you get your contracts not his. JMO

Fantasy Lawns
01-10-2004, 01:49 PM
He uses 60 hrs of weekly labor .... correct

If he's cutting 35 weeks he's only making $26 per hr GROSS
If he's cutting 29 weeks he's only making $31 per hr GROSS

I'd saying he's going out of business anyways

And if he's cutting in my area he's making $21 per hr grosss at 42 weeks of cutting

brentsawyer
01-10-2004, 02:19 PM
Probably insult him for asking that much. Someone that greedy needs all the insults that can be dished out. LOL. Tell him forget it for that much. Honeslty, anyone who pays that much would be in the poor house for 3 years.

Kelly's Landscaping
01-10-2004, 03:36 PM
Ok he makes roughly 7,500 per month most people who would buy accounts would say no more then 1-2 months income so thatís tops 15,000.

The equipment is used and uncertain at best I wouldnít touch it. Id would tell him to sell it separately. But say you wanted it then add them together and you got 16,000-23,500 depending on how much you pay for the accounts.

I donít like the deal heís so small its hardly worth buying that. You could add that many accounts in a good months ad blitz for a hell of a lot less then 23,500. I think the reason you buy a business, or that it has some value other then equipment is to save you the time of building it. Unlike Avery I do think landscaping businesses can be more valuable then their assets and accounts. BUT I do not believe that to be true for small businesses that gross under a few million in sales. So I would recommend if your retirement package is selling off your business to some national company then make sure its worth buying. Donít think cause you have some mini lawn business that can be built in a year or less that its gona be worth its gross sales. 38 accounts is not that much I added 65 last year with out really trying I intend to add 150-200 accounts this year and the advertising budget for that is only 10 k.

newmanfan
01-10-2004, 05:50 PM
Kelly makes a good point.

You could add that many accounts for a lot less money, and would not have to worry about retaining.

What type of market share are you buying if there is less than 100 accounts?

proenterprises
01-10-2004, 06:40 PM
Somthing sounds odd here-
If he has 38 accounts in a high-end neighbor hood-then why is he only blowing every other week...and only trimming once a month:confused: That just sould a little odd to me.

As for the price-he needs to come way down-that figure is very high. Also- I would take a ride out and check these accounts to see if they are in fact high end or if thats BS.

workaholic
01-10-2004, 06:55 PM
I PERSONALLY would not buy anybodys used equitment and would not buy anybodys jobs there is no guarentee that you will keep them. Theres just to much work out there to get my self, now if the company was doing upscale high end comm. & res. propertys and annual says were $100.000 and up, different story but not for just mow & blow..

JimLewis
01-13-2004, 04:30 AM
I have a fool-proof policy for buying other maintenance businesses out and this is how it works;

I'll pay 1 month worth of income for each account. So if seller had 20 accounts each paying $100 per month, I'd pay him $2000 for that business. PLUS whatever I thought the equipment was worth at disounted pricing. That's about all I'd pay.

Now, if he also had a substantial construction, irrigation, etc. business and repeat customers from that, then we'd talk more money. But for just maintenance clients - 1 month's pay per client plus equipment.

And I'd pay it like this - 50% down the day I buy the business. Then wait at least 3 months and pay 50% more MINUS 100% of whoever quit within those 3 months. I'm not going to pay for people who use me for a month or two then quit.

The Happy Gardner
01-13-2004, 12:17 PM
A normal business is worth one years gross. Unfortunately our business is so transient that doesn't apply.

I would look into sharing the risk with the seller.
Figure out what your profit will be for one season, using his equipment and adding an employee to cover the new accounts, at the service level he is currently providing. Then offer him 85% of that monthly for the first season. This will protect you from loosing accounts you already payed for and he already offered to stretch the payments out over a season.

Then sell the s..t out of the new accounts on your extra services and make it clear to the seller that all extra services are all your.

It'll grow our business easily and you'll pickup a lot of new accounts in the new neighborhoods.