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Team Gopher
09-29-2004, 02:51 PM
Here is a question we were asked and would like your thoughts on.

"I know this gets asked a lot...so I will try and keep this brief. Never had a lawn care business before...been around lots of maintenance companies in 12 years...never owned one. Am considering it....here is what I have found:

company #1
solo operated...55k per year in season....8 months or so....no snow work....basic mow and trim....bush trimming when needed is extra.....aerifiying and dethatching..extra as well.

52 clients....aerifier and dethacher included....basically buying goodwill and phone#.

Price : $5500.00

Yay or nay? Never wanted to be a solo op..but I see it as a challenge....the extra income would be quite helpful...my business in Arizona is able to run without me for the most part...I can schedule and route from the field. no problem...do that now anyway. Perhaps the lawn care business is ready to be expanded w/ employees?


Business #2

102 clients....2 employees...owner is absentee for the most part...wife answers phone...does about 80k for the season....most of that eaten up by employees i would imagine....but still profitable.

All equipment needed to operate is included...truck/trailer...3 walkbehind xmarks 32"...1 21" toro pushmower....2 string trimmers...2 blowers....2 aerifiers...1 power rake....etc....probably not new equipment but usable....

Price $25,000.00 CASH ONLY.

Or would it be better to buy some equipment and do advertising?

My opinion:
I would think that the solo operated business is perfect for me...small enough to get my feet wet and work it myself for awhile...see if I really want to do this...downside is that I would need to buy equipment. Upside is I could probably keep 75% of these clients...he is really talking me up to them and they seem ok with it. Maybe grow this business enough to hire some guys.

Any thoughts? "

aquamtic
09-29-2004, 04:46 PM
In my opinion- I would say that the solo business is a more reputable seeing that it is operated and managed by the owner. With the other- who really know how many of those 100+ customers are happy customer.

Go with the solo and you'll build that 100+ customer base before you know it for 20 grand less

parkwest
09-29-2004, 05:47 PM
second one sounds like a business. first one sounds like buying a job. Would need to see last 3 to 5 years of tax returns and financials to see how the numbers work out (ROI)before making an offer and starting my due diligence.

HOOLIE
09-30-2004, 12:06 AM
Good points made by all. The point I see is, you've never done this kind of work before, so maybe just start an LCO yourself from the ground up, see how you like it first. Really, if you put the effort in its not hard to get to the size of either of the companies you're considering buying. The bigger company, I wonder how "used" the truck and equipment are. Don't want to blow 25G and right away have a lot of repairs and equipment breaking down all the time. But it sounds like the 2 employees do all the work, so maybe not as hard on you.

HOOLIE
09-30-2004, 12:07 AM
I mis-read your post, I see you have some experience and prior knowledge of the business.

tonygreek
09-30-2004, 01:12 AM
I would lean towards buying the 5.5k business or investing in starting his own. The range set is 5.5k - 25k and if starting your own, this range is a pretty nice budget to learn from the ground-up and invest in new equip and marketing.

With the 5.5k business, if you toss out 2k of it to cover the equip, that leaves 3.5k for what's essentially a customer list (no mention of contracts). 67 dollars for what amounts to a lead and not a sure thing. The term "Goodwill" can be ironically disappointing. If you spent that 67 dollars on prospecting your own customer, you'll be able to add another feather to your "I Understand What Makes a Business Tick" Hat.

To further expand upon the 5.5k business, the numbers provided, over an 8 month period, equates to approx 33 dollars a cut, or a shade over 2 cuts where you make zero dollars right off the bat. I'd offer him the equivalent of one cut and work from there.

Makes me wonder if there's a thread on here on "What are the true costs of gaining one customer"?

Tony,
Dayton, Ohio

Acute Cut
09-30-2004, 10:50 AM
Great post tony. I am maxed on tossing ya points, but great post either way.

parkwest
09-30-2004, 05:39 PM
I mis-read your post, I see you have some experience and prior knowledge of the business.

who is this directed at, please.

tonygreek
09-30-2004, 06:02 PM
I would assume he was talking to Gopher regarding the fact the gentleman has related maintenance experience.

Team Gopher
10-01-2004, 01:11 PM
Thank you for the great and insightful replies!

Team Gopher
10-01-2004, 01:26 PM
In case anyone else finds themselves in a similar situtation, here are other responses we received to help.

- Here is a response from "Bill Parrish of Fine Lines Lawn"

I get a better gut feeling about the offer of Business # 2. You would be getting some hardware in the deal and could become more profitable by sending one of the employees to one of your friends in the business who really needed him. Then shock the employee that you keep by working with him and improving customer relations by being a working owner.

- Here is a response from "DanK"

I say haggle with the price more on #2.

Find out the best you can if the employees are top notch and dedicated. How long have they worked with THAT business? I figure if they have basically been running it by themselves they might be able to handle being team leaders. If so, maybe....maybe hire another employee to make a total of 4 with two crews with you being in one of them. Just throwing some ideas out there.

- Here is a response from "Mike J"

The first one sounds a little better to me, but I would use the money on advertising if you already had equipment.

- Here is a response from " Stephen M."

The purchase price per client in company #1 is $105.77 and the overall gross is $1057.69 per client.

In company #2, the purchase price per client is $245.10 and the overall gross is $784.31 per client.

This should be a no brainer after looking at the numbers. However, after you look at the equipment for longevity, and factor it into the purchase price, #2 might be more attractive.

- Here is a response from "Phil Nilsson of Nilsson Associates - Profit Building Ideas for Lawn & Landscape Professionals"

IMHO ... don't purchase either ... sales dollars per customer account is too low to make it worthwhile given other options "out there". That's a lot of "chasing around" for low gross sales.

HBFOXJr
10-14-2004, 09:54 AM
There are some practical guidelines for determining good will value of the clientele. The best is to look at the gross profit margin of the business. GP meaning, what is left after paying all production labor costs and anything pertaining to that labor such as WC, liability ins that are determined by payroll, all production equipment costs and all production materials. If the operation is a sole prop. or S corp then a salary for the owner's time in the field must be deducted to determine the gross profit too. Avg 3-5 yrs of gross profit and multiply by 3 or more to determine the value. Add in equipment and any inventory which is easy to determine and you have the business value.

All of this points to why it is good to be legal and on the books. If you hope to one day capitalize on your hard work and sell your business you better have something legit to show someone.

Purchasing a business need not be a big risk or a pig in a poke thing. Good businesses can easily be valued and justified.

GreenMonster
10-14-2004, 10:14 AM
Here is a question we were asked and would like your thoughts on.

Upside is I could probably keep 75% of these clients...he is really talking me up to them and they seem ok with it. Maybe grow this business enough to hire some guys.

Any thoughts? "

I went through a similar experience this spring. The guy I was potentially buying the business from told me the same thing. "Everyone is real excited to meet you, they're glad I'm staying involved and finding them a replacement, blah, blah, blah"

Once I started calling some of these folks, I didn't get the same response. It started to look like less than 25% retention rate. I walked away from it. Wasn't worth the effort. As I started to have a few in depth conversations with some of these customers, this LCO was I guess a little shady, which probably left a bad taste in their mouths. I think that may have put me behind the 8 ball to start. If your guys are on the "up and up" maybe things will be smoother for you.

I don't like the idea of putting up money for "good faith" either. At best, I would offer a percentage only for customers that hang on to you as their LCO.
That way, you don't lose out if customers fall through or go elsewhere for service.

JustMowIt
10-15-2004, 10:59 AM
Here is a question we were asked and would like your thoughts on.

"I know this gets asked a lot...so I will try and keep this brief. Never had a lawn care business before...been around lots of maintenance companies in 12 years...never owned one. Am considering it....here is what I have found:

Any thoughts? "

We have purchased 2 companies in the last few years and would never do it again! We inherited so many little pryor agreements, payment terms, & prices which did not mesh with the policies of all other customers. Same with equipment & workers.

We have learned that you can take the same dollars to advertise for fresh new customers that don't mind paying on your terms. Our average cost of acquiring new customers from advertising is about $100 with a net return of about $225 the first year.
MJ

HBFOXJr
10-15-2004, 11:36 AM
Why not do it again after learning of the pitfalls and how to value an operation? If you could buy for $50 but it costs you $100 on your own, it can make sense. There are deals out there if you know how to look and are patient. If you buy cheap you can afford to lose some. Again, if the guy folds and it is your advertisng $ bringing them to you, coul dyou have bought them cheaper?

I would not buy an operation that didn't have one or more of the following -legitimate record keeping, tax returns, proven historical data or current verifiable signed contracts.