Find Struggling Lawn & Landscape Businesses to Buy Without Putting Money Down
I wrote this for my blog but wanted to post it here as well...
Before I begin, I am not suggesting this is easy, but it can be done, and if you take the time to do it, it can be a very big step for your business.
That being said, this industry certainly has changed over the last 15-20 years. It is far more competitive and even easier to get into the business. Add these facts to a struggling economy and you are going to see plenty of people jumping into the industry with high hopes and very little understanding of how to operate and grow a business that actually makes money.
People like this don't always have bad intentions. In other words, they may drive prices down in your area and certainly that is never a good thing. But for now, let's chalk this up to just not knowing any better.
But before long, these people are in deep and have very little to look forward to. They are in over their heads, probably have some debt they wish they didn't have (trucks and equipment) and a customer list they are not sure they are going to be able to service come spring time. But because they see no way out, many of them will just trudge along, get back to work in the spring and cross their fingers hoping things will change or an option will be presented.
This is where you come in.
I will give you an example of my own - the exact way I did this so it makes sense.
I knew in my area that there were a few recent start-ups. I also heard what they were charging and I certainly could see them driving around in their trucks with new equipment. This was a green light for me. Did I have a couple people tell me to get lost? Yes, they weren't happy with me. Reason being is I suggested they sell me their business. Some were offended because they had yet to experience the pain of no profit. Others were just too embarassed to admit defeat.
But several were all ears.
I approached them with a letter (the letter I have used successfully is included in The Lawn Letter). I asked them to contact me if they wanted to talk.
The phone started ringing. The usual first words were... "Got your letter, what do ya have in mind?"
I explained to them the benefits of me taking over their business, why it made sense, why it would be a huge load off their shoulders and how they could get out from underneath their situation and even make some money in the process.
I was willing to take it all - trucks, equipment, and especially the customers. Of course things needed to make sense for me as well as them. If I determined they had equipment and vehicles worth taking, I took them. If the customers were not horribly underbid, I took them.
This requires some math which I get into in The Lawn Letter, but once the math checks out, I gave them the final proposition.
One business owner I acquired had a used truck, 3 mowers, hand held equipment and 45 clients. He told me he felt the truck was worth $2,500, he said he paid $14,000 for the equipment, and the clients made him around $32,000 the year before. So I asked him what he wanted total for the business. His response....
"I don't know, I guess what it's worth - $48,000."
I explained to him in detail what things were really worth - used kbb.com to show him the truck value, explained what equipment with one season's use was worth and then broke down that the clients were not worth what he generated in gross revenue. Instead they were worth a multiplier per mowing price. I suggested 2.5 x the mowing price. The average mowing price was $35. With 45 clients, $35 per mow multiplied by 2.5, the price I suggested was $3,937.50. He wasn't thrilled and countered with $6,000. We met in the middle at around $5,000 for the customers.
When it was all said and done, we agreed the truck was worth $2,100, the equipment was worth $8,500 and the clients were worth $5,000. The total would be $15,600.
He was anxious at that point. His initial assumption was that I was going to give him a check for $15,600.
I asked him if I could see the signed customer contracts. Uh oh...
He said he didn't have any signed contracts, but they were good customers and they would definitely stick with me after the acquisition. I frowned and told him I could not buy the business, truck, and equipment without signed contracts.
The mere thought of going from selling his fledgling business for $15,600 to having to go back out in the field and do it again in the spring put an immediate look of pain on his face.
I looked at him and said... "Maybe we can still make this work."
I proposed to him that he sell me his truck, equipment and customer list for $14,000 and I would pay him in 18 equal monthly installments of $778. He wasn't thrilled with the idea, but I explained once again, the benefits of choosing this option.
He agreed. Those 45 customers ended up being 38 customers - we lost 7 before we even got a chance to do anything for them - that happens.
The remaining 38 clients that year generated $106,400 in revenue for us. He got paid monthly, I didn't pay a penny out of my pocket, the clients were happier being with a full-service professional company and the equipment and truck found a good home.
I've bought out companies in this fashion 9 times now. You can do it too.