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  #1  
Old 12-20-2012, 08:24 AM
grassmasterswilson grassmasterswilson is online now
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Buying an app business owner want upfront money

I've been in talks with another guy who is selling his business. He's in a neighboring town about 25 min away. I have no clients there so it would be a new market.

His business is under 80k and his asking price for customers only is around 60k. Might be 40-50 customers. He is adamant on getting some money upfront before notifying his clients. His current offer is 20k at agreement. 20k at closing an he will finance the balance for a year.

I think his asking price is reasonable but don't like the upfront part. I have suggested a small amount upfront and the balance based on which customers agree to switch services. I have a big problem with paying and not knowing who will switch.

Is there a creative way to offer so we both get what we want? I'm planning on starting round 1 mid feb so would like to get a deal done fast if possible.
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  #2  
Old 12-20-2012, 09:12 AM
Greenboy24 Greenboy24 is online now
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That is a terrible deal. I would never pay 60k for only 80k in revenues especially the way that deal is structured. You would be better off just using that money and marketing in that area? 20k in advertising should generate that easily if you do it right.

You have to consider that you will be losing some of those customers for sure after the closing, like you said you have no idea who that will be.

How much research have you done on the customers and properties? Is his price structure in line with yours? Are these customers that you actually want?

Has he opened up his books to you? I would assume someone only generating 80k in revenue probably isn't the best record keeper(yes its a generalization but I think its a fair conclusion)

Hes asking .75x revenue not accounting for customers You WILL lose.....Thats high. You need to be working off of EBITDA or net earnings, something along those lines. You won't make a cent until at least year two on these customers and you will have tied up all that capital in just 80k wsorth of revenue. That's not a good ROI and I would try running some NPV analysis to come up with a number based on the expected cash flow...Have you done this? If you aren't familiar with this then hire an accountant, pretty easy task for someone good at business valuation and can run a few calculations. Spend a few hundred, even a thousand dollars to have an accountant look

Based on the limited info given it sounds like a bad deal. I would REALLY think about this before moving forward. Again if it was me, I wouldn't touch the deal

Last edited by Greenboy24; 12-20-2012 at 09:18 AM.
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  #3  
Old 12-20-2012, 09:57 AM
Cadzilla Cadzilla is offline
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The asking price is a little less than going rate for lawn care accounts.

I also don't see a huge issue with his terms either. They are similar to deals I have heard of in the past.

Greenboy brings up some good points but is also way off on a lot he said.

Too me, the numbers are right. Of course you need to make sure you do a lot of things before making the deal.
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  #4  
Old 12-20-2012, 11:21 AM
grassmasterswilson grassmasterswilson is online now
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Cadzilla - based on my research lawn accounts have gone from 1-1.25 x gross. So he seems to be on line.

While I could advertise and et some accounts the town is only 30-40k in population. So it would take a few years to gain that cliet base.

He does not advertise but did in the past. He also doesn't have a website.

His pricing is higher than mine so that could make up some expense. I could also upsale mowing and mosquito apps. As well as direct mail and upsale some other apps.

So I don't think it is far off on price. I'm just nervous about paying 60-70% upfront before even knowing how many customer would let me do the work.
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Old 12-20-2012, 11:57 AM
Greenboy24 Greenboy24 is online now
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Well I guess we will have to agree to disagree on this one lol.

If you are buying a business, an entire business set up with customers/a strong brand/systems/equipment possibly property and employees then paying 1x-1.25x revenue would be a completely different conversation. 1x-1.25 revenue would be inline IF it was a business.

Basically all you're buying is a list of customers based on what you said in your initial post, thats NOT the same as buying a business, there is a drastic difference.

Again if you can't generate 80k in new revenue with 20k in marketing then you may want to revamp marketing.

60k for a list of people who generate 80k in revenue is extremely high

What numbers exactly have you run to help you determine if you feel comfortable with this?

What numbers has he provided you? I'm talking tax returns here not a quickbooks account. Its has to be validated

Also if you do move forward, the deal needs to be structured around the value of the retained clients, in it should not be a lump sum payment up front, he should help make the transition between you and his customers go smoothly. If you structure a deal for a customer list this way then you both benefit, he gets more $ and you get more clients. Otherwise as soon as that check clears you will likely never hear from him again (you have to plan for worst case scenario, and just because I guy is a good guy doesn't mean due diligence isn't necessary)
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  #6  
Old 12-20-2012, 12:13 PM
Cadzilla Cadzilla is offline
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Quote:
Originally Posted by grassmasterswilson View Post
Cadzilla - based on my research lawn accounts have gone from 1-1.25 x gross. So he seems to be on line.

While I could advertise and et some accounts the town is only 30-40k in population. So it would take a few years to gain that cliet base.

He does not advertise but did in the past. He also doesn't have a website.

His pricing is higher than mine so that could make up some expense. I could also upsale mowing and mosquito apps. As well as direct mail and upsale some other apps.

So I don't think it is far off on price. I'm just nervous about paying 60-70% upfront before even knowing how many customer would let me do the work.
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You're nervous and so was anyone who has every person who ever bought a business much less service accounts. You obviously need to have a lawyer set this up for you and work out the payment details as well as retention perimeters.

Sounds like the guy had a small intimate business of you say only 40-50 customers worth a sweet 80K a season.

Thats a small enough customer base that he should be able to accommodate a smooth honest transition "including" an introduction and some sort of guarantees.

Perhaps 30% in an escrow account until you've been introduced?

This is always the sticky point. The transfer and the retention.

You must also have a rock solid no compete clause so there are things that need to be done to insure the success.

I will say that the bigger companies never turn down an opportunity to buy and thats how TGCL has grown over the years in addition to their marketing and if I had the opportunity to buy a solid 80K in revenue for 60K I'd be all over it.

EEEEEspecially if it was only 40-50 customers.

Wowsers.

*licks lips*
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  #7  
Old 12-20-2012, 12:17 PM
Greenboy24 Greenboy24 is online now
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Here are some numbers that you will NEED in order to value this deal via NPV

-net cash flows for the life of the project(how long you plan to be in business basically)
you will start with what his margins have been. if he is netting 20% then use that as a starting point.

-discount rate, this will put the value of future cash flows in present value dollars

also don't forget to account for any additional costs that may be incurred and figure out your breakeven point
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  #8  
Old 12-20-2012, 12:22 PM
Cadzilla Cadzilla is offline
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Quote:
Originally Posted by Greenboy24 View Post
Well I guess we will have to agree to disagree on this one lol.

If you are buying a business, an entire business set up with customers/a strong brand/systems/equipment possibly property and employees then paying 1x-1.25x revenue would be a completely different conversation. 1x-1.25 revenue would be inline IF it was a business.

Basically all you're buying is a list of customers based on what you said in your initial post, thats NOT the same as buying a business, there is a drastic difference.

Again if you can't generate 80k in new revenue with 20k in marketing then you may want to revamp marketing.

60k for a list of people who generate 80k in revenue is extremely high

What numbers exactly have you run to help you determine if you feel comfortable with this?

What numbers has he provided you? I'm talking tax returns here not a quickbooks account. Its has to be validated

Also if you do move forward, the deal needs to be structured around the value of the retained clients, in it should not be a lump sum payment up front, he should help make the transition between you and his customers go smoothly. If you structure a deal for a customer list this way then you both benefit, he gets more $ and you get more clients. Otherwise as soon as that check clears you will likely never hear from him again (you have to plan for worst case scenario, and just because I guy is a good guy doesn't mean due diligence isn't necessary)
If you can guarantee 80K in sales in a 20K ad budget then you should be in Marketing. Not lawn care.

Thats huge return numbers that is very hard to attain. It also takes time and much resources other than just having the work magically appear.

When you buy service accounts....viola! It's magically delicious.

I know of dozens of transactions between lawn care companies and none of them included equipment and any hard items.

You're buying a client list.

I guarantee you if the seller walked into tru green this morning he would have a check for 90% of his gross in a week.

They would buy this in a split second for his asking price.
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  #9  
Old 12-20-2012, 12:39 PM
Greenboy24 Greenboy24 is online now
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Quote:
Originally Posted by Cadzilla View Post
If you can guarantee 80K in sales in a 20K ad budget then you should be in Marketing. Not lawn care.

Thats huge return numbers that is very hard to attain. It also takes time and much resources other than just having the work magically appear.

When you buy service accounts....viola! It's magically delicious.

I know of dozens of transactions between lawn care companies and none of them included equipment and any hard items.

You're buying a client list.

I guarantee you if the seller walked into tru green this morning he would have a check for 90% of his gross in a week.

They would buy this in a split second for his asking price.
That's really not a crazy return on a marketing campaign.If all you do is buy a list of customers with no language to protect yourself for those that you end up losing then that's silly. 20k should generate 80k in revenue within 1-2 years.

As business owners you need to run your business as a business and getting good returns on your marketing is a huge part of that. How much revenue do you generate from 20k of marketing within 1-2 years?

Trugreen does go out and buy companies all the time and they are in a much different position than someone who is posting on lawn site. Also Trugreen would look at much more info then we have been provided before making an offer.

If trugreen buys something, yes they have no need for additional equipment however it doesn't seem like the original poster is quite at the same level as Trugreen so things like that are very important to consider. When trugreen buys a company chances are they already have equipment and employees in that area that can quickly service the properties with little additional investment by Trugreen. If the original poster will need to consider if he has the equipment and employees to tackle the additional work or if the new workload means more investment in equipment/employees etc...

Just because Trugreen would make a certain decision and pay a certain amount does not mean its a good deal for this guy, you are likely comparing apples to oranges

Last edited by Greenboy24; 12-20-2012 at 12:47 PM.
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  #10  
Old 12-20-2012, 01:01 PM
Cadzilla Cadzilla is offline
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No one is saying you buy a list with no protections. In a lot of ways what you're buying IS the protections and a client list to go along with that.

You make some great points but at the end of the day with the right structured deal and guarantees, the asking price is not at all out of line with industry standards.

This doesn't sound like junk to me. It sounds like high end work. The average account is worth at least 1600 apiece. Plus it's 40-50 accounts.

This deal has potential at the very least and again I would be all over it like white on rice.
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