1st meeting about buying another company

Discussion in 'Pesticide & Herbicide Application' started by grassmasterswilson, Aug 1, 2012.

  1. grassmasterswilson

    grassmasterswilson LawnSite Platinum Member
    from nc
    Posts: 4,548

    I have no intentions of an upfront payment. I'd do a small down payment and then a sturctured plan of multilpl payments every x months based on the percent that is still with me. I'm going to protect myself! So half the customers drop me...he gets half the money.

    I'm going to continue to grow through advertising, but don't think I could invest the same money and get the same return as buying another business. This guy has been around for a long time and seems to have a small dedicated client base. So he doesn't advertise or work for new business.

    I've got to figure what the cost of my lettered truck, application signs, offering of mowing(which he doesn't do), customer referrals, and entry into a new market would be valued at. That alone could be $10k in additional work and $2k in advertising cost, but i don't know.

    I keep looking through everything and thinking...if I pay 1.5 times gross that means I got to work for free for 1.5 years unless I can drum up some new business or upsale to the current list.

    I'd love for others to chime in on their thought.
  2. lawntennis

    lawntennis LawnSite Senior Member
    Posts: 415

    Talk to your bank about a loan for 8-10 years. See what the payment would be. Decide if the excess profit over the monthly payment is worth the extra work. If it is I would try it, if not look elsewhere. Do not be put off by the fact doesn't want to give you info. That is to be expected. He wants to protect himself.
  3. Duekster

    Duekster LawnSite Fanatic
    from DFW, TX
    Posts: 7,961

    You just need a loan calculator ... but good point.
  4. Raymond S.

    Raymond S. LawnSite Senior Member
    Posts: 981

    If you pay 1.5 times gross you will be working longer than 1.5 yrs for free. You have to calculate material costs as well. I haven't read the whole thread to know exact numbers but...for example. $50k gross, you pay $75k. If there's $20k in materials he's making $30k. It's going to take 2.5 years until you're back to making money again. It's not as easy as buying mowing accounts.
    For the record, I bought out about $70k gross income in fert accounts plus Z-spray and enclosed trailer for $35k. I'll be making money after the 4th round this year.
    Hope this helps you out a little
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  5. robertsturf

    robertsturf LawnSite Bronze Member
    Posts: 1,402

    Weighing in here! I think the asking price is way out of line. I would offer 1 round of applications totals. We have done that with mowing customers in the past and worked out great. Put in a "no compete" clause and split the payment in 1/2. Base the final payment on customer retention. You have to take away the "wow" factor in looking at this decision, other-wise you will be working for nothing for a long time. If you are adding equipment to the purchase I would go with far market value. My 2 cents! Good luck.
  6. RigglePLC

    RigglePLC LawnSite Fanatic
    Posts: 12,229

    I don't think he will agree to receive less if some customers cancel. Keeping the customers happy is your responsibility, and its in your control--only you have your books and internal records.

    Be sure to send out a good letter to your new customers (hopefully) assuring them that you will take good care of them. Promising top-quality service. Pointing out the advantages of service from your company. Explaining how you use better equipment, and better products. Explaining how your people are well-trained and highly skilled. Offering to solve any complaints by yourself meeting personally with them.
  7. grassmasterswilson

    grassmasterswilson LawnSite Platinum Member
    from nc
    Posts: 4,548

    Thanks guys. From my searching here an online I've found that $1.00-1.25 x gross for applications and 0.30-0.40 x gross for mowing, pruning, etc.
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  8. Efficiency

    Efficiency LawnSite Bronze Member
    from zone 6
    Posts: 1,551

    buying a book of business is no different than buying any other income producing asset. You have to assess a value on the future cash flow generated from that asset, in this case a bunch of clients.

    Questions to help guide this: what is your current and projected new gross margin, net margin, EBITDA. Run worst case, expected, and better than expected numbers through a pro-forma income statement to see what the value TO YOU is.

    Dont forget, that unlike the shiny pickup or mower most dont bat an eye at purchasing, this asset actually appreciates in value and will in turn be worth something to your buyer one day too.
  9. grassmasterswilson

    grassmasterswilson LawnSite Platinum Member
    from nc
    Posts: 4,548

    For those who have done this. What do you expect the drop rate to be in the transfer of whose doing the apps?

    I'm going through his numbers but his program is all over the place. So I'm trying to see what I would charge them. So it may be that I need to present my program and prices to eah potential customer in order to see who stays.

    I see lots of potential but also see lots of negatives when deciphering the info.
    Posted via Mobile Device
  10. Raymond S.

    Raymond S. LawnSite Senior Member
    Posts: 981

    I would expect 10%. Higher percentage for fewer accounts, lower percentage for more accounts. How many accounts does he have? We bought around 150 fert/squirt accounts, lost about 20 immediately when we sent out the prepays and merger letter but picked up about 15 or so in the next few weeks from existing website and "presence." This business had a strong presence in a specific part of town and good traffic on website, so there was more value than just what was on the books at time of purchase.
    Don't overthink the process. Do your homework but remember this. You can lose more money avoiding losses. There are always intangible assets of a company to consider, such as "opportunity." Opportunity cost is different for everyone. If this deal would be the one to take you to the next level then you have to be willing to maybe spend a little more if that's what it takes. Only you can decide what's affordable for your company and if these type of accounts are where you want to be in the future.
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