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: 4,520

    Helps a bunch! This is a small company with 30 application accounts and also does some landscape maintenance. Been around a long time but no truck lettering or website.

    The upsale is there for mowing(which i do). Like you said the prescence of my lettered truck and application signs, website, and other up sales/customer refferalls has a price also.
     
  2. Efficiency

    Efficiency LawnSite Bronze Member
    from zone 6
    Posts: 1,538

    If we are only talking about 30 clients, I would argue that light of dollar volume will skew the multiple down significantly. Here is why: when we are talking 100s or thousands of clients, you simply cant replace that growth through organic customer acquisition; purchasing becomes the only way to grow that much in such a short period of time - that puts the power in the seller's hands. Also, when you have such a large base, you have enough to watch the %s work out in terms of who drops, who upsells, etc.

    Since you have some experience in direct mailing or organic customer growth otherwise, you have to ask yourself: what would it cost to gain 30 clients through traditional marketing? For us, using just direct mail alone its about $4500. For you, its likely another. At any rate, its only a short period of time and much less than 1-1.2 times gross.

    Trust me, I when I purchased my 2nd company, that at the time, was doing about 200k in maintenance, I was so gung ho about it, even my most trusted sounding boards and mentors couldnt warn me of the danger signs. The deal went badly and I ended up paying full price for less than half the dollar volume. I say this to warn you: you seem very excited about paying top dollar for a very small business. Dont assume the rules of thumb of buying a $3M business apply to a $30k business.
     
  3. grassmasterswilson

    grassmasterswilson LawnSite Platinum Member
    from nc
    Posts: 4,520


    Wise words and good advice. I have a number in my head but not sure the seller will like it. I'm looking at this as more of a way to create a base of customers in a new market that I can then do direct mail to and build. Ive seen steady growth where I am now but think to my self "if I get into his market and have the same or better return" what could happen.

    He is selling mostly some weed control accounts and some landscape maintenance(pruning mulch etc). Not much mowing-maybe 1-2 accounts. Most properties are in high end areas so the opportunity to upsale mowing is there. If things work out I'm hoping that will ease the payment burden.

    I'm only goin to pay based on customer retention. So if I only get 15-20?app accounts that still becomes a reason or starting place to head over there and work. I'm also going to structure the deal so I need at least a minimum of his clients to stay.

    Like you said the power is in my hands.

    Thanks for everyone's help.
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  4. Raymond S.

    Raymond S. LawnSite Senior Member
    Posts: 979

    30 accounts? Have you found out gross sales yet? I can't think that generates more than $25k and that's being very generous. Of course it all depends on size of the lots. Thing is if you start getting even a couple drops that significantly diminishes your rate of return. If you're prepared to spend well into the thousands for this I'd seriously think about planning an aggressive marketing strategy vs. Purchasing these dew accounts. Just doesn't seem like enough on the table to really justify a whole lot of risk.
    Posted via Mobile Device
     

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