Bix Worth??

Discussion in 'Business Operations' started by meets1, Jan 3, 2008.

  1. meets1

    meets1 LawnSite Gold Member
    Posts: 3,781

    How do you guys determine what your biz is worth? I am not talking about shop/building you own but if you were to sell all accounts and equipment - how do you get a number?
  2. T.E.

    T.E. LawnSite Senior Member
    Posts: 799

    I'll take a very small stab at answering your ?

    Equipment, I would think would be at it's depreciated value.

    Accounts, would be a % of total revenue. Accounts value, if I was buying accounts would be, if they were the type accounts that fit the biz model, location of accounts, etc.

    Later, Tony
  3. dutchhook

    dutchhook LawnSite Member
    Posts: 93

    I can help, I've done acquisitions for lawn care/landscaping.
    If you want a BUSINESS VALUATION, below is a very real formula. If you want a REAL LIFE VALUATION, a lot of times it's two guys over coffee, going over customers and employees, then they agree on a percentage of revenue (20-100%) plus maybe buying out some equipment.

    A REAL VALUATION, which you should run at least once per year so you know what your business is worth goes like this:

    Technically, it's based on EBITDA, which is Earnings Before Interest, Taxes, Depreciation and Amortization. If you would like to know more about that, just reply and I'll give you a better explanation that should be useful.

    It's basically a "cash flow" formlula. You take your profits, depreciation, interest expense, and any of your pay that is "excessive" to what you do. So, if you're running a crew and making $80,000, you could put $40,000 back towards cash flow because a new owner would have to hire on a new foreman to run that crew:
    Formula works like this
    Profit $20,000
    Depreciation $30,000
    Interest Expense $8,000
    Excessive Owners Income $40,000
    Total: $98,000. Then you use a multiplier on this EBIT or EBITDA formula. Something like 2.5 to 3.5, so the business would be valued at $250,000 to $350,000. In this sort of equation, the value of the equipment is negotiated. IT can be rolled into the price, or the net value can be added, or the buyer may ask that the equipment be paid off from the $350,000 and be free and clear.
    The way to keep this clear is to think from the buyers view is:
    I'm going to buy a business for $300,000. I expect to earn $98,000 per year or get 33% for my money which is a lot better than Wall Street!

    Other factors, it's based on:

    1. Size of company. I would rather buy companies over $750,000 because there has to be some management or systems in place, but a business broker friend of mine says he finds many many more buyers of businesses of around $200,000-$400,000. We think it's because it's easier for another contractor to add that much service to his present line.

    2. Type of billing. Since we're in the Lawn Maintenance forum, I'll assume that we're talking about mowing. "recurring billing" is what brings in a bigger amount. When you have solid monthly billing, this is something that buyers can count on more than one time landscape sales. Commercial usually worth more than Single Family Residential.

    3. Spread out customer base. A Customer base that doesn't consist of 3 clients that make up half of the billing is going to scare some people away. A base with 50 clients with no one client making up more than 25% is pretty solid. This is also something that banks financing your company, or financing a sale

    4. Growth. Most buyers prefer some decent, but not excessive growth. A 10 year company growing 15% every year sounds pretty solid to me with probably a solid customer base.

    5. Gross Profit margins.

    Anyway, if you have other questions, let me know,

    Best of Luck!

    Steve Hoogenakker
  4. ALarsh

    ALarsh LawnSite Silver Member
    from Midwest
    Posts: 2,412

    According to your formula, how diffcuilt is it to find someone willing to buy at those prices? If what your saying is true, I would be selling out a lot sooner.
  5. dutchhook

    dutchhook LawnSite Member
    Posts: 93

    It's done similarly for a lot of service businesses, but it's really a crap shoot as to whether you can locate a buyer. It's all about your market and timing. I know of one business locally that does about $800,000 per year, and they're asking 3 times EBITDA or $750,000. It's been for sale for two years. I know (rumor, anyway) of two other companies that do over $2,000,000 per year that weren't even for sale, but are being approached by investors right now!

    I didn't catch where you're from, but if you're in a big metro area, this is the kind of info you could use to talk to a business broker like sunbelt business brokers, or calhoun business brokers. They can list the business for you. There's no upfront cost!They normally take about 5-10% of the sales price, but they understand the EBITDA and 'Cash flow" language". You'll go into the process understanding a LOT more than other lawn/landscape outfits. I don't know anyone at Sunbelt, but if Calhoun is in your area, I know 2 reps that I'd recommend in a heartbeat.
    Because I understood this process before I was even approached by a buyer, I was able to get $500,000 for my lawn care business, and millions for my lawn maintenance business 2 years later because I knew what goals to shoot for,
    and they weren't the types of goals that most landscapers have, like buy 5 more trucks, or grow 100%, or have 50 employees.
    The criteria I listed on the last post are the ones you want to pay attention to.
    I honestly believe understanding these posts are worth $100,000 or more to your business future one way or another. (Donations are always welcome, lol)

    There's also a free service you can use to sell a business. I've used it once and got a good response for a business in a different industry.
    It's It's free, and you can just leave your business listed on there. I'm always searching it, so I might end up seeing your listing.
    I've created more than my share of serious problems too, so take my advice with the appropriate grain of salt.

    If I can answer any more questions, let me know.

    Best of Luck!

    Steve Hoogenakker
  6. meets1

    meets1 LawnSite Gold Member
    Posts: 3,781

    Hey that is awesome info. Back in the college days where I have a finance degree - I do remember that way of thinking - just never brought that thinking process to "my" little business world.

    I really like that idea to put down the numbers, be able to see where i am at and if I was to ever sell - the buyer also understands the value of the business vs just throwing out a number to the thinking of "clear out the debt, make alittle money and i am happy" type of thing.

    Since your post sounds as if you have first hand expereince with this - please pm with more info. The more info I can absorb without reading the techincal stuff and reading life expereince would be great.

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