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business take over guide lines

Discussion in 'Business Operations' started by chambers 38, Jan 13, 2005.

  1. chambers 38

    chambers 38 LawnSite Member
    Posts: 104

    So I have to opportunity to buy out a existing company in my area.
    I am going to be working out a payment plane with him along with a contact with collateral.
    What I am asking is what are somethings you have encountered in doing a buy out or some pointers that I might need to know to help me not get scewed.

    Whats included,,
    2, ztr's one grasshopper and one Arines
    1, 6x12 trailer
    1,echo blower

    18 regular customer's
    Price in under 10,000$$

    Thanks for the help
    (p.s) the owner of this company is saying all customer's are going to stay on with the sell of the company..!!
  2. Drew Gemma

    Drew Gemma LawnSite Bronze Member
    Posts: 1,511

    read my post about ohio and laws go see a lawyer it is the best thing I ever have done bought out 2 diff. lcos
  3. J Hisch

    J Hisch LawnSite Senior Member
    Posts: 952

    I just bought out a company that had 85 residentals. First, determine if what your paying for is worth it. Review all the financials, profit/loss, balance sheet, determine the value of the assests. Then come up with your price. Make sure they are not keeping any customers back from you. I am assuming you know this person if they are willing to allow for payments. If not this really shows the owner believes in his company if he is willing to let you make payments. Make a non-compete agreement etc. Remember business is a risk you never know what your getting into utill your in. Also, don't look so much at how much you can make, look at what you can afford to lose if it goes bad.
  4. J Hisch

    J Hisch LawnSite Senior Member
    Posts: 952

    If this is any consolation to help you determine a value this is what I just bought for 36,000.00

    90,000.00 in Gross sales
    85 residetnal Accounts
    Scag 61" 400hrs Ztr
    Scag 52" 800hrs Ztr
    Scag 36" hydro walk, with sulkey
    3 Echo timmers
    3 Echo blowers
    16ft trailer with gate assist
    Blade grinder
  5. earthwerks unlimited

    earthwerks unlimited LawnSite Member
    Posts: 43

    I'm not a LMO but I friends that are.
    I have a BIG problem with the guy that tells you that all the customers will stay with you---that is basically a contract he has with you that he can't back up: what if they don't like you or your work---for whatever reason?

    I had a friend that sold his biz to another and what they decided was that the buyer gets to keep the the existing customer---however at the end of the season, what ever customers are left and still want your services then each will cost x-amount of dollars each (if you pay the guy for 50 customers and if at the end of the season you only have 5---is that a good deal? Nope. But you have to do your best to make sure you keep those customers serviced properly.

    As far as the price (I have no clue what your equipment costs new), at least for commercial property (motels, stores, apartment houses, etc.) the ruule of thumb is the price is based on what a year's worth of income is for the property. As him to see his tax return for how much he reported that he made ---it could be much higher or much lower than what the biz could reralistically make. Then compare that to his acounting books to see how the number compare. I have know people to inflate the numbers (income) for the biz with the intent thjat they will be selling it so those big numbers are meant to not only impress but deceive. BE CAREFUL!

    Are you buying his biz name too? Be careful as you might end up owing taxes, costs for equipment he hasn't paid for yet, and any possible lawsuits he didn't disclose to you. Don't be a sucker--you'll get licked every time.

    You also have to look at what it will cost if you bought the same equipment new and used. Then you have to consider the costs to repair his old equipment to make it useful if it is in disrepair. Junk is junk. In fact it could cost you to get rid of his junk too.

    Good luck!
  6. chambers 38

    chambers 38 LawnSite Member
    Posts: 104

    I know equipment wise the grasshopper is only one year or less new.
    And im not taking his company name, I have my owen and that’s not even in the work's.
    The thing about seeing how he did (income/expense wise) is that he is in a word a scrub, but not a "bad one"; I guess he didn’t do everything legit and he has only been in business for a year!!
    Plus all customers are in one community except for 4-5 that are close
    The customers have told him he just needed to find someone as reliable as him,
    I’m thinking of having the customers see my work with his equipment and have them (if they like my work) sign a service agreement (not a contract) other only resion I don’t won’t to use a contract because I know the customers will run??!!

    Thank's keep them coming I hope this help's you help me
  7. earthwerks unlimited

    earthwerks unlimited LawnSite Member
    Posts: 43

    With the type of work (residential and lite-commercial non-mowing work) I do the cost/value of equipment fluctuates widely. Typically it is about 50-60 percent of new regardless of condition. I got into lawn mowing for one season adn luckily I was able to buy two walk behinds for $400 and $600 a piece and able to sell them at a reasonably small profit. Have/how you determined the value of his stuff?

    Agreements: Like I told a former client when they cancelled an agreement they had with another guy for $250,000 to do work for them: "why would I have you sign an agreement when you can cancel it anytime---like the last guy?" Her response: "Good point"

    I took her word that I had the work, went out and bought $40,000 in equipment and another $2000 in material. I did about $4000 in work when the the last guy found out about it, he talked to the owners and got his work back and they let me go. Now I'm sitting on $2000 of material I can't reuse or resell---luckily I can still use the equipment I bought---but it will take me 5 years and not 6 months to pay it off.
  8. chambers 38

    chambers 38 LawnSite Member
    Posts: 104

    Good points,
    I am going to go with him and met the customers and introduce my self along with evaluate the equipment and value of equipment.

    Dose anyone have any idea's where I might find a contact online??

  9. earthwerks unlimited

    earthwerks unlimited LawnSite Member
    Posts: 43

    Chambers---I hope you can take some constructive criticism in the light that it is intended. And please forgive me if I'm out of line, but from one businessman to a soon-to-be another: if you want---and you should---to project a professional image you may want to consider brushing up on your grammar and spelling. It's your business I know, but the reason I say this is eventually you will have to write your agreements or contracts and it could be extremely embarrassing if there are mistakes in it. Ultimately it is a reflection of you, your business, and your work---and more important, your future.

    My experience: I saw the anguish my late uncle endured trying to sell fire wood and do odd jobs as he couldn't read or write. He was a very intelligent man, well spoken. He had a lot strengths; reading and writing not among them. It held him back from doing great things with his life.
  10. J Hisch

    J Hisch LawnSite Senior Member
    Posts: 952

    If he has only been in business for a year and now wants to fold, dont give him anything for his customer base, they are not established. Just buy his assests, but truly i dont htink it will be a very good purchase, unless you just wanting the equipment. These customers might not even be good ones.

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