Buy or Start up?

Discussion in 'Starting a Lawn Care Business' started by StAugustine, Jul 29, 2007.

  1. StAugustine

    StAugustine LawnSite Member
    from Houston
    Posts: 3

    First I would like to say hi to all and thanks in advance for any help with my quest.

    I'm currently working as a contractor in Iraq. I'm saving all I can to get out of this place and come home and either buy an existing Lawn Care service, or start my own. So far in my market area the price tag for existing services are 200k plus. While it would be nice to get an immediate return on capital by having a established customer base, this will also mean going back into debt to finance at lease 50% of the business.

    On the other hand I can start my own service. The challenges in this will be the heavy competition is my market area, the learning curve, and trying not to burn through all my savings while building the business.

    Other considerations that factor in to my dream of owning my own business and starting a new life is the fact that I also need to budget once again for a home and personal vehicle, which were sold before I left for Iraq.

    Please give any thoughts or experiences on both sides of buying or start up.
    Thank You,

    Mike
     
  2. TSG

    TSG LawnSite Senior Member
    Posts: 444

    I never bought a biusness, but before I started mine I was approached by 2 LCO's to buy theirs.
    When I ran the numbers, I said no thanks unless it was on my terms.
    The equipment they owned was perfect for my application,,,,,that usually isn't the case.
    Buying accounts is tricky since there is nothing binding to keep them with you.
    We agreed on a price for equipment.
    We agreed on a price for accounts.
    Terms for accounts
    I suggested 1/4 up front, 1/4, 6 weeks into the season if we retained all accounts.
    1/4, 6 weeks later (same terms)....balance at years end.
    If 20% dropped us, we reduce the sale by X%
    Seller said no, come to find out his major accounts were about to leave him
    and the equipment need more work than I need.

    I know his route, when he shut down, I approached his better clients, offerred the same price and got a few.
    Just .02
     
  3. tomgolfs44

    tomgolfs44 LawnSite Member
    Posts: 46

    Hey Mike, first of all...thanks for your work over there :usflag:. Reading some of the stories on here, I guess I was pretty lucky a couple of years ago and bought an existing part-timers biz here in NE Houston. Trailer, Toro 32 WB (probably had @ 50 hrs), 2 Crapsman 21 mowers, 2 Echo 230 trimmers, 2 Echo blowers, and a lot of hand tools were the equipment purchased. 30 accounts came with the deal for $3700. Worked my butt off to increase the account list and have upgraded equipment along the way. Long story short, I have supported a wife and two curtain climbers at home the entire time and serviced 112 weekly accounts this week. It can be done.
    Now, if I were in your situation.....the learning curve that you wrote of is my biggest concern. If I had 100K (figuring since you said you would have to finance 50% of a 200K investment) coming into a fresh start, I would probably find an area I would like to live in first- buy the vehicle I would eventually use for my own biz- then get a job working for someone else who will teach you how to run a successful biz. While going through this process (2 yrs maybe?), I would invest the rest of my $$ and live like a pauper to try and increase my start-up capital. Buy equipment in the off season with cash, or 0% financing- starting with just 32WB, 2-21", and a 48" Z. There is my insight. Good luck over there and when you return home.
     
  4. TSG

    TSG LawnSite Senior Member
    Posts: 444


    Great advise
    Semper-Fi
     
  5. StAugustine

    StAugustine LawnSite Member
    from Houston
    Posts: 3

    Thanks for the replies...Tom I lived in Atascocitta before I went to Iraq.

    I'm here to build the working capital for a business venture. I'm 41 and have owned 2 businesses in a past life....both being high stress and very speculative.

    I'v always enjoyed the challenge of keeping a healthy lawn and landscape while living in Texas.

    Live like a pauper...funny you should mention that.

    The last 17 months in Iraq I have learned that I can live with out a lot of extra stuff. My living quarters amounts to a 7x8 section of a 10 men tent lol. I have worked in temps up to 139 deg here...oh but its a dry heat...lol. I'm just ready to be on my own once and for all. I'm glad I found this site.

    Thanks again for the in-site and advice.

    I will spend the next 6 months to a year researching this business and make a go of it when I return. Not sure if I will land back in Houston....or start a new some where else.

    Grats Tom on your success./ BTW Tom, are you a solo operator or do you have employees
     
  6. txgrassguy

    txgrassguy LawnSite Gold Member
    Posts: 3,083

    Depending upon the stability with regards to the bench mark of 1,2 or 4 of the business you are looking at my answer varies.
    Most small LCO's are in the 4 category, very high risk, low return on capitalization, are under funded and are key employee based. Definitely stay away from these.
    Once you find a well run Lawn Care Operation that passes the accounting scrutiny and is categorized in a 2, this is when I would start looking to purchase. With the lower risk banks will often lend up to 90% of the purchase price plus capitalization is easier as the debt to asset ratio allows for better terms for lines of credit or sba type loans.
    These types of operations are usually structured along the lines of a principle owner, one or more account managers, foremen then documented laborers. With out having a key employee these types of operations are true self generating revenue mechanisms are really the only type to purchase.
    I haven't seen a LCO with a 1 category but some may exist.
    Given your previous experience with owning and operating small businesses I would say depending upon your comfort level, purchase an existing business and leverage the value of the business into the mortgage. As a returning veteran you will have access to grants and secured lines of credit that others won't. This is what I would research, what is available to you as a veteran then take this information and search for a LCO who fits that profile.
     
  7. stevenf

    stevenf LawnSite Bronze Member
    Posts: 1,612

    I wouldnt invest that much. I dont think its neccessary. I am also in a very competitive area of Louisiana. Only passed out about 200+ flyers starting in late august and I am at 9 customers and quite a few mulching/cleaning jobs which in a 9 month season, puts me at about about $13-$15k. I also only targeted certain areas because I do this part time as of now.
    With twice the work I did, I could have come out to around $25-$30k a year statistically speaking.

    All in all, Its a heck of alot easier to pay off your own equipment then someones business.
     
  8. txgrassguy

    txgrassguy LawnSite Gold Member
    Posts: 3,083

    All in all, Its a heck of alot easier to pay off your own equipment then someones business.[/QUOTE]

    No it isn't. One way to get a faster rate of return on your money is to buy an established business with a model like I described in my earlier post.
    I am not trying to belittle you but think of much larger numbers and you'll see what I mean.
    Your business is key employee based (meaning you) and generates maybe $15/K per year.
    My business is not and generates in excess of $650K per year.
    The $100K the original poster has to invest would go a heck of lot farther in my business than yours as my is already set up to receive capitalization. Furthermore my asset to debt ratio is heavily in my favor, something like 8.5 to 1. When information like this is given to a banks' commercial lending officer the first thing he/she will think of is my business can already afford the note payments, has sufficient collateral to pass an audit, and represents much less of a risk.
     
  9. StAugustine

    StAugustine LawnSite Member
    from Houston
    Posts: 3

    Again thanks for the replies.....

    Txgrassguy...your dead on with my thoughts about return on capital. I'm however not a veteran. I'm A DoD contractor with a 2 year old personal bankruptcy....there in lies the rub for a purchase. But I will have at the very least 50% down if I should decide to go the purchase route. The fast return on capital and equity leverage is a better way to go for me. This is assuming I can find a LCO in the model as you described in your first post. I did talk to a broker about one such operation, it has lots of assets such as vehicles, equipment and land. This is a large operation which includes a retail/wholesale nursery. This is fine with me, however the financing may be a bit of a tough nut to crack given the price tag/my sub prime credit rating.

    Thank you all again for your time...this is a great site, and I know I'm starting in the right place....right here.

    Mike
     

Share This Page