Buying a Business How does this price sound?

Discussion in 'Lawn Mowing' started by pclawncare, Jan 5, 2007.

  1. pclawncare

    pclawncare LawnSite Senior Member
    Posts: 991

    Hey everyone ive been mowing for 6 yr have an established client base plenty of equipment and recently i have come across an oppertunity to buy another persons business. He is 65 and wants to retire. I normaly wouldnt consider buying accounts but id like to have his. We are talkin nice nice nice commercial accounts and nice residential accounts some a million dollars plus for the homes. He has been in business for years and i grew up looking up to him and admire his level of service. His name around here is like gold everyone wants him. Little background on the are prices are pretty cheap not a huge city around 50,000 pop. and cost of living is cheap prob cheaper than most of the country. Anyway if i buy his accounts and business i would be getting 23 yards he says these are the best of all the yards since he has been slowing down toward retirement he has only kept his high dollar yards. i dont know how much he makes a year off of these yards but i would guess between 40 to 45 thousand. Along with these id be getting a 2006 walker w high dump (200hr) a toro walk behind echo trimmer edger and blower. A trailer that he customised has a hytralic grass bin that dumps on its own. It doesnt load the grass but does unload it. hope that makes since. I will also get a 1976 chevy i think its a 1 ton that runs good he has been using it for yrs and said i told my wife id get a new truck when that one quits starting every morning and he said the dam thing wont die. Anyway i think thats all i am gettin besides he offered to help me out a little at first and introduce me to customers and stuff. Anyway asking price is $32,000 I think i could talk him down a little as i think it is a tad high but this is a business that has a customer base that will bring you many high dollar yards from their friends. Any way any opinions on this good bad? any specifics i should make sure are in the contract if i do buy?
     
  2. carcrz

    carcrz LawnSite Silver Member
    Posts: 2,085

    Are there contracts on the accounts? If the customers were staying w/ him because of it actually being "him" doing the work, it might be important for them to not actually know that you bought it from him right off the bat. If he is willing to work w/ you for a little while & let them get used to you first.
     
  3. tjcezar

    tjcezar LawnSite Member
    from PA
    Posts: 237

    If there are no multi year contracts you would be crazy. Even with contracts usually people can cancell w/ 30 days notice. I do know of someone who purchased similar type business and lost their life savings because the guy he bought it from stayed in biz and just worked from home (keeping the best clients). $32,000 is a lot of money. This is one of those topics discussed here alot, so you could do a search and read some past posts. These accounts will be on the open market anyway if this guy is going out of biz, so I would come up with a creative advertising campaign to reach all 50,000 of your small town and you may get some of these clients (they will be looking for a new guy) but you may get a whole lot of other people that you would have over looked. My point sort of being you may have better chances spending less money on ad campaign and gaining more clients, possibly even the ones you would have purchased.
     
  4. Precision

    Precision LawnSite Silver Member
    Posts: 2,995

    buying the business

    how much could you get for his equipment if you were forced to sell it.
    2006 Walker Price new less 30-40%
    stick equipment Price new less 75%
    Trailer new price less 40-75% depending on condition
    Truck essentially worthless maybe $500

    figure that out and that is BEST case price on the equipment.

    Now the accounts

    typical is one months income with no contracts.
    up to 3 months income with written annual contracts.

    a better way to pay is based on retention (price for accts)
    1/3 at purchase
    1/3 at 3 months
    1/3 at 6 months.

    So If you agreed the accounts were worth $6000, you would pay $2000 towards the accts at purchase. If you have no lost accts after 3 months you would owe another $2000, same thing at 6 months.

    if you lose 50% (based on revenue) after 3 months then your money owed ($6000) is now only $3000 and you pay him half of the remainder ($500) and he can look forward to potentially another $500 at 6 months.

    I would put the money in an escrow acct so he knows it is there when the milestones are reached.

    Additionally I would have a non-compete and a solo sale document set up. So he can't do ANY lawncare within the defined area of business for 1-2 years and he can't sell the business (or the contact information) to more people than you.

    understand that if you pay $20,000 for his accounts and they produce $45000 of REVENUE. You will not see a profit on these accounts for quite some time. Assuming you make 10% NET profit on the accts. It will take 4 years and 5 months of work to pay off the investment of $20,000. This does not include the money you could have made if this money was invested somewhere else. Assuming an 8% annual compounded yield it would take an additional 1 year and 10 months to recoup the lost investment earning. So you would be working for 6 years and 3 months before you made any profit on these accts.

    Now if he is NETTING $45,000 then things would be greatly different, but that is still how you have to do the math. Just plug in the correct numbers to see how long it would take to make a profit. Then realize you will lose some of the accts no matter what you do, and that is why your price needs to be adjusted to reflect that over time or just be lower to start with.
     
  5. DEEJ

    DEEJ LawnSite Member
    Posts: 230

    Precision - excellent and very realistic post. Most don't realze how long it takes to pay back an investment like that. I think you layed it out very well.

    Another factor to consider is this: Can you handle an additional 23 accounts AND provide the level of service they are used to from the ol' fella? If you can't, or even look like you can't, the customers will be dropping like flies. Some or many may drop simply because you are not the ol' fella, nothing to do with your work. If you spend your time making sure these accounts get serviced so you don't lose them, will your existing accounts suffer and start dropping like flies.

    Any straight up, one time purchase fee for something like this is ludicrous. As precision stated, the purchase payments have to be based on customer retention, otherwise you can, and likely will, lose your shirt.

    At $32,000 it sounds like an awesome deal for the seller, and not at all realistic for you.

    Re-read Precision's post many times ...
     
  6. pclawncare

    pclawncare LawnSite Senior Member
    Posts: 991

    Thank you guys so much for you opinions and i know that i am the only one that can evaluate the situation and all the circumstances. I will consider everything and appriciate all the comments. It just gives me an opinion from a different point of view other than mine. I like the idea of 1/3+1/3+1/3 payments.I have a meeting with him today to go over all of his numbers and accounts and im sure we will start talking about price so i will bring this up. I do think i can handle 23 more accounts and provied great service. Thanks everyone any more comments are welcome
     
  7. pclawncare

    pclawncare LawnSite Senior Member
    Posts: 991

    I think he takes home around 40thousand thats after his expenses and stuff ill find out more today
     
  8. Precision

    Precision LawnSite Silver Member
    Posts: 2,995

    Perhaps and you did mention they were his cream accounts so that may be possible. However understand that to take home $40K even as a solo you would have to be making somewhere in the neighborhood of $75-95k in revenue. So that means he is making $3300 - 4200 per year per acct. And I would assume those numbers are low.

    If they are a mix of commercial and residential that makes sense, if not, I would wonder.

    Also remember that audited (meaning signed of on by a CPA) books are good at telling the truth, when backed by tax returns. If he didn't pay taxes on it, it doesn't exist. PERIOD.
    And you can't pay for potential either.

    Good luck.

    Buying 23 quality accounts that stay with you would be a great bump up for your business. Paying way too much just isn't worth it. You have to think of it just like a mower or any other business investment. The bottom line is it has to make you money.
     
  9. Duekster

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

    Get him to stay on and introduce you to the clients as his new partner. Then he can fade out. Res is kind of tricky like already mentioned.

    Pay the guy in two parts based upon keeping the accounts?
     
  10. hackitdown

    hackitdown LawnSite Silver Member
    Posts: 2,501

    I would pay $8K or so for the equip, period. It has no special value since you can buy it anywhere, anytime.

    New customers cost me about $75 each in advertising, and about 2 hours of time doing sales (max). At my best hourly rate, that makes them worth $195 each to me. Multiply 23 accounts by $195 for a total of $4,485. Besides, I would expect that several of those customers will fail to renew since you will operate in a different way than your retiring friend.

    The $32K thing makes no sense in my market.
     

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