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Buying a company

Discussion in 'Lawn Mowing' started by pogo, Mar 17, 2000.

  1. pogo

    pogo LawnSite Member
    Posts: 37

    Next week I have a meeting with an owner of a L & L business who wants to sell. His contracts are worth $35,000 worth per month ($420,00.00 per year). This amount does not include any equipment. Just what his contracts are worth. At this point I don't know what his profit is. I am wondering what is a fair price for buying his contracts?<br>Do any of you have experience in buying out companies? If so please give me some insight.<br>Thanks<br>Rob
     
  2. steven Bousquet

    steven Bousquet LawnSite Member
    Posts: 138

    I have bought 4 companies in the past and iwork each deak the same way. First I called Phil Nilssen,to get hie input and help,then iyouneed to look at each account to see if you can make money at that guy prices. If you think you can,make a offer based on % of work for a certain period of time. 5% for mowing and maintence is what i paid and 15% for chemical lawn care accounts. if the owers stays you will get more renewals if not be ready to lose 50% new renewal for whatever reason. I've looked at alot of business and they want alot more but it's just not worth it. Also why are they selling work hard to find the real reason ,you don,t want to buy someones loser account. Good luck , 450,000 sound like alot of work to take on all at once even if his people stay and they usually don't unless he does.
     
  3. pogo

    pogo LawnSite Member
    Posts: 37

    thanks for the reply. Anyone else have any thoughts?
     
  4. Lazer

    Lazer LawnSite Bronze Member
    Posts: 1,446

    Sales figures are almost meaningless without profit numbers.<p>You could easily get 500,000 of new work per year if the price was right.<p>Get the gross & net profit numbers, properly figured: Owner's pay, proper accounting, tax returns, etc. Then you have an idea of value.
     
  5. crew

    crew LawnSite Member
    Posts: 163

    bought a company much smaller than what you are considering last year.Most accounts had been active for several years and that seemed to be a good indicator. I imagined several doomsday scenarios before i bought and,of couse, the one i thought least likely came true; the employees were sh*t and all three were gone within 3 months.The starting point for negotiation on value of accts. was two months gross and we went from there.<br>Good luck.
     
  6. scottlawns

    scottlawns Guest
    Posts: 0

    i was wondering what do you do to be sure the costomers dont mind they were bought,and what stops them all from saying i dont want you to do my yard,i took over 35 accounts last this spring and it makes me wonder how you tell each costomer why you are doing there yard.<p>scott
     
  7. lbmd1

    lbmd1 LawnSite Senior Member
    Posts: 462

    Pogo, <br> not to get in a long explanation but put yourself in the seller's shoes for just a minute. This guy spends years building a loyal customer following, spending thousands on advertising, PR, getting referrals, dealing day in day out smoozing customers,years of hard work that is bringing in $420,000 a year. How long would it take you to build to that level? It's just like a customer who wants a privacy border using arborvitae's. Do they spend $15 a piece for 2 ft high specimens and wait 10 years for them to reach the proper height to give them the privacy, or spend more buying 7-8 ft specimens giving them instant results. The latter costing much more but also obtaining the desired effect. Just an analogy to ask yourself:<br> 1) do you want instant results?<br> 2) what would you think that end result is worth?<p>Unfortunately, selling accounts are like trading cards or selling a house. There may be an industry formula for what they're worth but if no one is willing to pay that price then it may not be worth what they are asking. I think most people selling accounts don't ever get paid what the accounts are really worth. It also varies from one area of the country to another. Here in New England, some guys here actually believe that if the weekly lawn account is $50, then they offer you the $50 and it's theirs! LOL We purchased 40 high end residentials 3 years ago from a guy who went strictly into irrigation for $9000. That was basically the income for 6 weeks of mowing the lawns. Not figuring in any other work. Was it worth it? Yes, due to the quality of the lawns, their total yearly income per customer, and gaining an instant foothold into an exclusive territorial landscaping area. Although the next year with spending about $1000 in newspaper and direct marketing ads, gained over 52 new customers. Now we are still paying off those original 45. As for customer retention after the sale, if worded correctly and done together meeting the customers prior to cutting, the retention rate is quite high. After 3 years of the 45 customers were purchased, we have lost 3 due to selling their house and leaving the area. <br>In closing ( after rambling on ) I believe that 4-6 weeks worth of mowing (if lawn accounts) is a fair price for all the work the OTHER guy did. Hope this helps.<p>Mike
     
  8. osc

    osc LawnSite Senior Member
    Posts: 502

    If you try to discuss this with an accountant or bank president they will bring up the issue of intangibilty. What the seller is offering is mostly intangible. There is no guarantee that the customers have to buy a thing from you. Odds are that it will go better than that, especially if you have the seller take you around and introduce you to all the customers and explain that you will be handing things in the field for a while. Later on when they are comfortable with your work, you can tell people that you are buying the company or have purchased the company. If you can, stipulate that the seller stay on for consulting purpose for a short while as a negotiation point. This gives you a level of comfort.<br>Buying intangibles is risky but if it is done correctly, it can be a good deal. Who knows, the customer base may like you better than the current owner.<br>I personally like the idea of buying at a price that recoops your investment in a short period of time and then you are off and running. Mike's formula sounds great and if the owner will stay on to ease the transition, you will have some money coming back before anyone really knows the difference. Kill them with great service at first and who'll mind anyway?
     
  9. pogo

    pogo LawnSite Member
    Posts: 37

    Thanks for all your comments. We'll see how things turn out. I have a first meeting with the other company tomorrow night. They said that they wanted 3 months worth of billing as payment for the accounts. Which is $105,000. <br>Sounds pretty high to me. I will let you all know how it went. Thanks again for your comments.<br>Rob
     

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