Buying an account from another LCO

Discussion in 'Business Operations' started by cleancutccl, Nov 25, 2004.

  1. cleancutccl

    cleancutccl LawnSite Senior Member
    Posts: 698

    What would you pay for an account from another LCO looking to get out of the business?

    Say you were to buy 50 accounts grossing 50000.00 a year what would you pay to obtain all 50 accounts?
     
  2. Metro Lawn

    Metro Lawn LawnSite Silver Member
    Posts: 2,102

    We have been paying in the area of 10 & 15% of the gross. So around $5000 to $7500 depending on the jobs and a few other things.
     
  3. cleancutccl

    cleancutccl LawnSite Senior Member
    Posts: 698

    That sounds more around what I would expect to pay. The LCO on these accounts is asking around 25% of the gross, which seems way too high for me. At that price I would make almost no profit in the first year.
     
  4. tiedeman

    tiedeman LawnSite Fanatic
    from earth
    Posts: 8,745

    my advice to you would be go talk to an accountant, and they will be able to help you out big time.
     
  5. Team Gopher

    Team Gopher LawnSite Platinum Member
    from -
    Posts: 4,041

  6. muddstopper

    muddstopper LawnSite Silver Member
    Posts: 2,342

    There is a matimatical formula for figureing the worth of any business. The present value=future value/ (rate x time). The future value of this company is zero because you dont have any gaurantee of retaining any of the accounts. That means the $50,000 a year may or maynot be there. Once you determine the number of accounts that you will retain then you can assign a future value to this company. An example would be you retain 50% of the accounts the future value would only be $25000. On any purchase you would expect a rate of return on your investment. And adverage expectation for most business around 10% per year. The lenght of time you are willing to take recoupe you investment would be the time. To reduce risk I wouldnt want to take over 6 months to recoupe my investment. You would also have to figure in the wages per hour that this business would generate as well as any expenses since the $25000 is a gross number and not a net. This amount would also have to be deducted from the present value of the company. After you do all this you can then figure the true present value of the company and what would be a fair price to pay. Using the sample numbers I provided you would come up with $11,892 less labor and expenses Now if you know your labor cost and other expenses, you can deduct that from the $11892 and come up with a pretty decent offer. Of course this is figureing in a 50% retention rate and a return on investment of 6 months. A lower retention rate would mean the present value is worth less and a higher retention rate is worth more. Once you figure in your labor and expenses you will find the true value of this company is pretty low.
     
  7. GatorLawnCare

    GatorLawnCare LawnSite Member
    Posts: 59

    What i do is ask to see his books for the last year, customer list, and the $ amount they pay. Then i review the info & if i like i offer him 90% of the gross income, and have him throw in all the equipment including the truck and trailer. After i take control of the company of his i sell off all the equipment. If they refuse to let me look at there books they are hiding something, and i walk away & let another fool buy it.
     

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