Buying Business

Discussion in 'Business Operations' started by EarthTurfSnow, Oct 30, 2013.

  1. EarthTurfSnow

    EarthTurfSnow LawnSite Member
    Posts: 17

    So I found a business for sale in my area, was wondering from those of you that have done this before what questions to ask the owner to make sure it's worth it? He said he grosses 10,000 per month with 54 costumers. And he's asking 25k which seems a bit high but I should be able to negotiate it down a bit. Any help as appreciated.
    Thanks
     
  2. hackitdown

    hackitdown LawnSite Silver Member
    Posts: 2,487

    The decision is tough. You have to ask yourself how many customers would you pick up if you did a $25K ad blitz. I spent $3K this spring and picked up 15 new customers, and I will probably renew 12 of them. You have to wonder how many of his 54 customers will stick around more than a year, I bet only about 25 or 30. I bought 10 customers from a guy several years back. Half dropped me or I dropped them the first season. But I still have the rest.
     
  3. CurrieLandManagement

    CurrieLandManagement LawnSite Member
    Posts: 9

    Mind me asking but how did you come across the business for sale?
     
  4. EarthTurfSnow

    EarthTurfSnow LawnSite Member
    Posts: 17

    I found the ad on craigslist, and I've seen the guy around a bit, seems to do some decent stuff. But that's my thinking as well, I feel that if spent even just half of 25k and put it into a website and EDDM I should get more than 50 customers but then again this past spring i sent out 250 post cards and did not get any feedback.:confused:
     
  5. CurrieLandManagement

    CurrieLandManagement LawnSite Member
    Posts: 9

    Maybe you weren't in the right demographics? I would get the guy to introduce you to the customers and maybe get them to sign a contract. That way you can maximize possible new clientele
    Posted via Mobile Device
     
  6. EarthTurfSnow

    EarthTurfSnow LawnSite Member
    Posts: 17

    Yeah he said he would help with turning over customers just don't know if it's the best way to spend my money....Any other suggestions?
    Thanks
     
  7. A. W. Landscapers  Inc.

    A. W. Landscapers Inc. LawnSite Bronze Member
    Posts: 1,287

    Are you buying his business or purchasing accounts? If he has told you that he grosses $10,000 per month, ask him to open his books to you. How long has he been servicing these clients? Does he have a contract with these clients? Is the contract transferable?

    If you are purchasing accounts, structure your payment to him so that you pay X dollars per account that stays with you for 6 months. You pay a very small amount up front (maybe 5% to 20% of the agreed upon value per client on the total amount of clients) and the balance is paid only on the clients who remain after 6 months minus a credit for each client who you paid for up front but is no longer a client.

    Lets say you agree upon a client valuation of $500

    $500 X 54 = $27,000 total potential purchase price
    20% of $500 = $100
    $100 x 54 clients = $5,400 that you pay now as a deposit and will owe $400 for each client you are still servicing six months from now and the seller will owe you $100 for each client that does not complete the transfer during the six month transition period.

    4 clients immediately stop service and over the course of the next six months 6 more clients stop service.

    That's 10 clients that did not complete the transfer to officially become your client at the end of the 6 month transition period.

    You are now only purchasing 44 clients (54 - 10 = 44).

    The sell owes you $100 for each client that didn't make the transition so the seller owes you $1,000 ($100 x 10 = $1,000).

    You owe the seller $400 for each client who completed the transfer so you owe the seller $17,600 ($400 x 44 = $17,600).

    $17,600 - $1,000 = $16,600 final payment

    $5,400 deposit + $16,600 final payment = $22,000 purchase price for 44 clients (or $500 per client).

    You can structure this however you like. Maybe 4 months instead of 6. The seller may only agree to refund 1/2 of the deposit for those clients who don't make the transition. You might structure more installment payments (maybe every 2 months). Maybe the seller refund decreases as time progresses. What you want to do is structure a deal that is fair for everyone and you want the seller to have a vested interest in ensuring a smooth and complete transfer of all the clients.

    I hope my explanation makes sense.
     
  8. recycledsole

    recycledsole LawnSite Gold Member
    from MD
    Posts: 3,231

    I have heard 1 month gross for the business. no idea how he grosses 10k/ month off 50 customers.
     
  9. A. W. Landscapers  Inc.

    A. W. Landscapers Inc. LawnSite Bronze Member
    Posts: 1,287

    $10,000 divided by 54 clients is only $185.19 per client per monthÂ…That's only $46.30 per client per week. Definitely doable.
     
  10. Sawtooth

    Sawtooth LawnSite Member
    Posts: 1

    Thanks for that information. I'm in a similar situation and was trying to figure how to best approach the purchase/value of contracts including the used equipment of the business.

    As far as equipment goes, here is the basic list:

    Walker mower - new motor in August of 13'
    2 John Deere riding mowers
    2 Honda push mowers
    1990 K3500 Chevy plow truck
    snow plow
    12' Enclosed Trailer
    Contents of trailer
    Hand tools
    Sprinkler system parts
    2 wheelbarrows
    Hedge Trimmer
    2 leaf blowers
    2 weed eaters
    3 large snow scoops
    2 bluebird thatchers
    2 snowblowers
    Ball carrier
    Paver Saw
    Tamper

    How do I value this used equipment??? I'm thinking of placing a price I could imagine each used piece could be sold on craigslist or at a garage sale.
    :walking:
     

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