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Buying Existing Business

Discussion in 'Business Operations' started by fmay, Nov 17, 2011.

  1. fmay

    fmay LawnSite Member
    Posts: 2

    I am sure this has been discussed here before. Since I am a new member to this site I'll ask the question so I can get the experts to answer! I am looking at an existing lawn care business with sales of $200k. There are only one year contracts for 60% of the gross revenue. The remaining 40% has no contracts. Excluding the equipment, what value would you place on this business?
    Thanks for all your valued input!!
     
  2. Tizzy

    Tizzy LawnSite Senior Member
    Posts: 383

    we can sit here all day and hash out what we think its worth but in the end its only worth what the seller is willing to take for it.
     
  3. fmay

    fmay LawnSite Member
    Posts: 2

    I appreciate what you are saying Tizzy! However, there are some savvy business people on this website that have either purchased or sold a business of this kind. For any business there is a method for determining its value. In this case the owner WANTS $150k for the business. That to me is unreasonable! The value of one year contracts is minimum compared to 3 to 5 year contracts. I know most of you will say that if I don't like the price--then don't buy it--you are right. I'm just looking for information!
     
  4. KeystoneLawn&Landscaping

    KeystoneLawn&Landscaping LawnSite Senior Member
    Posts: 774

    I'd say start with what you know, give him a fair price for the hard assets. Then I'd offer a two stage payment for the customer base. First a lump sum, then a percentage of the first year business from the customers you obtain in the sale. If you loose customers, bad for him and you. As for the lump sum dollar amount and percentage, thats where the negotiation begins.
     
  5. 32vld

    32vld LawnSite Gold Member
    Posts: 3,984

    It's only worth what a customer will pay especially when the customer doesn't want to run it anymore.
     
  6. 32vld

    32vld LawnSite Gold Member
    Posts: 3,984

    I agree on fair price for the equipment and other phyiscal assets, such as if their is land and a commercial building/garage to work out of.

    Also look at those contracts many LCO have escape clauses where they and the customer can back out with30 day's notice. Then those contracts are greatly reduced if the have such clauses.

    I would work out a percentage based on retained customers + cost of equipment = Purchase price.

    Thing is a business needs to show that it can make the Purchase price back in two to three years. One buys a business to make enough money to build wealth and retire. This ain't happening when the recoup time is longer.

    Without equipment/asset price a buisness can't be valued just based on that it made $200,000 a year in sales.

    Example: Assets $50,000 and if paid $250,000 for buisness that clears $25,000 a year it will take 10 years to recover the money laid out. Which is 7 - 8 years to long.
     
  7. muddywater

    muddywater LawnSite Bronze Member
    Posts: 1,813

    Is it a business or just accounts'? With only 200k in sales, it is prob just accounts. It is not a true business on cruise control. What kind of man hour rates is he getting? If he has low hourly rates, it could be worthless. I would say the contract accounts are worth 10% of gross on average and the other work is worthless. Take a look at his tax returns that will tell the ugly truth.
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  8. drenchedlawn

    drenchedlawn LawnSite Member
    Posts: 145

    Exactly! Buy the equipment and give him 3 months revenue max. It just isn't worth anymore because of unknown variables. There are way too many ways to inflate numbers, sway numbers, or get creative. Even a P and L has plenty of room for fudging through creative means if you knew you wanted to sell. Fair market for equipment plus 3 months revenue tops.
     
  9. drenchedlawn

    drenchedlawn LawnSite Member
    Posts: 145

    From what I can figure offer 3 months of the 60% under 1 year contract, again equipment is only fair market at best. So 60% of 200k is 120k divide by 12 times 3 equals 30k plus equipment at a very fair price, don't overpay for equipment either. Buying equipment is an expense if you don't need it to conduct your business.
     
  10. muddywater

    muddywater LawnSite Bronze Member
    Posts: 1,813

    I agree. It may be worth 25% of gross or it may be worth 10% or it may be worth nothing. You really have to look at is numbers. With that small of a business, you can get a fairly good idea of his hourly rates once you take a look at some of the clients and what he is charging.

    I would try to make a pretty low inital offer. Lets face it... most landscapers have no capital. And financing is going to be tough. And it is going to be tough for him to find a buyer with cash.

    I would play the waiting game. More than likely he will not be able to find a buyer. If he is serious about quitting he is going to either let it go for nothing or find a buyer to pay him SOMETHING.

    I would try to get the equipment for well below market value if possible. Doesn't hurt to make an offer. One business that I bought, I bought the accounts for 15% then bought the equipment and resold the equipment for 10k profit.
     

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