Buying existing business...

Discussion in 'Lawn Mowing' started by John at JDH Select, Mar 8, 2003.

  1. John at JDH Select

    John at JDH Select LawnSite Member
    from Indy
    Posts: 66

    Hello Everyone...

    I am in the position of growing from a part-time mowing company (last 12 years) into a full-time, 150 acre + company for the coming year. I have done a huge amount of homework and purchased quite a bit of equipment. My safety net is an experienced crew, another full-time position to support me and a willingness to succeed.

    I am in the position where a few of the one man operations are approaching me to take over their accounts and assume their equipment. Some of the offers are interesting, but I have not made any decisions at this point.

    I am on my way to look at (30) accounts generating $2,200.00 in mowing (only). They are a mix of commercial / residential accounts and seem to be on the "low" side to say the least. The seller wants to get rid of the equipment and sell the accounts.

    My first problem is that most mowing companies do not own the accounts. They merely service the accounts. The seller is going away to college (good decision by the way) and wants out of the business. He has a 5x10 open trailer, Snapper 52" Z and a few miscellaneous items.

    I calculate that $2,200 monthly income x 8 months divided by 30 accounts = $21.00 average cut. This is very low! Most likely, this is not a good choice for me, however I am still interested in seeing if we can get into the accounts and raise prices.

    MY FINAL QUESTION...Have any of you bought accounts in the past? I am going to see the equipment today and if I can buy for a reasonable used price, it may may it worthwhile to take the accounts on at an increased price.

    What would you do?


    Thanks for your input.

    John
     
  2. Ground Master

    Ground Master LawnSite Senior Member
    Posts: 505

    Wouldn't even consider it. Don't make a bad decision in your quest for growth.
     
  3. ahah

    ahah LawnSite Member
    from 5
    Posts: 70

    John,
    Greetings from Broad Ripple.
    Without transferable contracts, the only thing you are guaranteed is used equipment. 21 bucks per cut is pretty cheap. But if they are small and packed tightly in a route, a one man crew could make some money from them.
     
  4. cklands

    cklands LawnSite Senior Member
    from MA
    Posts: 360

    Have the current LCO send the customers a letter stating that you are going to be taking care of the property. Then you send them a contract. Then you give the original LCO a % of signed contracts for the buy out. This way you are only paying for the contracts that you are going to get.
    I bought out a company a few years back. It was a company that I had worked for a couple of years earlier. What we did was I did all the work with my own euipment. He billed the customers for one season and gave me half of the money. The following year I took over the accounts. He sent a letter to the customers stating that they would be recieving a bill from me and not him. This worked well for a couple of reasons.
    1. The customers had already seen our work so the only thing different was the name on the bill.
    2. There was no way I could loose money, I got paid for all the work I did.
    3. I didn't need any money to pay him for the accounts.
    Again this was a friend and former employer so I was not worried about getting screwed. We still work together today. He does just lawn care programs and my company does everything else. Good Luck
     
  5. CNYScapes

    CNYScapes LawnSite Senior Member
    Posts: 916

    I have bought out 2 lawn business' in the last 5 years. 1 with equipment and 1 just accounts only. I paid 15% to 20% of one years gross earnings on each account. In both cases I charged the current prices for 1 year and then raised them the following year to where I wanted them to be. I only lost maybe 1 or 2 accounts from all that I purchased (80 accts.) and it was only because they moved. If you do quality work and charge a fair price then they will stick with you. This is a great way to get your business going in the beginning or if you just want a bunch more work. Alot of people would flat out refuse to pay for accounts if they are already established, but I think if you can get them at 15% to 20% then they pay for themselves in a few months. Good Luck!
     
  6. lsylvain

    lsylvain LawnSite Senior Member
    Posts: 777

    Why can't people call me about buying them out. I've had a guy trying to buy me out for 2 years now. He has been ready to pay me 25% of one years revenues for the accounts.

    What ever you do make sure you get it in writing that they will not compete with you for at least 3 years, other wise it would be pretty easy for them to just take all those accounts back just by talking to the people.
     
  7. John at JDH Select

    John at JDH Select LawnSite Member
    from Indy
    Posts: 66

    Thanks for the input guys. I looked at the equipment yesterday and got a run down on the accounts. Although the accounts are tightly packed, the seller wanted 61% of annual revenues for the equipment and the account referrals.

    Swing and a miss!!!

    Thanks for your input.

    John
    :rolleyes:
     
  8. lawn_solutions

    lawn_solutions LawnSite Member
    Posts: 4

    First of all you are wasting your time thinking about $2200 annual sales. A good price for a business with all assets paid and no monies due is between 4 and 5 years of their NET income. That is basically the profit of the business. This is only good if the company's accounts will transfer, the equipment(if it is in good condition) and all other assets come with the deal. Also if possible work out some consultant agreement with the original owner to work out any labor or customer service problems.
     
  9. JimLewis

    JimLewis LawnSite Fanatic
    Posts: 6,842

    I wouldn't even waste my time looking at those properties. In my estimation, they are priced 25-50% too low. And I don't see you raising the price THAT much and still retaining many customers. This guy has collected a bunch of loser accounts and there's no point in buying, or even looking, at those. My 2 cents.
     

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