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Buying out small fert company

Discussion in 'Pesticide & Herbicide Application' started by MacLawnCo, Nov 20, 2002.

  1. MacLawnCo

    MacLawnCo LawnSite Bronze Member
    Posts: 1,847

    Yesterday, I talked to a guy that fertilizes 3 of my properties. He has been talking about getting out of the bus and is interested in selling his 25 clients to me. I am not too sure of the details because we are going to be looking at the deal in detail on Sun.

    What I am interested in from you all is what things do i need to be aware of while looking at this deal? I am going to have my accountant look this over and am going to speak with a few of my bus professors about the details. I have never bought out anything, so I need to know what red flags I may need to be aware of. Thanks
  2. Fvstringpicker

    Fvstringpicker LawnSite Fanatic
    Posts: 7,603

    As you know from your business classes, you are essentially buying an annuity or a stream of cash flows (you have to work for) . My advice as a CPA --set up a spreadsheet and conservatively estimate your monthly revenue stream, factoring in loss of customers, in a row across the top of the sheet. In another row estimate your monthly recurring costs from operations (salaries, including yours, supplies, materials licenses, etc.) Include the cost of any equipment that may be replaced or any other incremental cost related to the purchase of these customers. The difference is obviously your net cash flow derived from the purchased customers. Compare this to the purchase price to estimate your payback. From here, you can add income from other services you may be able to provide to these customers. Keep in mind that you are buying his customers which, like most, are fickle at best.
  3. Fvstringpicker

    Fvstringpicker LawnSite Fanatic
    Posts: 7,603

    One other thing. Check with your state on any licenses you may need. Here in Georgia, I understand that you need a commerical applicators licenses to put down weed & feed fertilizers.
  4. KLR

    KLR LawnSite Member
    from Zone 6
    Posts: 171

    i would also call each account, since there is only 25 this won't take long at all.

    ask customer if they been satisfied, assure them you will carry all proper insurance/license. feel these customers out, will they hang in there with new management? If they have had disappointments I'm sure they will tell you, assure them you are making note of their complaint and will be sure to correct situation.

    25 fert. customers is like 1 days work per round...it ain't a big deal, but you got to be sure you're getting your moneys worth.

    good luck
  5. DLS1

    DLS1 LawnSite Bronze Member
    Posts: 1,619

    I remoember seeing a subject sometime this year about someone buying a lawn business and best way to buy it.

    From what I can remember the best suggestion to me was buy the business based on how many customers you have over a certain periods of time. If you still have all 25 customers for first 3 months of season then the guy gets 25% of sales amount you agree to buy it for, next 3 months he gets another 25% of the sales amounts go to the purchase and this goes on till end of first year until he gets the full amount of the purchase price from the gross sales based on % or he only gets whatever you earned each quarter times 25% of gross. You need to find that thread since it was explained better than I am saying here.

    Also get a none compete clause for 1 or 2 years if possible so he doesn't undercut you after he sells it to you. The above idea about certain % of gross sales each month or quarter goes to him to buy the business sounds good since it also helps stop him from getting a buddy going in to take away the customers. He would have a vested interest in not trying to undercut you once you buy it with the % gross sales idea.
  6. MacLawnCo

    MacLawnCo LawnSite Bronze Member
    Posts: 1,847

    Good call LSDLS. I did a brief search, but it did not turn up anything successfully. I will search again this weekend when i have some downtime.

    Thanks for the ideas thus far Fvstringpicker, KLR, and LSDLS. I appreciate the thoughts.
  7. mcambrose

    mcambrose LawnSite Senior Member
    Posts: 511

    I also looked at buying out a spray company a couple of years ago. I would have, but my day job is too busy during wrong times of year. However, I gleaned some good information in the process. Chemlawn was willing to buy spray businesses in our area for 50% to 100% of one year's gross receipts. I believe this is way over priced. One small operator in our area tried for a couple of years to sell his for 100% of a year's gross receipts, but was never successful. He did finally sell it before Chemlawn arrived, but I don't know what price.

    An older gentleman who is a PHD agronomist had a spray business for about 15 years. He offered it to me at 1/3 of a year's gross receipts plus the equipment cost. I would have bought it at that price, but as I said my work schedule would not allow. I believe that is a fair price. Note that you are only selling good will. The customers do not have any obligation to you. In fact, some of his customers were yards that I already mowed. I have picked up some of them because they were not happy with the new owner/operator.
  8. Randy Scott

    Randy Scott LawnSite Bronze Member
    Posts: 1,915

    Getting 25 new clients would not take much effort or money with just basic advertising. I wouldn't waste my time "buying" someone elses accounts. Besides, when he quits, they'll be up for grabs and they will have to call someone. I just think for only 25 it isn't worth buying them from someone. Just my opinion.
  9. AztlanLC

    AztlanLC LawnSite Bronze Member
    Posts: 1,045

    Is He selling you his company or only the customers he doesn't want to take care anymore?, 25 customers is like 2-5 days work depending on the size and distance does he apply liquid or granular? liquid you have to invest good money on the equipment.

    Insurance & Equipment doesn't really pay off with 25 customers.

    Just my opinion
  10. MacLawnCo

    MacLawnCo LawnSite Bronze Member
    Posts: 1,847

    Here is the deal.

    If I do it, I would be purchasing the entire business. He has a job in the Agricultural industry, so this is a side job for him. What he wants is $1700 for the entire list of 25 clients that were with him this year, which he is confirming for next year sometime within a few weeks. Along with that list of active clients comes 75 other clients that became inactive due to various reasons. All the clients are within 15 miles of my home. He said it takes him 10hrs with a ztr spray/fert set up. If i do it, it would be with a WB spreader and WB sprayer.

    I am leary that his prices are low and his actual measurements are low as well. I am going to find out for sure tomorrow. In our conversation, he mentioned a few things that were seriously studpid business moves. I am not sure that he is into it or has been motivated for the last few years.

    As far as his apps,
    1st-28% @ 2% and 12-00-26 @ .5%
    2nd-28% at 2% and Thio-sul @ .5% and Eliminate
    3rd-Nutra Soft
    4th-Liquid Cal. 11-0-0-12
    5th-18-46-0 granular

    I dont know exactly what that crap means, but his program is effective.

    Your thoughts are appreciated

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