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Determining the value of a Mowing Business

Discussion in 'Lawn Mowing' started by mowinmoney, Jan 8, 2004.

  1. mowinmoney

    mowinmoney LawnSite Member
    from Midwest
    Posts: 70

    Has anyone dealt with purchasing or selling your mowing business. If you have how did you determine the market value and/or selling price?
  2. Avery

    Avery LawnSite Bronze Member
    Posts: 1,389

    I have never bought or sold one, but I would say figure it based on equipment only. His contracts are not worth diddly as they can change LCO's at anytime. You cannot count on them staying with you if you buy.
  3. Phishook

    Phishook LawnSite Bronze Member
    Posts: 1,143

    I guess the value would be what ever it is worth to you.

    If you are buying, get a copy of his taxes to have proof of the income. A wise man told me 10-20% of the annual income was average.

    Figure the equipment separate. Don't buy every thing if you don't want it.

    example= business income $40,000. His selling price of equipment $10,000.

    So 10-20% could be anywhere from 4 to 8000. It just depends how confident you are, and how in need or willing he is to sell.
    So say 12.5 %($5000) because the accounts aren't high end, and you'll have more travel time because of your location.
    Then the equipment is up to you. If you don't want something, don't take it.
  4. Team Gopher

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

    Hi Mowinmoney,

    Here is a quote from this post.

    "6 months gross, plus equipment value... (in a 12 month climate zone)"
  5. Barkleymut

    Barkleymut LawnSite Bronze Member
    Posts: 1,117

    I disagree with Avery, if your contracts are worded correctly they would be enforceable. If you are trying to sell your biz, make sure all your contracts are up to date.
  6. Avery

    Avery LawnSite Bronze Member
    Posts: 1,389

    They may be but at what cost? Would you want to keep working for someone you had to take to court? What do you think the chances are of them signing up for another year? Or paying on time? If you start trying to enforce contracts when a customer wants to drop you you will damage your reputation. Not worth it IMO. If I was looking to buy a business the contracts would be worth nothing to me. Been in the business for over 20 years. I have seen lots of guys buy a thriving business only to have it flop after they lost some or most of the contracts. It can and does happen. Like Phishook said value is whatever it is worth to you. And to me another LCO's contracts are not worth the paper they are written on.
  7. Mustang

    Mustang LawnSite Member
    Posts: 36

    What is the value of any business based upon? Businesses are bought and sold all the time. Predominantly, they do not have contracts with their customers. That does not mean they have no value. The value comes from a business' track record; its ability to generate a profit or its potential to generate a profit. It aggravates me to no end when someone in this industry says a business is worth nothing. To those that say this, is your business worth anything? Are you devoting all your resources to an entity that will have no value in the end? Why then do you not just go out and get a job? A whole lot more benefits and way less aggravation. If you can purchase a business that allows you to make $100,000 a year is that worth nothing???? Or $50,000, or $150,000? What difference does it make whether they have contracts or not if that business can prove they have made a certain level of profit every year. (I'll certainly agree contracts with customers will enhance the attractiveness of any business) Why are other businesses worth money and not landscaping businesses? I think a good part of the reason is a lack of respect for our industry. It is bad enough that the general public gives us no respect but the other half of the problem is that many of those involved in the industry do not give it any respect either. (sorry for the rant!)

    Back to the value of a business. July issue of Inc. magazine. Page 78. They did an article on what your company is worth. Very interesting. Now, the figures to follow were compiled from only 10 transactions so they are statistically insignificant. But they are a start.

    Median sales= $198,000
    Median sales price=$180,000
    Median Valuation multiples:
    Equity price divided by EBT =3.92 (EBT= Net Income + Taxes) Equity price divided by Gross Cash Flow=3.18 (Gross Cash Flow=Net Income + Noncash Charges)
    Equity price divided by Net Income=3.92 (Net Income= After Tax Net Income)
    Equity price divided by Net Sales=.60 (Net Sales= Annual Gross less Returns & Discounts)
  8. GarPA

    GarPA LawnSite Silver Member
    from PA
    Posts: 2,585

    well said Mustang....like you, I go ballistic sometimes when I hear what flops out of the mouths of some of our "peers" in this industry. Somtimes I want to jump thru the pc screen and look and see if there really is a void between their left and right ears...

    Some of us do get respect, because we conduct ourselves and our business in manner that generates that respect. The rest, and unfortunately far too many, create the stereotype that we are constantly striving to be apart from.

    Does an established small local fert company that gets purchased by TruGreen, have a value when its sold to TG?...uh-huh. An acquaintance of mine was just paid a nice amount to sell his local fert biz to another larger fert company.

    How about a small garage repair shop that is bought by a new owner....the customers of which, only come in once or twice per year. Does his "business", aside from the brick and mortar have a value?? uh-huh

    No different for what we do. If its an established land/lawn biz, it has a revenue history....and that history will generate future sales, and therefore has a value. When I decide someday to take down my shingle, I'll be damned if I'm going to give it away. What % to use for valuation is open for debate. But zero, isn't one of the options.
  9. rodfather

    rodfather LawnSite Fanatic
    Posts: 9,501

    The value of a full time, well established Lawn Care Operation? Simple...a full year's revenue. Equipment, trucks, trailers, etc. are extra IMO. Period
  10. Avery

    Avery LawnSite Bronze Member
    Posts: 1,389

    No need to get bent because not everyone agrees with you guys. I know what my business is worth....with me running it. Could a new owner make just as much? Maybe. He may even be able to do better. But he could also loose all the contracts and go bankrupt. Stop by a bank sometime and ask the loan officer exactly how much the business contracts are worth. Past revenue will help you some, but not as much as you might think. I plan on retiring and selling the business in appx. 5 years. I would love to be able to sell based on my income or contracts. But I realize that is not gonna happen. Banks gonna loan based on tangibles...stuff they can foreclose on. They cannot repo. contracts or past years income.

    I think you guys are reading too much into this. I am not saying your contracts are worthless. They are worth a lot to you. What I am saying is that they are worthless to a new owner (if he has any sense). Why would someone pay you for something that is not yours? Sure you have the contract this year, but if I want it bad enough you will not have it next year. Why would I be willing to pay you for something I can get without you?

    And for everyone that puts such value in contracts...call me in about 5. I will make you a heck of a deal on a turn key business! :)

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