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Have you ever bought another maintenance business?

Discussion in 'Business Operations' started by New Leaf Maint, Jan 29, 2011.

  1. New Leaf Maint

    New Leaf Maint LawnSite Member
    Posts: 35

    I'm looking into buying another company and was wondering if there is any one out there who has, or has looked into buying another company who would have any advice for me. The other company does about 200K in sales per year. I figure that their equipment is worth 30-40K. My accountant looked into valuing a lawn maintenance company and came up with these rules of thumb.

    1. 50 – 60 percent of annual sales plus inventory/equipment

    2. 1.5 times SDE plus inventory (SDE is (sellers discretionary earnings) calculated as net income before primary owners compensation, other discretionary, nonoperating, or nonrecurring income or expenses, depreciation, interest and taxes.)

    Does this sound reasonable to you? If we went for the first rule the company should be worth 130K-160K. That seems a little high to me but it is in line with what he is asking for his company.

    He has mostly commercial accounts. For the most part the contracts aren't going to bind his customers to me if I buy the company. We both offer good quality services that aren't the cheapest in town and so I think that most of his clients should feel that they are getting the same or better quality services from my company and hopefully stay with me. He is also willing to have a transitional period where he will work with my company so he will still work with his clients so they should get to know my company while they still work with him.

    How would you place a value to his company? Any thoughts would be appreciated.
  2. grassyfras

    grassyfras LawnSite Bronze Member
    Posts: 1,473

    I bought a company and also sold a company. No where near the sales or equipment your talking about but this is what I have learned from it.

    Selling a company is not fun. You have pissed off customers at your for doing so, and they seem to hold you responsible for the quality of the person you sold your company too.

    When buying a company your really not guaranteed the accounts or work. You will inherit PITA and loose a good deal of the percentage of accounts. What I think your really buying is the equipment. When I bought a guy out I only did it for the equipment because it was a really really great deal.

    I would take a different approach on valuing a business to buy. Consider what it would cost and take you to grow your business to the point of where the other company is at. I would bet that you can grow your company for much less money that it costs to buy. The only x factor is the time it takes to grow that much.
  3. Cajun Cleanin'

    Cajun Cleanin' LawnSite Member
    Posts: 115

    You are gonna pay over 100k for 30k to 40k worth of used equipment in the hopes that his accounts stick with you?

    This is not a business that transfers value like some others that may have signed multi year deal that go with the sale.Why are you buying?If you are trying to grow I would advertise and beat the pavement.
  4. New Leaf Maint

    New Leaf Maint LawnSite Member
    Posts: 35

    I'm worried about the clients staying with me but what if I only paid him so much down and then depending on how many of his clients sign on with me for the next year pay him the rest accordingly.

    If I do it that way should I give him one offer for the equipment and another for the clients. I've read other threads about buying contracts for a months maintenance or what not. Would you price it like that? Is that what I should offer?

    He's also saying that he'll pass along his past clients list along with contact info for them and about what price their paying for their services with the other companies. He's also got some good employees that would most likely stay with me over the move for what ever that's worth.
  5. DiscoDave

    DiscoDave LawnSite Member
    Male, from Midwest
    Posts: 196

    I have bought several companies and have had some good and some bad experiences.

    My opinion is... if you are a startup then buying is a great way to get get established.

    If you are already established.... hiring a good salesman to grow is a lot cheaper, fewer headaches and no worries about transition shock from your customers. A salesman should only cost you between $30,000.00 to $40,000.00 for $200,000 in sales.

    I sold $650,000.00 for my employer last year at a fraction of what you are thinking about buying those accounts for.
  6. New Leaf Maint

    New Leaf Maint LawnSite Member
    Posts: 35

    Last night I had the same thought about just hiring a salesman. I'm an established business but only for two years. Ive grown my business to over a 100K/year gross in that time but I look at buying the company as a 3-4 year quick start.

    I don't get a lot of leads coming in, at least not to get 200K of work in one year so if I got a salesman he'd be doing a lot of cold calls. Have any of you had much success with cold calls? Also how much marketing would it take to generate that much income? What kind of return do you get on any type of marketing you do? I do mostly commercial, apartments, HOA's with a few residential clients and am looking for more clients in those areas.

    Also one of my reasons for wanting to buy the business is to take over part of the market share in our small area of 100,000+/- population that if I don't get it he'll ether just stay in the business as he said he would and be a competitor or it will go to one of my other competitors.
  7. Green Feet Lawn

    Green Feet Lawn LawnSite Member
    Posts: 226

    Do you need a job?
  8. DiscoDave

    DiscoDave LawnSite Member
    Male, from Midwest
    Posts: 196

    lol... thanks. I get asked that a lot.
  9. New Leaf Maint

    New Leaf Maint LawnSite Member
    Posts: 35

    What information would you want to know about the business to make a decision to buy it? I think gross sales, tax returns, balance sheet, profit loss statements for the past 5 years. I signed a non compete with him so he'll give me at least part of his customer list.

    What other information would you want?
  10. Gone Green

    Gone Green LawnSite Member
    Posts: 10

    Having an accountant do a valuation can be problematic in my experience. I don't say this lightly so please consider that big boys make gobs of money buying companies. there is a technique to do it right, I am not intentionally being elusive just don't have all the answers. Revieww www.LawnBusinessSales.com and post your thoughts?

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