How much this company worth?

Discussion in 'Starting a Lawn Care Business' started by I_am_a_beginner, Jan 12, 2014.

  1. TPendagast

    TPendagast LawnSite Fanatic
    Male
    Posts: 7,710

    So this guy thinks he NETS more than 50% of his gross??
    He's crazy, stupid or lying.

    IF he netted 50% or more he would NOT be selling.
    False false false.

    IF you want his equipment you never buy equipment for dollar value....

    offer him 40% on the value if the equipment
    If it's "worth" 12k then you buy it for $4800.00 if he wants more he can sell it on craigslist and piece it out over months or a year.
    with 125k gross...lets assume 30% of that is chewed up in materials (fertilizer, mulch etc)
    that leaves $87,500.00 for man hours billed.
    Assume an average of $55/hr (for arguments sake)
    thats roughly 1600 man hours.
    40 hours per week x 20 weeks is 800 hours.... so he has... TWO employees?
    You already have management and infrastructure in place, so managing another two employees worth of work wont affect you much, if at all. your overhead won't increase significantly, so... this could be a win for you.

    Now, the question is, how do you compensate him for the work/contracts.
    The answer is, how you would for any other salesman who sold work/brought in sales to your company,
    Commission.
    For every dollar he brings in, you pay him a negotiated percentage... this is normally between 6 and 11%
    I'd suggest offering 8%
    you could go as much as 12%

    on $125,000.00 so that's $10,000.00 for the first year.
    Offer him a three year buy out.
    So he has the capability of making $30k in three years off the deal.
    (that is IF all the clients stay with you)
    He can of course, through his dealings and daily goings on, find more work for you, other than what he is already giving you...meaning he can sell more for you... so he could in effect earn more than that, by doing some side sales.
    so say a fair $5 grand for equipment, and $5 grand up front to seal the deal (we walks away with 10 grand)
    Then as the clients begin to pay their bills you can cut him quarterly sales checks.
    if they all stay on, you will owe him 5 grand more in season 1, so $1250.00 for quarter 2, $1250.00 for quarter three and $1250.00 in quarter 4... IF all the clients stayed on AND actually paid their bills.

    If he doesn't like the deal, you CAN offer a higher percentage.
    But the notion of paying him what is equipment is worth makes no sense for you (because you can look on craigslist and pay asking price for anything you want, you dont have to take his stuff) and the notion of paying him money (upfront??) for a client list that will make you NO money (you'll be giving it to him) also makes NO sense. At least not to you.

    Let's revisit, there is NO way his net is higher than 50% on his properties.

    Truth be told you'll be lucky to make 18% on these properties (125000 x.18) or $22500.00, you are offering him 10,000, or almost half of that, for doing NO actual work on them. If he's belligerent about his super secret money making formulae, include int he agreement that IF his properties produce the net he claims? you will give him 50% of the net.... so HIS claim is a NET of 78k in one year , you will give him $39000.00 IF his properties net that (which they won't) and IF they all stay with you and they all pay (ON TIME)
    BUT there is NO three year deal.
    One year, then that's it....
    Your three year offer of 10k per year (dependent on them all staying and paying) is a more guaranteed 30k.. I think this will call his bluff and he will sell to you for this.

    So in short... 10k to seal the deal, and $1250.00 each quarter after that for a total of three years. he gets less if customers leave or dont pay their bill, and he gets more if he sells more in the mean time.

    IF he claims "oh I need more than that to pay the bills/loans I owe" there is NO way he'd be giving up 78k of net if he had that much debt and needed it pay if off.

    I'm assuming that 78k of "net" includes his owners salary, which isn't true net... true net comes after you take your own pay out, because you, after all are an employee too.

    So after his 60k gets pulled out... there probably is only 18k of net, and he's got loans out there? I bet he's actually losing money (which is why he's selling)

    This shouldn't affect you tho, because your overhead is already being taken care of by your already established business.

    I would disassociate myself quickly from his company name however. use your own. You're not looking to take on his entity and therefor his debt as well.
     
  2. Patriot Services

    Patriot Services LawnSite Fanatic
    Posts: 13,254

    Ask a pro valuation company fot its formal assessment. You will be shocked of how the professional business world views certain businesses, even ones with good numbers. Lco and carwashes are two that come to mind. Contracts seem to have little bearing on that since 100% can fail to renew. I'm also not sure you can strip the name of corp without dismantling it. The fact he wants to get out but still retain the corp is fishy too. Bottom line, way overpriced.
    Posted via Mobile Device
     
    Last edited: Jan 13, 2014
  3. I_am_a_beginner

    I_am_a_beginner LawnSite Member
    Posts: 194

    Nice inputs guys, i dont want everyone to tell me what i want, i want to make sure everyone has every info to bring his opinion.
    Posted via Mobile Device
     
  4. One Cut Away

    One Cut Away LawnSite Member
    Posts: 16

    Wow. I am impressed by all of the intelligent posts on this thread. There's a lot smart cats up in here that definitely know what they are talking about.

    Back in the day when I was with ISS I was involved in many large scale acquisitions throughout the SE. The formula we used every single time was -

    1. The wholesale value of the iron (trucks, equipment) plus
    2. Any real property that goes with it plus
    3. The net profit for one year of any contracts on hand.

    That was it.

    There's no way the cat is netting that kind of coin out of that work. Or the description of "net" varies greatly from one guy to the next.
     
  5. I_am_a_beginner

    I_am_a_beginner LawnSite Member
    Posts: 194

    78k net, no owner salary given.
     
  6. snomaha

    snomaha LawnSite Senior Member
    from midwest
    Posts: 907

    Just a guess - the business you want to buy and your current business aren't figuring in a fair market wage for the owner? Net income is after all expenses - including a wage for yourself. Don't care if you are a sole prop - your numbers are lying to you if you don't account for your time/wage.

    Take a look at some green industry benchmarking reports. Really well run companies net 10-15%
     
  7. I_am_a_beginner

    I_am_a_beginner LawnSite Member
    Posts: 194

    66% of net profit is without my own salary. Still even if I give me my current salary, I am at 11% net profit margin.
     
  8. snomaha

    snomaha LawnSite Senior Member
    from midwest
    Posts: 907

    How much of the 78k would go to a fair market wage for the owner?

    From the amount of revenue he is doing i assume he is still in the field(direct labor) as well as handling all the sales, marketing and back office stuff?
     
  9. Chamber143

    Chamber143 LawnSite Member
    Posts: 94

    Take it from me, experienced this same thing because I was young and dumb and thought the world was sunshine and lollipops. Not sure how his contracts are worded but in this business someone can drop you because they want to. We purchased a company in 2000, took 60 accounts with revenue being about 100000. Within 2 weeks we lost about 25% of them. We went to them and asked why and were told that they were thinking about going another route for years but felt loyal to him because they had been with him for years and felt like this was the perfect time to explore options. After the second year we retained only about 20% of the accounts. After 14 years we have kept one account. Albeit it is a 50000 a year job. Others take on this are spot on. Around here the going rate of buying accounts in 25%. Trust me when I say that the same money spent on advertising would have netting far more than what we gained. Plus equipment is about 30% giving condition. I would tell him I will give you a percent of all the profit from these jobs up to a given amount, covering your ass from what I promise will be a mass exodus of customers. Customers want to pick who they have working for them, not told hey this bought my company and will be servicing you. You do what you like but listen to others on here who are far more knowledgeable about these issues. Good luck which ever route you take.
     
  10. Sean Adams

    Sean Adams LawnSite Gold Member
    Posts: 3,597

    Very good information and opinions. When looking to acquire a company in this industry you have to make sure you are buying something that makes sense for your business and not as it currently stands as his business.

    In other words, for example, he may be selling you $125k in work that HE bid at HIS prices done by HIS guys with HIS equipment working at HIS pace.

    These are probably not the same as your business, your prices, your way of doing things, etc....

    You may want to check out this link - it leads to a "sellability" questionnaire that will give you some additional insight to things to consider when selling (and buying) a business.

    http://lawnbusinessreport.com/2013/12/20/how-sellable-is-your-lawn-care-and-landscaping-business/
     

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