How to determine how much an account is worth

Discussion in 'Business Operations' started by GreenGiant94, Oct 28, 2010.

  1. GreenGiant94

    GreenGiant94 LawnSite Senior Member
    Posts: 271

    Hey everyone,

    I have a question I wanted to ask y'all. If your trying to determine how much your company is worth, what is the way to find out how much value your accounts add. Is it something like a % of what you get from it annually? I'm not sure I just thought I heard something like that before. Thanks for the input.:)
     
  2. fl-landscapes

    fl-landscapes LawnSite Silver Member
    Posts: 2,542

    you will get a lot of crazy answers to the question just wait and see. Most business are valued on a scale of 1.5 to 3.5 times "owner benefit" meaning the owner or owners salaries plus any benefits. I believe the method was an article in lawn and landscape but this valuation is something used in all industries not just landscape. Basically a buyer wants to know how soon they will see a return on their investment. Now determining where your particular company falls in between the 1.5 and 3.5 thats the tough part
     
  3. Mowingman

    Mowingman LawnSite Platinum Member
    from Texas
    Posts: 4,664

    Here is a good rule of thumb you can use.
    If there is not a written contract, figure it is worth about 10% of the annual gross, averaged over 3 years.
    If there is a written contract, so you know FOR SURE the customer is going to be your's for a full season, then use 15% of the annual gross.
     
  4. fl-landscapes

    fl-landscapes LawnSite Silver Member
    Posts: 2,542

    not to argue but annual gross means NOTHING! Its about net profit. GM had a multi billion dollar annual gross but was bleeding money........annual gross means absolutly nothing!!!!!!
     
  5. Mowingman

    Mowingman LawnSite Platinum Member
    from Texas
    Posts: 4,664

    NET profit means NOTHING. One business owner can run his company to where he is making no profit on a given property. The next business owner may run his company more effeciently, and make a nice profit in the same property.
    The gross income is a whole lot more meaningful, in deciding what a property is worth to a buyer.
     
  6. jbell36

    jbell36 LawnSite Bronze Member
    from KANSAS
    Posts: 1,285

    ya you are wrong, i see your point and not to argue with you but when a company is sold it is always based off annual gross, that's just a rule of thumb for all businesses in all fields...now when talking about how much you make (as in net profit) then you can say that gross means nothing, if you gross 200,000 and only net 20,000 then you can really only say you make 20,000, in that situation gross means nothing...unfortunately for the seller, in our field a lawn care business will usually never go for more than 1 years annual gross as opposed to many other fields that average 3-5 years annual gross

    and yes there are others way to sell a business i'm just saying this is a general guideline
     
  7. jbell36

    jbell36 LawnSite Bronze Member
    from KANSAS
    Posts: 1,285

    i forgot to add a couple things...i've seen quite often that strictly mowing accounts go for about one months gross, and obviously equipment would be additional...contracts also make a huge difference, the more the better, although we do contracts and i do not think they are completely necessary...there are many variables to consider when selling/buying a business
     
  8. fl-landscapes

    fl-landscapes LawnSite Silver Member
    Posts: 2,542

    your clueless. Ill take your example as my example. One owner runs his $100,000 company like a donkey at little profit and the other owner of a $100,000 company runs it efficiently and shows a nice profit. Remember its your example and a good one to support MY POINT. In your example using your 10 - 15% of gross both companies are worth the same??????? Only by looking at NET PROFIT will you realize in your example the second more efficient company is worth more. You are dead wrong. Gross sales mean nothing to the value of a company....PERIOD!
     
  9. fl-landscapes

    fl-landscapes LawnSite Silver Member
    Posts: 2,542

    what does this even mean???? Are you talking net profit? which is exactly what I said matters and once again you have also pointed out the way to value a business.......by figuring the net profit. GM and Blockbuster should have sold to both you guys instead of going bankrupt they had great GROSS SALES NUBERS:laugh:
     
  10. fl-landscapes

    fl-landscapes LawnSite Silver Member
    Posts: 2,542

    very true there are many variables.....gross sales is about the least important to valuation!
     

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