how to put a value on an irrigation company

Discussion in 'Irrigation' started by JB926, Apr 13, 2007.

  1. JB926

    JB926 LawnSite Member
    from NJ
    Posts: 150

    ive been doing irrigation for 12 years at my familys buisness and this dec Im going to buy out my uncle. I will be purchasing 600 accounts, various machines, trailer, truck, etc. How do you put value on the non tangible things like the accounts. I dont care if its been said on here 1 million times. I want to know how would you put value on the 600 accounts????help:confused:
     
  2. bicmudpuppy

    bicmudpuppy LawnSite Silver Member
    Posts: 2,781

    analyze those accounts. what is your current growth rate? did you have 600 accts last year? or the prev year? How many do you gain/lose every year. Hopefully the net is positive. 10-15% growth would be stable. More than that would imply a company still going through growing pains. Less than that would imply a stable market, but possibly some stagnation on the company part. If you say that growth is stable and want to value the customer base from that 600 number, then the "value" of those accounts is a multiplier of the profit gleaned from those accounts. You are an existing player in those accounts, so you should not have a transitional loss of accounts after the buy out. I would guess the multiplier at around 5. Is this "family" buisness 50/50 between you and your uncle at present? Perhaps a percentage of profit over the next 5 years and the buying out his share of the equipment would be acceptable.
     
  3. Mjtrole

    Mjtrole LawnSite Member
    Posts: 226


    First off YOU have to have a value for them, look at the books and find out how much revenue these 600 clients are generating per season at least that's a start and gives you something to work with.

    How about some more info so we can help you out like:

    years in business, makeup of company regarding install % service %, overhead like store front or "out of the basement" operation.

    Also, how long have these clients been with the company?
     
  4. JB926

    JB926 LawnSite Member
    from NJ
    Posts: 150

    we have been in buisness since 1958 and irrigation since 1972. We have a 75/25 mix of service and installs. we have a store front but thats not what I want to purchase. Irrigation is only a division of our company. I want accounts, trucks, equipment and I will rent property from him and put up a pole barn of some sort. It Sucks losing a store and office manager and all the other things that come with a large company, but this is long overdue and that is why I am looking to yall for help. Thanks
     
  5. Mike Leary

    Mike Leary LawnSite Fanatic
    Posts: 22,071

    I sold my biz last year, I would suggest a good CPA to go back thru the books
    and see what the biz has been generating. Is the bulk of your biz installs or
    service? Do you have contracts for new work? If not, the biz has to be worth
    what you bill out for service work plus the rolling stock, inventory, etc.
    Take your best year billing & see if that flies as a purchase price.
     
  6. HBFOXJr

    HBFOXJr LawnSite Bronze Member
    Posts: 1,712

    Jim Houston has a book with one, very useful chapter on this topic. My ex used it to value my business for divorce purposes. I believe his advice is accurate and fair.
     
  7. Mike Leary

    Mike Leary LawnSite Fanatic
    Posts: 22,071

    Jeez Harold, the old timers taught me to post a link when quoting a source.
    :hammerhead:
     
  8. JB926

    JB926 LawnSite Member
    from NJ
    Posts: 150

    can you tell me the name of the book??
     
  9. PurpHaze

    PurpHaze LawnSite Fanatic
    Posts: 5,496

    But you're still in training Mike. Once you get the hang of links, pictures, PMs and quotes then you're an "oldtimer" on this forum. Like anything else there is a learning curve... and I must say, Mike, you're learning quite well. :laugh:
     
  10. DanaMac

    DanaMac LawnSite Fanatic
    Posts: 13,156

    OK here is some info I have. Found out today what one local company is selling there's for. $300,000 is what I heard from another contractor that inquired about it. They are one of the older companies, have 2500 customers (I have no idea how active they all are), and no idea if this includes assets or company name. But to me, I think I could spend a lot less than $300k to get 2500 new customers.
    Whoever buys this will end up losing some of these customers. There is no way for 100% retention. I would assume losing 25-50% just after the buy out.
    They two owners won't be staying on so that is two more EXPERIENCED techs that would need to be hired. And finding good EXPERIENCED techs is hard to do.
    Could whoever buys it handle 2500 customers? Not sure, not many companies here with enough staff for that. And I'm not sure how ACTIVE all 2500 are. Heck I've got 3000-4000 in my overall list, but only consider about 1200 ACTIVE. I weed out customers every year, and any that we haven't serviced in 3-4 years get put on the inactive list. Plus I have about 150-200 from another landscape company that I don't consider MY customers. I don't market to them at all with my spring and fall letters.
    I also know they have been looking to sell for over 10 years.
    This company has sent me lots of overflow calls the last 3 years. Hopefully they still will. They are a great old school company. I really like the owners, good guys.
     

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