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How to value a fert/squirt business??

Discussion in 'Lawn Care Business Management' started by Jbh0724, Mar 18, 2013.

  1. Jbh0724

    Jbh0724 LawnSite Member
    Posts: 187

    I am looking to go into business with someone. We want to lay out how things will be valued and lay out an exit strategy if things do not work out. My question is this...how do you value a fert/squirt business? Should we base it on a percentage of the gross sales plus equipment? We are both experienced in lawn maintenance and are looking to expand into the weed control aspect of things. Any and all input will be welcomed. Thanks
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  2. GreenUtah

    GreenUtah LawnSite Senior Member
    from SLC, UT
    Posts: 866

    You would value it as what you could sell it for. That means 2.5 times net plus equipment current value (not replacement costs), current inventory, etc... for an established business (1st year sales are not an established business). Further items of potential value may include marketing pieces and the name itself, if it's been heavily branded and a buyer might intend to keep it. That's really about all there is of value, the rest are liabilities.
     
  3. GOATMAN GEORGE

    GOATMAN GEORGE LawnSite Member
    Posts: 88

    Lol good luck getting a buyer at 2.5x net plus other items of value. Ha ha ha
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  4. RigglePLC

    RigglePLC LawnSite Fanatic
    Posts: 11,765

    About 75 to 90 percent of gross sales is about right. Plus equipment and inventory value.
    Value is a bit higher if the customers are bound by written contracts. Or if they are highly loyal.
    When the economy was strong some were sold for 100 percent of annual gross sales.
    The profits should pay for the business cost within about 5 years.
    It must be less than it would cost a newcomer to start his own business in your area, and acquire the same number of customers using advertising and salesmen. The cost to acquire a new customer in your area is an important number.

    And strong competition from other companies reduces the value and increases the risk to a buyer--lack of competition, or a dominant position in the market place increases the value of the company.

    And of course, if other companies are anxious to buy your customer list--they might bid up the value of the company.
     
  5. GreenUtah

    GreenUtah LawnSite Senior Member
    from SLC, UT
    Posts: 866

    Confused about net vs gross?
     
  6. WiscLawns

    WiscLawns LawnSite Member
    from WI
    Posts: 5

    When you figure the 2.5 x net, how do you factor out the owner of a business who is highly involved, but takes no salary, but instead takes a draw? In this case, it's a de facto salary BUT looks like pure company profit.
     
  7. GreenUtah

    GreenUtah LawnSite Senior Member
    from SLC, UT
    Posts: 866

    If the company owner is doing the job of a manager or crew lead, you should already know what that costs if you are buying businesses. If the jobs that you know have to be there for the business are not being represented on their balance sheet, then there will likely be other problems with the actual value of their company and you'll have to more thoroughly investigate, likely with your accountant.

    For tax purposes, most owners will be trying to make their net look as small as possible, not trying to hide their labor to look like pure profit, which will likely result in a higher tax burden and that will be the rub for those looking to sell.

    Profit per job with a full accounting of what you know has to be included to perform that job will give you a much more accurate accounting of what their net actually is.
     

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