Selling the Business

Discussion in 'Landscape Lighting' started by Chris J, May 13, 2007.

  1. Chris J

    Chris J LawnSite Silver Member
    Posts: 2,829

    Need some opinions:
    I had a local competitor approach me a few months ago about "buying" his lighting business. I did not entertain the idea at great length, because this person had not been offering renewable service contracts. His concept of value was that because he had such a great report with his customers that the potential buyer would gain the service work and all of the "word of mouth" referrals. My response was that he had already received the main benefits of installing the original lighting systems, and if the homeowners needed service, they would probably end up calling me anyway because I'm the only one in town that answers the phone when it comes to service work. If he had a residual income from service contracts, then I would have been able to identify and quantify some kind of actual figure. I probably would have entertained this idea, but I really didn't want the extra service work. I figured it would just bogg me down and force me to focus on service more than actually selling new installations.
    For you "lighting only" guys, do you think you could sell your business in the event you wanted to retire or relocate? If so, why?
     
  2. Pro-Scapes

    Pro-Scapes LawnSite Platinum Member
    Posts: 4,181

    hey Chris. While we are not yet lighting only we are working on heading that way. The same goes for lighting or any kind of service industry.

    Without the contracts and service obligations it really lowers the overall value of his business. Having a residual income would be to his advatage. While you could still go in (with a list of systems he installed) and get them under a maint agreement your chances of it are alot slimmer in my opinion since they have not been conditioned to it yet.

    If we were to sell off the landscape maint business tmrw it would probably be worth alot less than we would like because only half of my clients are under contract for year round. The other half are just good will clients who I start every spring and end every fall. Basically if there is no regular income then his business is only worth little more than his assets and name recognition.
     
  3. Lite4

    Lite4 LawnSite Gold Member
    Posts: 3,109

    Your right it's hard to quantify a service business. In general there is no real value other than equipment and tools. That is about all I would purchase. Most of the time it is a one time shot. Service contracts on quality systems are just a way to fill empty time slots and keep in touch with the customer for referrals.
     
  4. NightScenes

    NightScenes LawnSite Silver Member
    Posts: 2,207

    Chris, my plan is to sell my company in about 10 years. By that time I will have several hundred renewable service agreements which will give true value to my company. Someone making a purchase of a business wants to know that they will make that money back in about 5 years. Of course there is the name recognition and reputation that are not quantifiable but if you can show that very little advertising is needed to generate new business it means that the company has higher profit margins.

    Yep, I'm lookin forward to 2017. I think I might be able to go fishing about then.
     
  5. NiteTymeIlluminations

    NiteTymeIlluminations LawnSite Senior Member
    Posts: 367

    Well, as you may or may not know I have recently been purchased by a competitor of mine in the past 2 weeks. It was a 5 month project honestly. There are non disclosure stmts, lawyers involved, brokers involved, etc...It was a horribly excrusiating 5 months...but at then end of it the buyer gets a great business and I'mnm alot closer to retirement. I was approached by them not the visa versa. I would have never considered selling only 9 years of owning the business but it is a great opportunity for me. Chris, the only advice I have is get a good broker and lawyer and get them involved asap and make sure you get a non disclosure stmt. It will protect you and the other guy if things don't work out. I would have to be concerned abut the vlue of his business if he's offering it for sale though. Also be sure to only do an asset purchase not a stock purchase, you don't wantt o buy any of his liablities and/or pending suits against him or workers comp claims etc...agian get a lawyer
     
  6. Chris J

    Chris J LawnSite Silver Member
    Posts: 2,829

    That sounds really good, but it shouldn't take you ten years to do that. I have almost 400 renewed service customers now, but I wonder what that would be worth to a potential buyer? Of course I'm not sure, but it appears that most contractors would rather not do service and only do installations. Even if someone were focused heavily on servicing, I would expect they would need well over 1000 annual customers to keep themselves busy every day.
    Whatever happens, the fishing sure does sound good!
     
  7. NightScenes

    NightScenes LawnSite Silver Member
    Posts: 2,207

    Chris, if your maintenance contracts are worth an average of $500 a year (just figuratively speaking) and you have 400 of them, that would mean that you have $200k in annual income every year just in maintenance. Multiply that by 5 years and you have a $mil. That would be the minimum that I would ask. I would actually ask 3 times that amount because of new installs and the companies reputation. I could take a few fishing trips on $3mil, couldn't you?
     
  8. Chris J

    Chris J LawnSite Silver Member
    Posts: 2,829

    I've never figured it out, but I know they don't average 500. Probably more like 300-350. Yes, I know what you are saying... I just find it hard to believe that I am actually going to find someone who has that kind of cabbage for this business when the time comes. I guess I am looking at it from a different point of view: When I started, I didn't give anyone any money to get this business off the ground. So why would someone pay a million bucks or more to do the same thing?
    I'll be definately making that pitch when the time arrives though!
     
  9. NightScenes

    NightScenes LawnSite Silver Member
    Posts: 2,207

    Think about all of the work it takes to develop the business. For someone to just come in and have a fully established business with immediate return on investment. I know that my first year I only grossed $70k. This year we will be well over a half mil. It took a lot of blood, sweat and tears that some people just don't want to invest. They would rather invest the cash.
     
  10. Chris J

    Chris J LawnSite Silver Member
    Posts: 2,829

    Yes, but if someone gives you that much cash for your business then they will be investing nothing more for the next 5 years except the blood, sweat and tears in order to break even and make a small profit. Their profits will not come until the initial investment is paid off. So, instead of spending your first five years paying off a loan to purchase a business like this, why not spend the first five years building it exactly the way you want it (just like you and I did).
    Again, when it comes time for me to hang it up I will most definately try to sell what I have built for the highest possible $$. I just can't wrap my brain around this at the moment.
     

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