thoughts about buying an exsisting business

Discussion in 'Business Operations' started by 1 shot, Feb 11, 2003.

  1. 1 shot

    1 shot LawnSite Member
    Posts: 6

    I have come across an exsisting lawn business for sale it comes with 2- 60 zero turns
    1 -72 dixie chopper desiel
    1-54 walk behind
    1-48 walk behind
    several blowers and weedeaters
    misc. parts and blades
    92 ford desiel w/plow and spreader
    3-trailers

    Here is what i am most interested in
    $100,000 city contract
    30 residential contracts

    Says it brought $223,000 last year the numbers dont add up unless the residentials bring big money but plan to sit down with him in a couple of days to check out every thing else but what questions would you ask. I am well aware of the amount that is being asked and dont really want to declose it here but it is less than last years numbers. I feel confident that i can take on this new business with the equipment that i have and he adds. So bring on the questions i dont want to leave anything out.
     
  2. paponte

    paponte LawnSite Silver Member
    Posts: 2,366

    Tell him you want to see his books. I can tell you a business is worth whatever I want. But a true business is only worth what it claimed last year. If his books are a "little" off, (and I stress that) doesn't mean it's not legit. Alot of cash may have gone under the table, as long as it is not a significant amount. See who is on contract and who isn't. The more on contract, the better insurance policy for you. Make him take you on the route to see all the houses. Make sure you know what all the contracts include, and if you can handle all that is required. See what kind of guarantee he will give you, and have a contract signed and notarized. Once you come to an agreement and are willing to buy, make sure you put something on the contract that says he cannot solicit nor perform any work on "your" area for a certain amount of time. (usually 3 years.) Then have him introduce you to all the customers (make sure you have proper billing addresses) and also send out a letter stating the transaction of ownership.
     
  3. gpriddy

    gpriddy LawnSite Member
    from MD
    Posts: 36

    1 shot,

    I am currently going through a similar process. I insisted on clients to stay on through 1 year for full payment of each customers value. I determined their value as a % of gross billings. If they quit me half way through the year, then half of their % is taken off the balance of the note. If the seller isn't willing to carry the note, then you can use an escrow account. Any lawyer/accountant can set up the paperwork for you. Always cover your butt...

    Gary
     
  4. Sean Adams

    Sean Adams LawnSite Gold Member
    Posts: 3,597

    There are a lot of things to consider when buying a business in this industry. I agree that you should request up to date, accurate records that indicate how and where their money was made and/or lost. You will also have to negotiate some sort of payment process that allows you to avoid being penalized for clients who terminate your service due to the new ownership, as well as clients not under contract. The equipment value is always going to be different in your eyes versus what they determine the value is. Often times, business owners selling their business look at their equipment for what it can produce, versus what it is truly worth. Lots to consider.

    I know this is suggested often, but in this case I would definitely do a search. This topic has been discussed often on LawnSite.com. Best of Luck.
     
  5. rodfather

    rodfather LawnSite Fanatic
    Posts: 9,501

    I would be asking a boatload of questions about that 100K city contract....that represents nearly 1/2 of his total revenue...and from just one customer.

    Talk about all your eggs in one basket?
     
  6. kutnkru

    kutnkru LawnSite Silver Member
    Posts: 2,662

    Yo P!!

    Actually a biz is worth what it has generated over the past five years as an average here in the Upstate areas. I have yet to see an informed buyer purchase a business based on last years sales or tax returns alone.
     
  7. paponte

    paponte LawnSite Silver Member
    Posts: 2,366

    Yes kutnkru, I definitely worded that one wrong! What I was getting at is, it is only worth what it reports.
     
  8. bruces

    bruces LawnSite Senior Member
    Posts: 648

    Actually, it could be worth a good deal more if there is substantial unreported income, but it is really hard to sell what you can't prove.

    People shoot themselves in the foot when it is time to sell if they have been skimming cash from the business and not reporting it.

    The only way for them to get paid for that kind of business is for them to seller finance it.

    You can't get a bank loan on unreported income.
     
  9. MPhillips

    MPhillips LawnSite Member
    from zone 7
    Posts: 94

    The business mix strikes me as being odd...30 residentials and 1 100K government contract...the guy possibly bid low to get that contract because of the inexperience indicated by the 30 residentials in the mix. Maybe he's got a performance bond associated with his low bid, and he's losing money, and doesn't want to pay the bond, and he's trying to dump this on you.

    seems like you'd want to accurately value all current assets involved in the purchase. Accurately price all the equipment...was maintennaced done? how old? condition? Since this is all you're "really" getting.

    Value of residential contracts is usually pennies on the dollar.

    The government contract is probably extremely low margin business, so understand how you'd have to accomplish the work spec'd in the contract, what would that cost? How long is the contract period?
     
  10. bob

    bob LawnSite Platinum Member
    from DE
    Posts: 4,254

    30 residential accounts that bring in $123,000 a year? Even if they were high end accounts, that seems a bit steep. Look at the books with your CPA.
     

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