To Buy of Not To Buy....

Discussion in 'General Industry Discussions' started by greenngrow, Dec 27, 2005.

  1. greenngrow

    greenngrow LawnSite Senior Member
    Posts: 403

    I got a phone call the first of December. My competition wanted to know if I would be interested in buying his business.

    He is mainly into Application part. (Fert & Squirt) His total gross income for the last two years averages around 140,000.00 in applications and the rest of his business is around $30,000.00. Making a total business of $170,000.00
    My application business was $47000.00 this last year.
    His customer base is 650 customers and I have 150 customers.

    He also has some equipment for sale
    Lesco seeder 2003 ($2500)
    Lesco slide in 300 gal sprayer 2002 ($2500)
    750 tank and 2 hose reels and a hypro pump and honda motor. ($5000)
    Z-sprayer 2003 with 500 hours. ($6000)
    Lesco push spreader.$400.00

    Now for the asking price

    He wants $115,000.00 for the business and $16400.00 for the equipment.

    He said there is some wiggle run but not much.
    What would offer if you were in my shoes ????

    PMLAWN LawnSite Gold Member
    Posts: 3,535

    Equipment is easy- just shop and compare with others.
    Business. How many employees and do they stay with you.
    No compete???
    Will he show books over the last 2 or 3 years showing gross and net. How many other people would buy the business in your area, Will he sell to another or just close shop and leave all his customers out there for you to get for free.
    Do you need the equipment or would it duplicate what you already have.
    What is the cap rate of the business?

    These are just some questions I would be asking???
    Happy hunting
  3. rodfather

    rodfather LawnSite Fanatic
    Posts: 9,501

    That would be quite an expansion for sure.

    Not fully knowing the extent of your own business, my initial thought would be what else I can provide in ways of service to these 650 clients. You said he's mainly into apps., But are there other means of generating reveune with these as in maintenance, aerating, mulch, etc.?

    That's is what I personally would be thinking about as well along with the buyout price.

    TURF DOCTOR LawnSite Silver Member
    Posts: 2,138

    Geez can you handle the work load.
  5. greenngrow

    greenngrow LawnSite Senior Member
    Posts: 403


    I think this is the reason for him wanting to sell. He doesn't have the work force.

    He offers renovations, seedings and some mulching.

    A little on my back ground.

    I have a operation that has grown into a quite a big part time job.
    Installs and renovations $50000.00
    mulching and cleanups $10000.00
    mowing $20,000.00
    snow removal $10,000.00 (if we get snow)
    Spraying $47000.00
    This year is my best year so far. I have presently 3 guys on the payroll. All of them want to be with me next year to grow the business.

    So you can see i have my plate full. I want to get more into the spraying side of the business. That is where I started and feel that is where the most profit is.

    I have recently purchased 2 older Tru Green trucks. I also have another spray truck.

    Yes I could use his equipment. I have shopped around and he is a little high on his asking new price on the used stuff.

    As the good faith on the customer base. What is the going price for this????

    Diffently will be a no compete clause.

    He only has one employee at this time. LOL The guy worked for me only a couple of days... He said that he did not want to work weekends ....

    So no employees will come with the business.
  6. muddstopper

    muddstopper LawnSite Silver Member
    Posts: 2,342

    business gross, $170,000, selling price, $115,000+16400= $131,400

    thats about 23% below total gross sales. Gross is money before profits, is his profit margin 23% or greater. If not you will be in the hole the first year and every year after. Look at this as a return on investment opportunity. You are investing $131,000, now if you invest this amount of money in some other investment tool, what rate of return would you expect to recieve. If the rate of return is greater in some other investment instrument, forget about buying the business. This is not to mention that the only real property you are recieveing is the equipment, customers are not guaranteed to stay with you, and can up and quit you in the blink of an eye. You also are not getting any employees, this means you are going to have to learn the routes and properties by yourself, 650 is a lot of properties to learn in the first weeks of spring and you will have to train others applicators as well, while taking care of your 150 properties that you already service.

    There is a value for this business, I am not convinced that the value is $131,000. You need to do a present value to future value comparison to determine what the business is worth. Take the numbers to an accountant and let them do the math. My guess is that the actual value will be closer to the 23% of gross instead of the 77% asking price
  7. J Hisch

    J Hisch LawnSite Senior Member
    Posts: 952

    Muddstopper has some very good points. I would also ask yourself this one big question. What if you just spent 30,000 on marketing your own business how much could you grow? The average cost to accquire a new customer in Lawncare is 40.00-60.00 dollars per new customer. I would do a number of things. First 650 customers and truning 170,000 is really low money. He isnt cross selling very well or all 650 are not active customers. Next I would tell him to send out his pre-pays, and get his comittments see where his projected revenues are with that. Then I would probably give him 75 percent of cash value for those customers due to chemical cost. Next I would probably give him 57 dollars for each non financially committed customer. Also I would work it where you could use his name for at least a year. Yes his equipment is high. Remember you can spend your own money and not near what he is asking to build your own base up.

    DUSTYCEDAR LawnSite Fanatic
    from PA
    Posts: 5,137

    some good replys on this
    i would pry just market on your own and grow with your own pace
  9. hoyboy

    hoyboy LawnSite Senior Member
    from Chicago
    Posts: 346

    His price is in line as long as his customer prices are at market value. Fert companies tend to sell around 1x gross including equipment. Adjust a little up or down depending on his prices and equipment condition.

    In these situations, seller financing is almost as important a factor as price. If he will stretch payments over a 3 year period, that makes life a lot easier on you and you can afford to pay more. If he wants to cash out, I'd discount it considerably.

    good luck.

  10. muddstopper

    muddstopper LawnSite Silver Member
    Posts: 2,342

    I am not familar with what fert and squirt companies net after gross, but I think 1xgross for just about any business is to high. If you pay gross for a business, this means you are already in the hole because not only have you paid the entire next years projected income, up front, but you also have to finance all overhead that first year, which could result in a negitive cash flow. Now if the business has a good profit margin you might pull it off, but remember if you finance it you will have interest charges. If it takes you 10 years to pay the loan off, you have to look at how much money your original investment, plus the interest you paid, would have made if you had chosen some other type of investment.

    Of course you can grow your way out of debt, but that is going to take good marketing and more investments in the business, while at the same time you are maintaining what you have already bought, plus what you already own. If you have the marketing skills to keep growing the company that you bought, you have the marketing skills to grow the business you already have. The rate of return over that same 10 year period will probably be larger if you just grew your own company. $170,000 will buy a lot of equipment and advertising, it doesnt have to be spent all at once, and you wont spend as much of your profits in interest payments.

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