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Value of irrigation company

Discussion in 'Irrigation' started by DGI, Apr 13, 2005.

  1. DGI

    DGI LawnSite Member
    from SE Mich
    Posts: 173

    I've been in discussions with my partner regarding the purchase of an irrigation company in a different market. It is very preliminary at this point. My question essentially boils down to how much a company's market share and more importantly their service database is actually worth. I understand how to value everything else, but I'm not sure what an average market price would be for this. I know that the range could be huge, but I'm just looking for some ideas.
  2. bicmudpuppy

    bicmudpuppy LawnSite Silver Member
    Posts: 2,781

    Are they primarily an install company? or is the "meat" of their buisness service? How long have their service techs been with them? and can you keep those employees when you acquire? Do they have no compete clauses with ALL their employees? In service, a company has "acounts", service techs have customers. The last company I worked for didn't seem to understand that when they went to calculate my percentages for my payroll. The GM kept "forgetting" to tag invoices that I completed for accounting to pay me my share. When I split I took a core of customers with me. I didn't even ask them to follow. I got out and legged every neighbor hood I wanted w/ flyers and my customers found me! A good irrigation company will have one or two techs like that as well. If they don't stay on board....the value of that company is almost zero for intangible assets. On the flip side, if you can keep them the first two seasons, those customers are your for LIFE and that's a real hard item to value. I consider every new customer I acquire to be $100 for the rest of my life (unless my son bails and doesn't take over :rolleyes: ) Just my thoughts. One of the other companies here in this are sold his chemical application department. Tru-green jumped to buy the contracts and he made a real nice sum on the transaction. His applicator had 50+% of the contracts under his own name within two years.
  3. It is a tough question..one I have asked myself many times. I think in an area that needs to have their systems winterized, the value is higher. My company in Arizona isn't worth as much due to the fact that my customers may only call once every 2 or 3 years as opposed to my Colorado market that most customers will need you at least once per year for winterizing at 55-75 a pop.

    That being said, in a winterizing service area, my guess is that client bases are worth at least 40 per client. Then whatever other business assets there are are worth what they are worth on the open market.

    But....if I were buying, I would offer less, if I were selling I would ask for more. A business is only worth what someone will pay for it.

    What arrangement did you have as for percentages? In Arizona I have a subcontractor that gets 50% of the labor he bills and 50% of the parts profit he bills. He provides his truck/gas/tools/ and he purchases his own parts inventory.
    Was yours similiar to this?
  4. bicmudpuppy

    bicmudpuppy LawnSite Silver Member
    Posts: 2,781

    We agreed to a flat 30% of all billable tickets that I personally completed or supervised. I made sure the parts were priced appropriatetly (min. 2.5x markup) There capital and truck. All waranty work was done at a flat $13/hour. My last spring with them, I did all the spring turn ons, backflow testing, and repairs for 600+ systems. Sure wish I had managed to take more than the 25 or so that I put on the books during year one.

    I had completely given up on the green industry prior to working for this outfit. My last 3 employers had breached in one fashion or the other. Either unethical (IMO) practices, or that speach you get when your the highest paid employee they have right after you winterize the last system "you've done a great job, and I'm real sorry we can't afford to keep paying you what you've been making up to this point all winter........"
    I had spent over a year on a swing shift working with a corrugator crew at a box company! I'm sitting around on my thumbs every other week as the kids go to school and the wife is off to work waiting for 3pm to roll around to work second shift. I tell myself I ought to find a part time job. And I do. Before the second week is over, they are begging me to sign on full time. I told them 3 times they couldn't afford it. Except, I was acomplishing more in 25 hours than the other two guys were getting done together in 40. So they offered me the 30% and moved one of the other two to landscape and one got "helped" out the door. At the end of the second season.....the numbers stoped adding up without me throwing a fit every 5 or 6 weeks to get the numbers right. My last fit was about 9grand MY money and after seperation, I got six of them.
    Wierd, over four years later, they are still making money on what I did because I fixed all the errors that people who don't really understand irrigation make in pricing materials, etc. and I'm still broke. But things are getting better. I net a new "wondered what happened to you, glad to have you back" all the time.

    FWIW any of you who read this far, if your using suggested list and think your making money, your killing yourself. A large percentage of repair materials are parts and even if you normally buy at 60% of list, your only getting 10-25% off of list for parts.
  5. Interesting...they paid you to do warranty work eh? Was that warranty work on installs they had done? Or callbacks for things you may have missed on a repair call?
    I make my subs return to their repair calls on their own dime..if they can't bill for it, they don't get paid.

    I think it is important to make the situation work as well for my subs as it works for me...or close to it. If they are doing well, they will look for another situation and that doesn't help me. One of my subs is from Kansas...he is the most honest man I have ever met...and his work ethic is amazing. There is some truth to the fact that people from the midwest are grown up right!
  6. bicmudpuppy

    bicmudpuppy LawnSite Silver Member
    Posts: 2,781

    Warranty work I was paid for was for their instal crews mistakes. I've never charged anyone for a call back that was my fault. Be it a customer or an employer, If I screw up its on my nickel. That's why it doesn't happen very often :D
  7. DGI

    DGI LawnSite Member
    from SE Mich
    Posts: 173

    It has to be some sort of a function of gross profit. I'm thinking about 30-35% of it over a period of three years.

    We've been so busy that I completely forgot about this. Thanks for your responses, everyone.

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