Business buyout value

Discussion in 'Lawn Mowing' started by Ajays, May 23, 2003.

  1. Ajays

    Ajays LawnSite Member
    Messages: 133

    This is a very important question. I really need solid answers. I am interested in buying out my business partner. I need to know what is the value of our client base. We have no commercial clients and no contracts. We have approx. 60 residential clients that generate approx. $70,000/year before expenses and approx. $46,000/year after expenses. What is the value of this client base. Any help would be greatly appreciated.
  2. bob

    bob LawnSite Platinum Member
    from DE
    Messages: 4,260

    When I bought a bunch of commercial accounts, we agreed that 7 weeks worth of income was a fair price. Do a search on this topic.
  3. nelbuts

    nelbuts LawnSite Bronze Member
    from SW, FL
    Messages: 1,053

    If he is/ was your partner in every sense of the word (equal money, sweat equity, etc.) then fairly he deserves one half of the $46K. Now if he is a real Ahole then try as cheap as you can.
  4. hboyd_com

    hboyd_com LawnSite Member
    from PA
    Messages: 150

    No matter what kind of a partner his.... A-hole or not, he deserves 50% of the value of the business. What are assets of the business as well as the potential income. In cases like this it is usually a give and take process.... and get a no-compete agreement with him for as long as you can so that he doesn't take your customers.... at least not right away.
  5. Ajays

    Ajays LawnSite Member
    Messages: 133

    The value of the assets is the easy part to figure out. I know the value of the assets, the business debt, ect... but what I need to know is the value of the client base. None of the clients are guaranteed or have contracts and I think I could rebuild the client base from 0 in less than a year.

    Example: is it worth 15% of what it generates in a year? more?

    In my opinion, the maximum value of the client base is 50% of what it generates after expenses in one year. Then that is divided in half because half the client base is mine.... which leaves a maximum buyout value of 25% of the yearly income or in this case $11,500
  6. roscioli

    roscioli LawnSite Senior Member
    Messages: 749

    Without contracts (and in some ways, with contracts) the value of a client is about $0. Not actually 0, but damn close to it, because there is no way of gauranteeing their continued income.
    For fairness, why not try this? Add up your advertising expenses in the past, and give him some % of that (could be 100%, but i would try for less of course). In reality, each customer is only worth what it costs to replace them, which equals your advertising expense divided by the number of customers you gained from that advertising. In this case, you dont have to divide, because you are using the figure from all of your customers.
  7. Ajays

    Ajays LawnSite Member
    Messages: 133

    In the past 4 years of business, only about $1000 has been spent on advertising. I really don't think that a % of that amount is a fair price for the client base.

    Our client base is pretty strong with 90% of our clients using our service for at least 2 years.
  8. nelbuts

    nelbuts LawnSite Bronze Member
    from SW, FL
    Messages: 1,053

    Now what I mean is this. Did the partner put in the time, the money the effort? Or, did he let the other partner do all the work and collect his share. If the latter is true then he does not deserve 50% period. Legally he may have every right unless a written agreement states otherwise. However, if not then let your morals guide you in your decision.
  9. Ajays

    Ajays LawnSite Member
    Messages: 133

    I am now the sole owner and operator of Ajays lawn care. I guess its time to change the name. I am also now working solo and its going to take some getting used to.
  10. Richard Martin

    Richard Martin LawnSite Fanatic
    Messages: 14,698

    So, what did you give your former partner?

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