Buying a competitor

Discussion in 'Business Operations' started by Ground Master, Mar 8, 2002.

  1. Ground Master

    Ground Master LawnSite Senior Member
    Messages: 505

    I know a local guy who has offered me his business.

    It is one of the top companies in the area, focusing on high end homes.

    $300,000 in sales in 2001, 50% mowing, 50% landscaping
    he claims a net of 100,000.

    he's asking $350,000 (50,000 equipment, 300,000 business, customers, etc.)

    he will stay on for a year to assist in transition......says 4 to 5 employees will stay.

    has no running biz from big garage at his house.....thats not included.

    he will do anything customers need outside of lawn work, replace appliances, pick up newly purchased furniture, etc.

    I think price is high. I don't think many people could duplicate his annual sales considering all the extra type work he does.

    Any thoughts?
  2. Kent Lawns

    Kent Lawns LawnSite Senior Member
    from Midwest
    Messages: 870

    Seems way too high compared to the business sales I've been involved with.

    But making $100,000 net with only $50,000 in equipment sounds appealing. Seems he should be offering classes in how to do that!
  3. LawnLad

    LawnLad LawnSite Senior Member
    Messages: 738

    Needle him on his numbers. You have to do your due diligence to see if his numbers make sense. Have your accountant review them, and then audit/question some of the numbers.

    33% profit is high (but great if real). This must include his own salary.

    What you're not buying is his name/goodwill, systems, etc. The only thing of value are hard assets ($50 K ish) plus the value of his contracts - if they're guaranteed (which they aren't).

    Employee and customer retention is never guaranteed. My recommendation would be to pay a percentage of gross sales from his clients for a period of time, one to three years. If he stays and assits, have a separate consulting agreement from which he will be paid that encourages him to help his customers with the transition. This agreement is very important. If he's convinced his business has value and you can buy that value since his customers will stay with you, he should be willing to wait for some of his money. As in, put your money where your mouth is.

    Buy the equipment separetly if you want it. You may not need it, or only some of it. Buy this at market value since you may choose to buy new elsewhere or used elsewhere. Offer him a package deal to take it all as one package price that would be less than the sum of all put together. He has a selling cost if he sells the equipment on the open market - so let him give you a discount to keep him from having to waste his time.

    Lastly, make sure you have a lawyer draft the purchase agreements, non compete etc. You don't want a deal this large to go south... and you get left holding the bag.

    Good luck!
  4. Commander

    Commander Banned
    Messages: 116

    Grounds Master, I am looking at a similar situation you are in now. However my situation will not be for almost another 2 years. Was talkin with a guy back in January who is 60 now and wants to sell his business in 2 years. Guy works at 52 houses which are each worth MILLIONS. $450,000 net? with only $100,000 coming from mowing. 5 employees including the guy himself. Not bad right? ;) Lookin forward to hearing his price though.
  5. 100% of a years revenue plus the equipment, are you nuts?

    It will take close to 5 years for it to turn a profit.

    Paying for landscape work he does even not have yet is insane.

    Pay him 1 mowing a month after you recieved payment from the customer spead across 3 months.

    You need to look at all his taxes also. Triple check those numbers.
  6. Mowingman

    Mowingman LawnSite Platinum Member
    from Texas
    Messages: 4,721

    The customers are worth almost nothing. They may not stay with you when you take over. Pay for the equipment, then come up with some small amount for customers. Then, base that customer payment on the % of customers that stay with you for 3 or 4 months. If 30% leave you, you reduce his payment by 30%.:)
  7. PAPS

    PAPS LawnSite Senior Member
    Messages: 404

    You'd be OUTTA your mind to buy his business for 350 large... !!!! Like LAWNGODFATHER said... at that INSANE price... it would take you a minimum of 5 turn a profit on his end... Also, love to see specs. to prove that he turns 35% profit from gross... i question that.... Seriously... $350,000 is about $250,000 too much....
  8. John Allin

    John Allin LawnSite Bronze Member
    Messages: 1,488

    Most small business people (and this business you are looking at is a small business) have an incredibly inflated sense of what their business is worth. The posts here are all right on (although some are a bit more blunt than I would be). The fellow wants way too much. Wayyyy to much.

    At the very least, you want to see 3 years Schedule C's to verify the dollars. And, I would also agree that his "profit" includes his salary, or draw, which must come out of the equation.

    There is alot of work to be done in evaluating what you should pay for this business. And, in our industry, "fair market value" of mowing equipment is what it would go for at auction, not on a showroom floor. That lends me to believe that the equipment number put forth is also inflated.

    I've bought numerous local small landscape and snow business, and for the volume you've put forth (including equipment), $50K would be a generous offer (with the limited information put forth here). And, make him finance it, with caveats for loss of customers down the road (like, next month).
  9. John, does that fall in where I keep saying, "Value is only in the eyes of the beholder"?

    Only buy used equipment like this when you know you can turn it fast. Meaning if you had to buy it to make the deal, you need to beable to sell it fast if you don't need it.

    I have bought a few LCO's and made up for buying the accounts off reselling the equipment.

    Remember you are the buyer, you have more control over the sale. You tell him what "you" want to do and how to do it.

    No bank will give a loan for this, so there is not much of a market to purchace Lawn Care Companies.

    Like John and I said in a way, make him finace the deal.

    OBRYANMAINT LawnSite Senior Member
    Messages: 555

    i alao see that net amount being skewed some way ....

    I know i have over 50 k in equipment and i dont gross that much.......I know thats not a good comparison....but still

    dont be in a rush !

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