Buying an existing business

Discussion in 'Business Operations' started by lawnguy224, Feb 20, 2012.

  1. lawnguy224

    lawnguy224 LawnSite Member
    Messages: 94

    Hey all!
    I have to chance to buy another local company but am having a hard time deciding on what I feel the value of the business is. Can anyone who has bought an existing business before chime in and give me your .02
    How did you come up with a value? Any other ideas, suggestions, or comments would be greatly appreciated!!!
  2. Glenn Lawn Care

    Glenn Lawn Care LawnSite Silver Member
    Messages: 2,645

    Doesn't the seller have a price or did he say make me an offer. Its hard to give you a number with an equipment list. Accounts are worth nothing.
    Posted via Mobile Device
  3. lawnguy224

    lawnguy224 LawnSite Member
    Messages: 94

    They have an asking price, I can value the equipment that seems pretty straight forward. Saying that it leaves a large gap in price IMO and how do you put a price on customer list/goodwill etc!?!?
  4. orangemower

    orangemower LawnSite Silver Member
    from pa
    Messages: 2,768

    Customers don't have a value when it comes to selling a company. To an extent they can be of value but the conditions have to be perfect. There's a ton of things to consider. Make sure he signs a pre nump agreement. What's the difference in price? Do you need the equipment? Do you have employees to run all the added equipment?
    Posted via Mobile Device
  5. joemower

    joemower LawnSite Member
    Messages: 217

    I once bought a company for a percentage of the gross that the client list brought in. If I can remember correctly it went something like this. No equipment was involved so nothing was paid there. The list of clients could easily gross $75,000 a year. So I offered to pay 5% of that gross in monthly payments for a year. (Roughly $3,750 or $312.50 per month). I also added the stipulation that I was not obligated to pay for any clients that did not transfer to our service or canceled within a season thus giving us some sort of guarantee. It worked out well and we didn't have to go broke to acquire the new work. Best investment I ever made.

    Be smart about it and make it work for you. Also make sure you can handle the work before you take it on. More is not always better.
  6. lawnguy224

    lawnguy224 LawnSite Member
    Messages: 94

    I was seriously thinking about an offer structered like this. Although the asking price and what I feel the company is worth are very far apart, my banker, accountant and lawyer are all involved.
  7. joemower

    joemower LawnSite Member
    Messages: 217

    Like I said make it work for you. Don't go broke trying to do it. If you are not totally comfortable doing it walk away. There is plenty of work out there for all of us... it just might take some time and effort to get it. You will have other opportunities down the road. I'm currently taking on another CO's (who's getting out of the biz) client list for free. I've also done that a couple times before. Be true to yourself and do quality work and people will notice.
  8. wz2p7j

    wz2p7j LawnSite Member
    Messages: 50

    Lawnguy, I've bought a couple landscape companies and brokered the sale of another.

    First of all what's for sale here? The entire business, including equipment, goodwill, trade names, etc? Or is this a liquidation (i.e. they're selling the equipment and maybe the accounts).

    To value the sale of an entire business you need to consider the physical assets of the business and something called sellers discretionary earnings (SDE). How much money is this guy making? How confident are you of continuing to generate that much cash?

    If it's an on-going business concern, that's why there is a difference between just the equipment and the asking price of the business. I would value the company so:
    1) market value of the physical assets + 1 year SDE OR
    2) 2-2.5 X 1 year SDE
    If there's a big difference between the two, take an average.

    Remember, it sounds like you are trying to buy a company. So intangibles count:
    What is the quality/history of the accounts?
    Are the accounts diversified (no account bigger than, say, 10% of total sales)?
    Does the seller have an assignment clause in his contracts (nice but not necessary)
    Any synergies to be realized, can you co-locate your existing business with the new one?
    And lots more.

    Don't be afraid to ask for seller financing.

    Keep the accountants and lawyers out of it for as long as possible. I had over $5k into a deal one time with lawyers and accountants and it fell thru, d'oh!!

    Is the seller using a broker? A lot of times the broker can provide all the necessary paperwork to convey assets and such, depends on the state.

    Start out with a Letter of Intent (LOI) as the deal firms up, not a full blown Purchase Agreement (PA). An LOI provides the basic agreement between the seller and buyer and is a non-binding agreement. It provides the basis for the PA, which is usually written up by an attorney (or broker). The PA, if written by an attorney, will usually cost $2-5k for a deal this size. Avoid it until this thing is soup.

  9. WildLake

    WildLake LawnSite Senior Member
    Messages: 368

    Accounts are worth 2 cuts. Atleast thats what I hear over and over. I would never pay more than that. Too much can happen and mowing has low margins as it is. Unless you are going to marry the guy, No pre nup:laugh: Do however have him sign a no-compete clause.
  10. Mahoney3223

    Mahoney3223 LawnSite Senior Member
    from midwest
    Messages: 995

    I've bought out two existing companies before. Both equipment and accounts. I paid an average of 4-6 weeks gross plus the equipment. It worked out pretty well for me. Def. better than blowing money on advertising that doesn't work. I had a chance to buy a third company this past year and he wanted 8 weeks and i offered 4. He agreed and then renegged, so I pulled my offer. Accounts are NEVER worth what you the seller thinks they are.

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