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Buying an existing company

Discussion in 'Starting a Lawn Care Business' started by Kojak, Apr 25, 2003.

  1. Kojak

    Kojak LawnSite Member
    Messages: 4

    I am a cat skinner by trade, which has me working road construction in the summer and oilfield work in the winter. The last couple of winters have been horrible, and left me on poggy and frustrated looking for work. I started looking into doing snow removal in the winter (which if successful I would build into a year round business) when an opportunity came up to buy an existing landscaping company in a town 30 miles away. The company has a 15 year history, and with no professional competition, is in the position where it turns away business. There is no professional landscaping service in this town, and only two others in 50 miles, all are as busy as they can be without expanding. I have two questions I would like some help with.

    1 - I feel that I can move the business to my town in five years, by building a new client base, and slowly dropping the existing clients without burning any bridges. Is this realistic? Should I look at a longer time frame? Will I kill myself trying to make this work?

    2 - I have a fair idea of the value of the company name, existing supplier relationships any equipment and vehicles, but I'm not sure how to come up with a value for the existing client base. Since most of you are from the states I would appreciate if value could be expressed as a percentage, since our dollar is going the way of the peso and ruble.

  2. Kojak

    Kojak LawnSite Member
    Messages: 4

    Need help!

    After looking through many of these posts, I realize that there is some resentment to helping out competition, but this is not a situation where competition would be created. This is a Hundred Thousand dollar decision for me, and is not something I will reach lightly. I am looking for information to aid me in making this decision. If you can't help me out with that, perhaps suggesting where I can find the information would also be appreciated.

  3. Clay

    Clay LawnSite Member
    Messages: 236


    This service type business does not command a high resale value like a brick and mortar retail establishment... The industry usually will price a maintenance company somewhere between 3-4 months gross plus equipment value....

    But, it depends on the quality of the business.... I have built and sold 8 maintenance companies with a selling price of 6 months gross plus equipment value... I've seen a wide range of pricing, but that formula (for a quality business) seems to be a decent price for both buyer and seller... seller offering a guarantee that the customers will give you a try (30 day), training, support, and a non compete clause....

    Good Luck, Clay
  4. sirsweatsalot

    sirsweatsalot LawnSite Senior Member
    from MN
    Messages: 296

    well clay made good points but what is typical for buying another company in the green industry is fair equipment price and just one month of there total earnings. 3 to 4 mouths is a lot more money. i would think about starting your own biz and competeing with the present company in the hopes that they might not sell and you would get all the biz they have with out buying them out. but you know the whole scoop so im not telling you to do that just my thoughts.
  5. Clay

    Clay LawnSite Member
    Messages: 236

    I'm sorry, but that statement is simply incorrect... The business brokers typically ask (and get) between 25 - 50% of the annual gross for what I called a "quality" business... If it's a quality business (accounts priced properly) making money then it should be worth at least 25% (and I would hate to have to sell for that), but if it is not quality, it is not worth anything....

    Don't want to start a debate or offend, but as stated, this is an area I have a great deal of personal experience... :)

  6. Kojak

    Kojak LawnSite Member
    Messages: 4

    Thanks Clay. He's asking for about 50% and I was looking to offer about 35%. I'll be looking at his books for the last five years this week, so I'll have a better idea of what that is. I appreciate the clauses you suggested, my Lawyer would probably have suggested them, but you never know. Anything else along those lines would be appreciated. As for my other question regarding moving the business, do you have any thoughts? Working long hours doesn't bother me, but no matter how good you are at scheduling, 30 miles between client bases must cause problems, as well as extra costs of fuel and maintenance by moving the equipment.

  7. Andrew S

    Andrew S LawnSite Member
    Messages: 150

    I have no idea on how the lcos work in your neck of the woods but I am going to answer a question by asking one!

    Is there any reason that as you grow customers in your home town you hire an employee or 2?

    Or once you have grown customers in both towns as I assume you will continue to pick up work where you have bought your original customers can you sell one town of customers



    ps:here lcos ask for at least 50% of the yearly cut when selling
  8. Kojak

    Kojak LawnSite Member
    Messages: 4

    I'm not really interested in keeping the second town, or selling those customrers at this point. As for hiring people, that is an option, but I would still need to get equipment for them to use, and do not wish to go into further dept.

    This has been operated as a one man operation, whith some summer help, that is how I'd like to keep operating it. As stated in my original post I would like to move it to the town where I live in five years. If this is not reasonable I need to know. I'm prepared to walk away from a deal that does not work in my favour. This is not something I need. Moving my home base is something I do not want to do, and not something that I am willing to sacrifice for this oppertunity.

  9. Green in Idaho

    Green in Idaho LawnSite Senior Member
    from Idaho
    Messages: 833

    While I understand the industry trend is usually 3-6 months of gross revenue, I'ld like to offer an alternative.

    IF I as an investor had a chance to buy a company that grossed $500K and netted $50K AND I knew I had a reasonable expectation that the business would stay together and continue to operate that way, AND I expected I could get at least my $500K BACK later by selling it again-- then YES I would buy that company (LCO or otherwise) for $500K (annual gross).

    I could golf 24/7/365 and still make 10% on my money as an investor in lawn companies.

    Do I invest $500K in a stock with 5% dividends or do I buy a landscape company with 10% annual return.
    From that perspective is seems easy! And it justifies a sales price of 1 year's gross revenue. Adjust the net profit up to 20% or down to 5% and the price would change according to my required rate of return for ME and my investment dollars.

    So if that's an investors perspective, why would it not work for someone who wants to buy and work in the business?

    Bottom line: I think 6 months gross on a quality operation is NOT enough.

  10. bruces

    bruces LawnSite Senior Member
    Messages: 648

    From my perspective, I would buy the business (if it works economically), and start building up the business in the town wher you live. Try to schedule all of the customers in your town on the same day or days. That way, you can work in your town certain days and the other town certain days.

    If the 30 mile distance is only a 30 minute drive, I wouldn't be opposed to living in one town and working in the other for a while.

    After you have built up clients in your town, you can determine if you want to drop the original customers, add help so you can accommodate both, or sell the original customers.

    You say you aren't really interested in selling the customers, but why wouldn't you?

    It would recoup some or all of your original investment.

    My thoughts, for what they are worth.

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