Buying existing businesses

Discussion in 'Business Operations' started by DLONGLANDSCAPING, Jan 7, 2011.


    DLONGLANDSCAPING LawnSite Bronze Member
    Messages: 1,418

    I have had the urge to by many business in the past but money and time to fit in another route have been limited. Now that i have everything organized for next season. I am looking into spending some money and expanding my clientel list. I found two companys getting out of the industry to go on a different venture. I need some advice before i make any rash desisions. I have the work force and the equipment to mow around 300 lawns POTENCIALLY per week.

    One is around 2 miles from me and the other 6 miles from me.

    1st one (2 miles from me) Has been in business for over 11 years. A former Ford employee who is 56 is selling to retire. He has 95 accounts with 3100 weekly revenue. Most of the accounts are under contract for 2011 season with snow being directly enforced if i buy within the season. All customers have snow pre paid for. Equipment selling is:

    05 f250 4x4 single cab 57k with 2010 blizzard plow
    1999 wellscargo 14x7
    07 60" Dixie chopper
    02 exmark 48" hydro
    2- 08 redmax 7001's
    08 stick edger
    09 tanaka edger t-600
    stihl bush trimmer
    3-09 redmax weekwackers
    fertilizing spreader
    misc hand tools

    He wants 73,000 for everything. Or 30k for accounts and 43k for equipment

    2nd guy:
    Is looking to go in the trucking business, willing to sign non-compete for 25 years, has all clients signed for 2011 with snow in progress as well

    48 accounts @ 1300 weekly revenue

    1999 F250 4x4 single cab with 2006 Boss plow 180k
    2003 Roadmaster enclosed trailer 20/8'
    Open trailer 12/6' with sides and optional enclosure (for debris)
    1998 60" Exmark walk behind mower with Trac Vac
    2008 Billy Goat leaf loader
    Exmark 60" rider
    2008 Redmax 8000 blower
    2009 Redmax 8000 blower
    2008 Redmax stick edger
    Stihl bush trimmer
    Stihl weedwackers with extension for bush trimming
    (2) Redmax weedwackers
    Fertilizing spreader

    Asking 37k for everything. 20k for accounts and 17 for equipment

    My take on it, is i am personally not really wanting to buy any of the equipment except for the 09 and above and maybe the f250 with blizzard plow. And maybe the lazer. I just dont want beat up equipment. I have seen the first guys fleet and all the paper work from irs and everything. I havent seen anything except pics from second guy and we met and he showed me the signed contracts.

    What i am thinking is to buy both client lists. So 50k, i'll offer 20k for the 95 accounts and 10k for the 48 accounts. With both i am going to say that the money will be half in escrow and half upfront and see if they bite.

    I am also wondering from you guys what the going rate per customer is on a business buyout. I was thinking anywhere from 75-150 is a good range, but both guys want 200-450 per account.

    In my classes i was taught that a business is bought with the 3 year projection ratio. So if the company revenues 1st year 50k, company growth is 10% per year average projected.

    1st year 50k
    2nd year 55k
    3rd year 60,500

    So overall purchase price would be 165k

    Let me know what you guys think, whether it is worth it or not.

  2. lawnkingforever

    lawnkingforever LawnSite Bronze Member
    Messages: 1,280

    I am not to big on buying accounts. But it sounds like you have a plan in place to do it. I have bought and sold a few accunts here and there, nothing on the scale you are doing. I would only pay 4X weekly or 1X monthly revenue. That is all they are worth to me, since I can pick up business pretty easily in my area. But if getting new business is tough where you live or you want to grow quickly then it might be worth paying more. The second option seems more resonable, but 1300$ wkly. for 48 lawns only averages out to only 27$ a customer. I would rather buy 30 accounts that average 1300$ a week. Because of that reason, I would never pay 20K for them. Offer him 5K and move on.
    The 1st option is a little better because the accounts average out a little higher. I would offer him 15K. To me, you have the hammer in these negotiations. There is a very small segment of people that would be willing to buy these accounts. And out of these willing people, there is even a smaller % that have the money to actually do it.
  3. Jpocket

    Jpocket LawnSite Silver Member
    Messages: 2,282

    They aren't worth anything unless you go arond with these guys and talk with the customers, and they agree to use you. Equipment will always have a bit of value, but to put a price on someone who could fire you tomorrow is very risky. say you paid $165K for all of them and only a handful stuck with you. Your in for a world of hurt.
  4. CircleC

    CircleC LawnSite Senior Member
    from NW
    Messages: 309

    You have a few good options there....I have purchased accounts in the past and it has worked out really well. I personally think Option 1 is priced fairly high and Option 2 doesnt seem to pay very well. As far as equipment are taking risk and you can always put a fair value and sell after the transaction if you dont need. I have payed 2 months revenue for maintenance accoutns...doesnt seem right to pay for more.

    Have a cpa poor through the books and set a value on the company, you and seller come to an agreement on equipment. Half up front rest payed out over the year. It has to be fair and on even terms....if not walk away. That is a lot of money to spend on a crap shoot...good luck!
  5. Champion-Lawn

    Champion-Lawn LawnSite Member
    Messages: 74

    Lawn care businesses are worth roughly 42% EBITDA, Earnings Before Interest, Taxes, Depreciation and Amortization. You can talk to a franchise broker to get exact figures. Everyone has pointed you in the right direction. Equipment has about the value that you would pay for it at an auction with nobody else bidding, not worth buying used equipment in my humble opinion, big lack of previous maintenance risk.

    I would ask to look at 10% - 20% of the portfolios and what the current charges are, and go estimate them yourself, because it looks like these could be losing accounts from the very start, if someone is maintaining a property for $30 a visit but it cost you $40 a visit, its not worth you buying any accounts.

    Consider that even if you visit all the new customers with the owner, you will still lose about 20-30% of the clients the very first year for one reason or another, either you find they are unreasonable and you fire them, they fire you, you raise the price, etc... The ones that stick after that first year, will often times be good customers for you.

    You can always ad value to potential future customers by doing marketing to them and up selling them on landscaping, fert, and snow removal etc... but thats added cost you need to consider on top of what you are paying for the account.

    Meeting customers with the current owner is very important if you hope to maintain good client relationships over time. Lawncare business owners are often times very jaded to what their business is ACTUALLY worth, 9x outta 10 they are not business owners, they are self employed owner operators. So they are NOT selling a business, they are for all technical purposes your new sales guy that deserves to get a % from the business and relationships he is bringing you.

    Often times these lawncare providers are not doing you any favors by selling you their portfolio, all to often they getting out of the business because they are losing their ass, customers arent happy, and you are going to get rid of their head aches.

    A comfortable price that is fair for lawncare accounts THAT ARE ACTUALLY PROFITABLE TO YOUR COMPANY is 20-30% of the contracts gross annual sales (one year). Fertilization accounts will fetch more, often fertilization accounts will bring 90-120% of one years gross sales. All to often you hear guys saying 1x earnings but know that if a business does $1,000,000 in gross sales annually, but cost $1,100,000 to operate its losing money hand over fist, and it's certainly not worth 1x earnings.
  6. juststartin

    juststartin LawnSite Senior Member
    Messages: 341

    I think you about spot on. I would say 15-30% of gross depending on how profitable they are.

    A good question to ask is, "what do you charge per man hour?" Some people have no idea! and that can be scary.

    I don't know where these people come up with their equipment values, because the first guy's equipment is worth 22k max and if it is a package deal it should be lower than that. The second guy equipment is worth even less maybe 15k.

    If I were the buyer I would make an offer on both. Screw that junky assortment of equipment. I am sure you prob have a single brand you like for streamlining parts, dealers, etc. I would offer the first guy 10k and the second guy 5k. And tell them both of them you are looking at two different businesses. Also tell them you will lose 30% of the clientel in the first year. Pretty much a guaranteed fact.

    When they tell you that they have no PITA clients and no slow payers, call him out. Because that is bulls hit.

    It also helps to remind them that this is the worst economy in 50 years.

    If the accounts are really profitable I might would do more, but most of the time I just give them my top dollar(even offer to pay cash if that helps them). Most of the time they refuse at first and then come back, because most people in this business are broke and have no money to buy accounts.
  7. lawntennis

    lawntennis LawnSite Senior Member
    Messages: 425

    I am not a maintenance guy so I don't know the value but I have bought two businesses in the past 5 years. In both cases I had agreements set so I could still operate using the previous owners name. I set them up as dba's (doing business as) undr my corporation. Ther was no announcement of ownership change. I never lied to the people about the ownership but I really didn't want them to think anything was different. In both cases I retained almost all of the clientele. Both involved large amounts of money so bank loans were needed both times. I really looked at cash flow. Could the new business meet the demands of the loan with some extra for profit. I really don't know what percentage profit you make on gross. Look at what you think you can NET out of the business and see if it makes sense to you. Good Luck. It's exciting, isn't it.
  8. guyinmichigan

    guyinmichigan LawnSite Member
    Messages: 16

    I'm out of the buying customers game.

    So you are considering spending $40,000 for accounts. Do you know if you spent $40,000 in marketing and advertising what you would get.... more then you can handle.

    I spent about $8,000 in advertising a couple years ago and got about 70 lawn customers. Then I see an ad for a small guy going out of business with 20 customers and he wanted $7,000.

    Your better option is to take any money you were going to spend on aquiring and put it towards marketing and advertising.... #1 you will get more customers (if spent correctly) and #2. they are your customers from the beginning. They don't just get you after being sold from their original guy (not as much loyalty).

    I will never buy another account unless it's for cheap.
  9. tradeyouraccounts

    tradeyouraccounts Banned
    Messages: 343

    This maybe some interesting reading Accounts are worth paying for?
    If there are offered at the right price then they are worth paying for, its all about the price and quality of the route.
  10. DieselLandscaping

    DieselLandscaping LawnSite Member
    Messages: 86

    The only way you can do it and be safe is talk to every customer and a non compete. You will loose at least 20% of the lawns if the same guy has been doing them for 5+ years. Ive taken over 2 businesses... The first i used better equiptment and bagged everything, but they just didnt like what we were doing and missed the previous guy(usually older people). the 2nd company same story, but i also ran into customers that had enever been charged for leaf clean-up and things like that. When they got the bill we had words and needless to say..... Just figure on that.
    Also you have to make payroll and insurances, Dont take on more than you can handle! As soon as your quality goes down people call someone else. Its easy for you or I to do the work, but its had to find good help that will show up, report any problems, and keep your name clear. I know people that cut 300 lawns that wish they never got that big. They spend most of their time correcting problems or worrying about how they are going to make this weeks payroll. A few late payments when your small doesnt hurt too bad. When youve got 12-15k/month just to cover your expenses, late payments can sink you fast.

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