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Considering new business...need encouragement/discouragement

Discussion in 'Starting a Lawn Care Business' started by coywade, Oct 11, 2006.

  1. coywade

    coywade LawnSite Member
    Messages: 25

    I am new to the site, but I think this place is wonderful so far. So I am hoping you pros can help me out. I am 24 years old and have been in the commercial lawn business for 7 years as a property manager for a large 240 acre retreat center in my home town. I have an associates degree in turf grass management. So I feel like I know my way around a lawn SOMEWHAT with that experience and education. I was approached by a great friend of mine, who owns and operates a successful pest control business, about adding a lawn maintenance division to his current business. He is willing to front me $25,000 to get started. I would pay him the loan back over a period of several years with money earned through the business. All he asks beyond loan repayment, is 8-10% of gross annual revenue. I would own, at minimum, half the company(haven't worked that one out yet). He knows nothing about the lawn care business so his ownership in the company from a decision making sense is rather silent. It would strictly be from a sell-out point of view. (How we would divide the money) He sees it as a great way to increase his business through me referring his pest control services. His ultimate goal is to open up a string of businesses such as this to create a full home maintenance network where he would be bringing a portion of all their revenues. I have had countless meetings with top notch businessmen in my area to get their thoughts on this and all seems positive so far from their end. However, none of these guys are involved with lawn maintenance. So I need some feedback from you guys. Please be brutally honest with me because I am looking at taking a huge risk here with a wife coming home from work and baby on the way. I don't want to do anything that would ruin me financially. I need everything from truck/trailer to string trimmers. So any advice on new/used or what kind of equipment would also be greatly appreciated. Thank you SO MUCH for your time and efforts in helping me out with this!!

    HOOLIE LawnSite Gold Member
    Messages: 3,981

    This could work really well, or not so really well (as with many things in life). Best thing before you get married financially to this man would be to get with a good lawyer to make sure the partnership is a true partnership and not just a handshake between two friends.

    It IS enticing if the guy is willing to pony up 25 grand of his own money.

    Just DO NOT ASSUME because this guy is your friend that he is looking out for your best interests...only you can do that.
  3. Thirdpete

    Thirdpete LawnSite Member
    from Chicago
    Messages: 236

    i've read that large companies are around the 8-10% profit margin range anyway. you might want to work it out, 8-10% up to a certain point (like 50,000 or whatever) and then a set dollar amount of the sales are past that... a slider scale of sorts. just an idea.
  4. wski4fun

    wski4fun LawnSite Senior Member
    Messages: 323

    The gross is everything you take in, right? That doesn't sound like a good deal to me. You're doing all the work and he is doing what after he writes the check? Let's say that 25k earns 100k the first year. You expand by spending 25k more. If he does nothing else, then he should not profit off of your future investment. Once you pay off the equipment, who replaces it and pays for repairs. Once it is all payed for then it should be yours. Maybe it is all figured out between the both of you already. Just don't want to see someone take advantage of your hard work. I have been approached about this several times and it always ends up me working in the field while they are in the air conditioning. No thank you.
  5. jbone

    jbone LawnSite Member
    Messages: 125

    this does sound like a great idea and I dont really know all of the specifics but, eventually he will be the only one making out on the deal. Once you pay back that 25k he will still be making 8-10% off of you. Thats somewhat similar to a bank lending you money and telling you you still owe them a certain percentage of income after its paid off. Granted it is similar to paying interest but only to a certain degree. You may as well go to a bank and get that kinda loan if you really wanted to get into the business or start out much smaller with less of a loan. If all he is giving you is $25k and nothing else I wouldnt go for it. You still take all the risk pay the overhead, and have the liability. What happens if the lawncare business fails? Do you still owe him all the cash or does he take that as a loss? I would start on my own and maybe make an agreement between both businesses to refer each other for their services to the customers. I dont want to completely discourage you, and I think you could definitely work something out, but dont think only short term think long term too. Remember this is just my opinion and what "I" would do. hope this helps
  6. huh

    huh LawnSite Senior Member
    from Lubbock
    Messages: 251

    the one thing I would have concerns about is him pulling a % of gross....there could come a time when the business is not showing a profit yet he is still making his % of gross

    also will there be a set salary for you as well...if not him with a % of gross is more of an issue

    the other posters have good points, but there is another way to look at his offer

    1. will you ever be able to start with out his 25K

    2. you need to get a salary....so will it be the same or better than what u make now

    3. what is your future where you are at now....are you 2 years out from a big promotion or are you at a ceiling with no real future advancement

    4. how hard will it be for you to land another job like you have now if the business does not make it

    also put yourself in a different industry....say you are managing a Chilis as the lowest of the 3 managers making say 30K a year and looking at 3-5 years out being the highest manager of your own "store" making say 60K

    one day a guy comes along and says i have a hotel, but I need a restaurant and I have 25K for you to put a restaurant in the hotel, but I want the cash back and 8-10% of gross.....you do the math and say man if things went well I could bank 30K, but if things went really well by year 3-5 I could be banking 100K+...IF THINGS GO WELL......well at that point sure the other guy is still getting his 8-10%, but YOU are WAY AHEAD of the path you were on just being a manager of Chilis

    it is like someone offering you a franchise WITH CASH TO START IT for a higher % than franchises normally take per year

    the question you need to ask yourself is not "will this guy always be making money off of my sweat, but WILL I BE AHEAD IN 3-5 YEARS FROM THE PATH I AM ON NOW".....if the answer points to yes then you need to consider it ....again if you are making 30K now and your future looks like 30-50K and this guy and his cash and your hard work can get you into a much brighter future then so what he is making money too

    and you could also look at it like he could have just told you "i will give you a 20% raise if you come WORK FOR ME" and that is that.....then he makes ALL OF THE ADDITIONAL PROFIT OFF OF YOU.....as it is now with what he is offering you have some control and ability to make as much as you can based on your work....some of the points above were just pointing out the reality of what it is to work for others...after all the people at the "retreat" are making money off of your sweat RIGHT NOW....and probably way more than 8-10%

    my concerns would be about a min salary and a situation with the company showing a loss at some point and him still getting % of gross
  7. Down2EarthLawns

    Down2EarthLawns LawnSite Member
    Messages: 191

    This....as well as paying the loan back! I don't believe in a one-sided risk when it comes to a partnership. But this venture is, and will continue to be, an expansion of the origional company. It is an investment on the current owner's behalf. You did mention that this will be another division for him.

    Personally, I would suggest a minimum salary for the first year. Then I would look into more of a net profit split. Say 70/30 his way. But the key here is NET PROFIT.

    Whatever the both of you agree on, get in writing. Friendships split all the time when it comes to business ventures. You have to protect your house.
  8. Total.Lawn.Care

    Total.Lawn.Care LawnSite Senior Member
    Messages: 840

    I think that if he wants a % of the business revenue, then he needs to consider this as an investment venture of his own and there are several options he (and you) need to consider.

    1. If you pay back the loan, then you bought the business startup from him and he is no longer a partner.

    2. If it is his risk, and want a % of revenues, then no loan payback.

    3. Original plan of paying back the loan, and then taking a % of net Profits, not Gross Revenue.

    4. Pay you a first year salary, then when the business shows a TRUE profit, take 5% of gross sales, with a gauantee that have a take home of $XX as an annual salary, anything extra is your bonus form the business doing well.

    The way you described it, I agree with others, it leans all of the risk on you and none to him. And he is taking money from you on gross reciepts from day one on a new venture with no consideration of profit for you and very little risk for him.

    One other question, who will own the equipment? You, Him, or his pest control business. Too many complications. He is trying to set up a franchinse without having an Established name in the business. Sounds risky....
  9. Prestige-Lawncare

    Prestige-Lawncare LawnSite Senior Member
    Messages: 753

    Read the above post a couple of times, and really think about it. It made me think right off the bat.

    Your friend basically loans you $25,000. which you pay back in full. You didn't mention if there was interest on the money or not, but I am assuming not since he is going to take a cut of the gross profits.

    Unless you are going to be receiving a percentage of the gross profits of his side of the business ... I would say it is not a good idea at all. Once you pay him back ... he has received his initial investment back, along with any interest you may or may not have paid. He also is receiving a percentage of your profits made with the equipment that you now own 100%. That may be fine, for the 1st year maybe ... just a return on his money. But to continue to pay him a percentage of your profits after he has received all of his investment back is not a good idea. It's not like he still has a financial investment in your part of the business.

    Make sure it is all in writing, and approved by your lawyer. Trust me ... money can split families ... so friendship is an easy one to ruin. If he is a true friend, then he wouldn't mind the legal partnership. Blood is blood ... friends are friends ... but money is spelled GREED.

    Good Luck.

  10. PMLAWN

    PMLAWN LawnSite Gold Member
    Messages: 3,534

    I agree with what most said, He plays banker. Gets his money back, and STILL?? owns a percent of the business. You either did a bad job of describing the deal or he did a great job of selling you

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