Have you ever bought another maintenance business?

Discussion in 'Business Operations' started by New Leaf Maint, Jan 29, 2011.

  1. DLC0806

    DLC0806 LawnSite Member
    Male, from Pittsburgh, PA
    Messages: 47

    expanding your business in your own area yourself! until its big enough to
    have someone run it for you!


    buy out well known companies in other cities!
    of course no fly by night operation, but buy a company
    that has labor, and managers in place!

    Thats a free tip for everyone! :)

    I charge a $1 a question!
  2. Brodie

    Brodie LawnSite Member
    Messages: 122

    You mentioned in your first post that the sales price is around the 130-160k mark.

    What you need to look at is what do you actually get for that money. Sure you get clients and equipment but what else.

    Do you get his yard to keep all the new equipment or do you need to find additional storage space either at you current yard or hire or buy a new yard?

    Will you have to hire someone to manage the phones and office to cope with additional clients that you get from him?

    Are his staff going to be coming over to you once the business is sold or will you have to re-staff?

    Are the clients he currently has quality clients that are worth keeping and are they likely to stay with your service if you were to raise the price?

    Just a few of the things that I would be thinking about if I was buying. Hope this helps a bit.
  3. tradeyouraccounts

    tradeyouraccounts Banned
    Messages: 343

  4. mdvaden

    mdvaden LawnSite Bronze Member
    Messages: 1,946

    I have not bought or sold, but a friend sold a small maintenance company about 16 years ago. Mostly lawn mowing accounts.

    He told me later, that the guy who bought it, lost about 80% of the customers in a few years.

    But nothing was shared about the buyer. Knowing my friend though, he would not have sold the company to the first person who came along. So my guess is that the buyer was pretty decent as a people-person and with basic lawn care needs.
  5. New Leaf Maint

    New Leaf Maint LawnSite Member
    Messages: 35

    Thanks for all the thoughts guys. Keep it coming. My main concern is the fact that customers will leave. Even in my own business it seems that I get about 10% of my customers that don't return the next year. With the equipment being about 40K that leaves about 95K to pay for the rest of his business ie. current clients, past client list, his employees who will probably make the move over, a known company name which at some point I will probably change to mine anyway and him working for the company for a month or two during the transition.

    Most people on here who buy contracts say there worth 3-4 mows etc. The price of 95k is much more then that. However based on his net on P & L statements the net profit will pay the loan off over a period of 5 years and I should make about 10-20k on top of that each year. However clients will leave but isn't my job to get more clients and won't more trucks and people out there help with that.

    Yes I could grow to that size myself but if the deal pays for itself why not do it? And then on top of that still keep the company growing. What do you think?
  6. mdvaden

    mdvaden LawnSite Bronze Member
    Messages: 1,946

    Was just looking at your user name.

    New Leaf Landscape was the first name I ever registered and used like 1980. But I went to work for golf courses and chose to switch names in 1980 when I started business permanently.

    Like the name though.
  7. snomaha

    snomaha LawnSite Bronze Member
    from midwest
    Messages: 1,269

    Will you be paying yourself a fair market wage?

    Are you figuring pre-tax profits or after tax profits on the note pay back over 5 years? (Hint - you pay back debt with after tax profits)

    Is the existing company going to hold any portion of the note and will they prorate the price based on attrition the first year?

    Will the current owner sign a long term non compete/non solicit for the customer list? Are his employees bound by a non compete/non solicit?

    It sounds like mowing contracts? How long are the contracts for? Bankers love long term contacts attached to reoccurring revenue.

    Is the equipment something you need?

    My experience in buying companies has been that i would like a ROI in 2-5 years based on projected after tax profit. Would always want the seller to have some skin in the game by holding the greatest % of the note. Lots of others Questions but these are what I would start with.
  8. CLS LLC

    CLS LLC LawnSite Senior Member
    Messages: 487

    I think in this industry until a company has at least 2 crews and a manager with $500,000 in sales it has very little value. Short of that you're essentially just buying a list of pre-qualified sales leads and some equipment.

    If I were the property manager at a commercial property and my contractor sent me a letter saying that they are selling their company to "New Leaf Maintenance" I would take that as a sign that it is the perfect time to take bids for the upcoming season. The way I see it, I'm getting a new contractor either way I may as well check prices while I'm at it.

    I know it can be tempting but I think $95,000 for a list of sales leads is just too much. Any signed contracts he has will probably be with signed with his company so unless you take his companies name and keep the company as an existing entity (which I don't think is your plan) the contract will technically be void when you take possession.

    I realize the numbers may work out. But that's assuming 100% retention for 5 years, which is highly unlikely. I honestly think you are better off using that $95,000 over the next five years for marketing. I think $19,000 a year in marketing will bring you in a heck of a lot of customers.

    That's my opinion, take it or leave it.
  9. New Leaf Maint

    New Leaf Maint LawnSite Member
    Messages: 35

    I hadn't thought about some of those factors like pre-tax and after tax. I'm hoping to be able to use depreciation to eliminate most profit and reduce most tax but I'll have to take a look at that. Also I guess his employees might not have an anti compete so that might be something I should require in the contract if I do the deal.

    If I do the deal I will require a non compete from him for at least 5 years. I guess I can ask to see if hes willing to hold a note on it. I thought that it might also be good to hold some $ in escrow until the end of the season that he doesn't get if say 10% or more of the clients walk. I think that some of his clients contracts are up at the end of this season and others have been up for a while and he just continues to service them. No long term contracts though.

    I don't need all of his equipment as he is equipment heavy but hopefully some time in the near future I will.

    When you said that you would like a ROI in 2-5 years based on projected after tax profit does that include paying yourself a wage for the increase work you yourself will need to do? Or do you make the profit when the note is paid off?

    Thanks for the thoughts
  10. davidal23

    davidal23 LawnSite Member
    Male, from westchester, ny
    Messages: 7

    You may want have a lawyer draft out a guarantee clients retention plan with a deadline date of contract submission by clients. Work out the buyer price with a client percentage ratio, thus safeguarding yourself should a client withdraws his contract before the deadline date you subtract the percentage price from the principal. Also have your lawyer put a quote in contract that if a client doesn't use your service for a certain period(6-8 consecutive months from signing the contract) then another percentage rate should be deducted.

    Good luck!!

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