Discussion in 'Business Operations' started by wbw, Nov 7, 2010.

  1. wbw

    wbw LawnSite Fanatic
    Messages: 6,080

    Help me to understand. Everytime the issue of buying or selling accounts comes up the value is often placed at 2 weeks to 1 month of revenues. Why would you spend a lifetime building a business that isn't worth anything? How are you going to fund your retirements?

    I am not bashing, I am truly curious as to why you would work so hard and invest so much into something that you don't seem to place any value on.

    OK let me have it.
  2. White Gardens

    White Gardens LawnSite Fanatic
    Messages: 6,776

    It's all about the equity in your business and your contracts are only a part of it.

    So, say you get bigger. You build a shop, you buy more trucks, you buy more equipment, and you take on more and more accounts to build that part.

    In the end, hopefully you'll have something to sell.

    If you stay small. Then you need to be as profitable as possible, and save as much of your profit as possible and invest it for retirement. Either in cash, 401Ks, or if you have a large chunk to play with, buy a rental property or some other property that will build value.
  3. wbw

    wbw LawnSite Fanatic
    Messages: 6,080

    With the exception of the shop everything else depreciates.
  4. TheGoat

    TheGoat LawnSite Senior Member
    Messages: 273

    Equipment wise, yes.
    but there is lots more that goes into a business than that.
    Management structure, Contract content, name recognition, Written policies and procedures, staff that (hopefully) works well together, and last but most importantly, you have done the work of bringing all these things together to function in a profitable manner.

    I glanced in a small biz mag yesterday and it had a list of franchises and their costs,

    I don't remember the costs specifically, but for lawn service franchises it was ~$50-$65k with a 5%-10% yearly franchise fee.

    I also don't know what that initial cost buys you, but U.S. Lawns was on the list of the three of them.

    At the end of the day, if you try and sell, if you HAVE to sell, you are getting less than you could.

    I don't understand why you guys are selling anyway, My goal is to own a business, not a job. I want someone else minding the shop by the time I hit my retirement years.
  5. wbw

    wbw LawnSite Fanatic
    Messages: 6,080

    The entire point of my post is how little value your peers seem to place on their business and how short sighted that is.
  6. GrayM

    GrayM LawnSite Member
    Messages: 84

    You're talking about the value of the accounts themselves. If you sell the accounts to somebody they still have to acquire their own equipment, hire their own employees, create their own systems/processes, create their own brand image/name recognition etc. If you sell your accounts the person who buys them still has to do everything you did to start your business. They're going to look at the cost of buying your accounts vs. the cost of acquiring the accounts on their own, and if it costs much more to buy the accounts they're going to find costumers themselves.

    On the other hand, if you build a decent sized business that is profitable and runs smoothly you'll get a lot more for it then 1 or 2 months worth of revenue. They're not just buying your accounts, and assets. They are buying your name, trained employees, and a proven business system, which is worth a lot more than your assets and accounts.

    You can bet that Brickman could not be touched for their assets+two months of revenue. Of course that's an extreme example, but it applies to smaller businesses too. If you build your business to the point where you, as an owner, aren't actually doing any of the dirty work, but instead managing the business you will have something that is worth selling. If you only have one crew and you serve as crew leader/office manager than you probably wont get as much for your business (based on % of revenue)
  7. Roger

    Roger LawnSite Fanatic
    Messages: 5,941

    The OP makes a good observation in that the value of the grass cutting business (or other similar menial, non-skilled tasks, bush trimming, mulching, etc) isn't worth much. Yes, these businesses don't have much value, because there is nothing to sell, excepting equipment (and that depreciates, as pointed out above).

    This should not be a surprise to anybody here. It is the nature of the business itself. The initial capital to get started is relatively low (compared to most other business ventures), the work requires no special training, no special skills, and is often seasonal. There is no value in "know-how." There is no value of the customer base because there are ten other similar businesses waiting on the side to step in and do the same job. There is nothing unique about what you have to offer to the marketplace.

    If you wish to build a business that has value at the end to sell (for retirement, as the OP suggests), you need a business unlike grass cutting (and the other similar tasks mentioned above). You need something that is more than menial labor to provide the service, and something that is unique. You need something that puts you in a leveraged position. Grass cutting is not it!
  8. GrayM

    GrayM LawnSite Member
    Messages: 84

    So, you're saying that if a person builds a business that generates $1 million+ in revenue a year that persons business name, trained employees (and yes even if it's an unskilled job you still need to train your employees in the way you operate), and processes are worth nothing? It might be cutting grass, but a $1 million dollar business doesn't just happen.

    Now, if you're talking about the solo operator I'm not arguing.
  9. White Gardens

    White Gardens LawnSite Fanatic
    Messages: 6,776

    True, but part of the value of a biz when analyzed is the equipment involved in the sale.

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