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Discussion in 'Business Operations' started by ajreeves, Aug 18, 2014.
The only ship that won't float is a partnership. Don't do it!
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I don't do my accounting by trimesters, it was just the easiest way for me to present it given the current time of year. we are 2/3 the way through it
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How I am doing mine. Equipment plus 15% gross sales. When time to sell time to sell. Also, what you think you should get for it never is what you will actually get lol.
How do you value any service business? My experience - some multiple X normalized earnings. Higher multiple means you have people and processes in place not solely dependent on you - lower means you own a job, not a business.
Hard assets will always be valued at auction prices. Goodwill, dependent on the above, will go at 3 to 6 times multiple.
In my region, a 5m business doing 10% net, would bring 3-4 normalized net profit + hard assets at auction price.
I don't claim to be great at accounting but your numbers would mean something if you included all salaries (including owner salary) to get to net profit.
My first lawyer gave me fair warning on a couple things:
1. GCs are liars, and
2. Don't do a partnership without having him write the paperwork to dissolve it. He said something like "It's a marriage where you write the divorce papers before the wedding".
Great advice thanks!
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Do not do a partner. Trust me on this. I was in the same boat as you last year. I brought a partner on thinking that it would free up time for me to work on selling more and being in the field. It lasted 6 months. We didn't agree on anything we both had our own ideas on which way the business should go. I ended up paying 20k just have him go away.
That was the best move I have ever made. I hired a office manager she is great works the phones handled invoices and deals with my 1 other employee.
The value is going to be based upon what it would take to duplicate what you have.
I sold my business route by route.
A route that took one crew all week driving all over the county, about 50 residentials....was one price.
The last route was a neighborhood that I worked and worked for years. Focused, targeted, and put a lot of effort into dominating it. There were 663 residential homes in that neighborhood. Over 250 were weekly customers. One neighborhood. Dont even really need a truck. Crew stays all week and starts over again on monday. No drive time, the mowers start cutting grass at 7 am on Monday and the mowers are always cutting. No loading, no idle time, 10 hours a day where the blades are spinning. Trimming guys that carry a backpack with gas and string. Blowers that never turn off.
In terms of production, what is that route worth? 3 weekly cuts? lol How many years would it take for someone to duplicate that route? Something that efficient, with profit numbers 4 times the normal residential route. 250 accounts that a tank of gas in the truck lasts 2 weeks. A route that a 4 person crew can do in 5 days.
Its all in the numbers. I didnt sell that route for x number of cuts. Others i did.
To get a value on the company first you would need to give yourself a salary. To hire someone like you would probably cost 40-50k (you probably work extra long hours and care a lot about the company).
I think valuing companies ends up being similar to selling something on ebay. Lots of people have different opinions, but it really comes down to what someone is willing to "bid" on the item.
That said there are some formula's that you can use to value a company, but they both have a number thrown in that is an opinion. Usually you have to guess at the growth potential of the company and the risk of failing.
I would definitely not recommend getting into a partnership. I think that will end up making things go from bad to worse. I have seen some partnerships in our industry that ended up really ugly. If I were in your shoes I would hire a manager and setup a profit sharing plan with him. Then make sure to document company knowledge (where do I order chemicals? How do I interview an employee? How do I send out bills?) somewhere that your manager has access to. I recommend Knowitall for that piece of it. Then get Software to help with billing/routing. I would go with CLIP (routing, scheduling, estimates, contact management) and QuickBooks.
Try to change your approach from working "in your company" to working "on your company." Your starting to get past the point where you have to work out in the field. Also I like what you said about wanting to pay down loans. I love the stuff that Dave Ramsey talks about regarding debt. Especially in our industry where things can change quickly season to season.
Here are some books that can give you some ideas about how to work on your company!
I am all about creating beautiful businesses, ones that allow you to have time with your family and still make the income you want. You can see some of the material, for free, at www.clip.com, look in the Webinar section of the website. I wrote the book, "Lawn Maintenance and the Beautiful Business" to answer this exact question. Also, I recommend Tony Bass' book on the EMyth for Landscapers. Very good!