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Irrigation Company worth?

Discussion in 'Irrigation' started by djagusch, Jan 12, 2012.

  1. djagusch

    djagusch LawnSite Platinum Member
    from MN
    Messages: 4,350

    My current irrigation guy I use wants to get out of the biz. He's had the biz (equipment/customers/etc) for sale about a year without much interest so he offered to sell the customer list (320 billed customers and approx 200 more of old customers), name, number, inventory/hand tools ($1200 value) for $25K. The company is over 10 years old.

    It has approx $10K in spring service, $20K in fall service, average summer service $10K, only had $10K installs last year, and $20K in plowing (last year was a good year for plowing). So $70K in sales in 2011, in 2008 it had $150K in sales 2009 to $110K, 2010 to $86K, and 2011 to $70K. His main reason for the decrease in sales is economy, not willing to bid jobs too low just to get them.

    My question is these sales numbers going down is what you have seen do to the economy or is there more behind it?

    How much would 320 service accounts be worth to an existing company?

    I dropped P&L's and tax records to the accountant yesterday, so that will take a couple days to get his value.
  2. SoCalLandscapeMgmt

    SoCalLandscapeMgmt LawnSite Silver Member
    Messages: 2,117

    The inventory is worth whatever you can buy it for (obviously), the equipment would only be worth it's current depreciated value. The clients are the hard part. Unless he has all 320 billed customers under contract it's hard to palce a value on them. Even if they were under contract I'm sure they have the ability to terminate the agreement should they choose. I'd ask to see the last couple of years of actual invoices. Look them all over real closely so that you can get a feel for what each customer is actually generating in terms of revenue and you may be able to determine why revenue has dropped. In my opinion, the brutal truth is that the 320 customers aren't really worth anything because they can call anybody that they want for service.

    Is the guy who is selling going to come work for you after the sale? If not, do you have somebody on your staff who has the knowledge to do the work?

    Those are just my random thoughts and questions. Fimco and Mike Leary would be probably be better at telling you what the value of the clients are since they have both sold irrigation businesses.

    ALSO.... most importantly.... if you do buy, do NOT buy his business. Just buy the equipment, inventory and list the clients as goodwill on the sale agreement. You don't want any of his potential past liability so you don't want to buy the acutal business.
  3. mitchgo

    mitchgo LawnSite Silver Member
    Messages: 2,922

    Sounds like a bust to me

    A 10 year old + company and he's willing to sell it for 25k? Do you really think you're going to turn this around and make some serious cash with it? Particularly with 3 years of annual revenue falling. Blaming the economy is a hard thing to do because it can be location specific.

    What is your experience with irrigation? Doesn't help to have that list and not be able to do the things that your old irrigation guy does.

    You're going to have to assume that you are going to have a certain percentage of that customer list not use this company anymore due to the fact of the company switch

    I could see this being a long turn around.

    Then again I'm not a business owner so what do I know.

    Messages: 18,668

    So Cal summed it up. Sadly a business rarely gets its real value based on the sweat equity put into it and the customers may skedaddle. I'd be curious to know how many of my customers stuck with John.

    One thing is for sure don't bid against yourself on buying a biz
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  5. djagusch

    djagusch LawnSite Platinum Member
    from MN
    Messages: 4,350

    Part of the deal discussed was going to the home show together to explain to clients we see there. He is willing to help with scheduling for the spring and fall service. We do have some overlap of our client base.

    I have been doing most repairs for the last 3 seasons on my accounts, spring start ups, and water management. He has done the blowouts as he owns a compressor(I have thought of renting one this last season).

    Main thing I have not is add zones, install a system, or design.

    I have been attending classes on irrigation by local associations. Have a means to get the plt license (low voltage). Thinking of getting the clia cert.

    This last season he had used my employees for install labor so I got some free training off him

    Planning to put a pay schedule based off of retained customers/sales. Also put xx amount of hours by him working on the transition at my discretion.
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  6. Mike Leary

    Mike Leary LawnSite Fanatic
    Messages: 23,103

    Excellent point, unless you have signed contracts for new contruction and service, the business is worth jack. The rolling stock in most firms (mine included) was about at the end of it's service life. So, how to buy a business? In my case, I had a group of clients (1%ers) that I'd hand-fed for years, they trusted me and when it came time to sell, they were personally introduced to the the new owner. This was after I'd got to know him over a few years in his related gig as a grounds management service. In short, it was a slam-dunk; one you only get once. After his six years of ownership, he's expanded the biz and kept the majority of clients that brought him to the dance.
  7. greenmonster304

    greenmonster304 LawnSite Gold Member
    Messages: 3,590

    A friend of mine bought an irrigation customer list from another guy we both know from school. They came up with a price for each customer which I think was the average turn on price and blow out combined. They put the money in an escrow account and if a customer didn't go along my friend got that money back. It forced the old owner to help with the transition.
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  8. greenworldh20

    greenworldh20 LawnSite Senior Member
    Messages: 659

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  9. greenworldh20

    greenworldh20 LawnSite Senior Member
    Messages: 659

    Buy it...I mean who does not have decreasing revenues the past few seasons? come up with a price per customer. If customer does not stay on for one season, you don't pay for that customer. Don't pay purchase in one lump sum...spread Payments over 12 months...have owner assist with change over...think of it as 350 new customers you can cross market your services to...seems like a winner to me.
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  10. Mike Leary

    Mike Leary LawnSite Fanatic
    Messages: 23,103

    My CPA advised me to put my (small) company up for sale for what my best net profit year was. Seemed fair to all parties. :clapping:

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