Possible customer base purchase, determining valuation of annual accounts

Discussion in 'Business Operations' started by Ijustwantausername, May 13, 2019.

  1. Ijustwantausername

    Ijustwantausername LawnSite Bronze Member
    Messages: 1,944

    A guy is getting out of the business and he's got about 46 accounts he wants to get rid of.

    -They are primarily residential anywhere from $165-$400/month.
    -All are annual contracts
    -The customers do not know that he is closing his doors and they are unaware that he is selling them.
    -He wants $1000 per account.

    Off the bat I think the valuation is incredibly too high. As it is I am buying nothing more than a customer list.

    What should he do to advise his customers of the possible purchase to keep this thing going? I have no interest in buying these without him advising his customer base for feedback. Never done this before but other than the valuation it seems doable.

    Our service packages are similar but his pricing is a little cheaper than mine.

    He wants me to counter.
     
  2. TomH&H

    TomH&H LawnSite Senior Member
    Male, from Coopersburg, PA
    Messages: 311

    There's no way I'd pay $1000 per residential account. The only guaranteed way not to overpay is to offer a percentage of revenue from each customer for 1-3 years, whatever you agree on. Either a flat percentage, or decreasing amounts each year. Then you're not out anything if some of the customers don't stay with you.
     
  3. TPendagast

    TPendagast LawnSite Fanatic
    Male
    Messages: 16,187

    Ok

    So lets assume the profit is 8%; I dont know what it is, but for the time being we need an average.

    165 + 400 = 565 /2 = $283 is his average account x 12 month = $3,396.00 average annual revenue.
    8% of that is $272.00 x 3 years is $816.00
    Thats what the PROFIT is (on average) for each account over three years.

    So you can split it with him 50/50 $408.00 per account
    Half now ($204.00 per account) 25% on year two ($102.00) and the final payment $102.00 on year three.
    You will ONLY pay for accounts that are still active and with you on each successive year.

    So a year from now if there are only 30 account left of the 46 he will only get $3060.00 (NOT $4,692.00)

    REMEMBER you are sharing PROFIT with him for THREE years for which he has to do NO work and giving him $9,384.00 up front.

    You do not need to pay for work, cost, payroll... Revenue means nothing, only profit.
    If he can PROVE with proper book keeping that his PROFIT (NOT including owners salary) is OVER 8% on average... then you can negotiate for that profit.
    but Im guessing he has crap for books, thats why he's selling.
     
  4. Jeff@diyokc

    Jeff@diyokc LawnSite Member
    Messages: 160

    Agree! Incredibly high!

    Past posts seem to indicate 2 to 3 months of revenue. What’s the number of customers at each price level?

    It’s been said before, no way of knowing who will stay and who will bolt, as the relationship was formed with him, not you!

    He should contact his customer base and let them know of his intent , that could possibly work to see the defection rate! Bad news doesn’t get better with age! Good luck!
     
  5. GreenscapeCT

    GreenscapeCT LawnSite Member
    Messages: 240

    $165 + $400 = $565 / 2 .... doesn’t work to find his average account.

    He could have 45 accounts around $165 and then 1 account at $400.

    We need to know how much actual revenue per month.
     
    hort101 likes this.
  6. hackitdown

    hackitdown LawnSite Silver Member
    Messages: 2,862

    It will take him a very long time to find someone who has $46k to spend on a list. There is no harm in offering what YOU think the list is worth to you. If you have cash in hand, even a lowball offer may be worth it to him, since he would get the cash all at once. Maybe 1 month's revenue would work for you.

    In my area, at this time, customers are unlikely to jump ship, since it is hard to find a new guy.

    But let's say he sells to you at a reasonable price. Can you find employees to do the work? Does he have guys you can hire?
     
    hort101 and Jeff@diyokc like this.
  7. EricC

    EricC LawnSite Senior Member
    Messages: 537

    I think that was just an example. The actual books would need to be seen and the averages and real numbers could be gone over.

    But as an example, that is a really good way of looking at this.
     
    hort101 and Jeff@diyokc like this.
  8. Mark Oomkes

    Mark Oomkes LawnSite Fanatic
    Messages: 18,872

    Maybe if he's including $46k of assets.
     
  9. Jasburrito

    Jasburrito LawnSite Member
    Messages: 169

    How much money in advertising does it take you to get a customer? I think it takes less than a G. I guess there worth around 150/200each. I am also leary of all the information i have been putting into yardbook. Whats stopping them from leaking that information to a nation wide lawn care chain. Thanks
     
    EricC and GreenscapeCT like this.
  10. GreenscapeCT

    GreenscapeCT LawnSite Member
    Messages: 240

    Yuuuuup! Yardbooks, Service Autopilot, etc. , anyone of them has the potential to amass a Huge database.
     
    sjessen and hort101 like this.

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