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Possibly putting company up for sale

Discussion in 'Business Operations' started by NewWave, Jun 20, 2007.

  1. NewWave

    NewWave LawnSite Member
    Messages: 93

    My business partner and I are discussing putting the company up for sale. We are a big company to some up here and small to others. We run 5 trucks, have a Bobcat, 3 trailers and tons of equipment. We do mowing(130 accounts 90% Residential and 10% commercial), landscape installs, irrigation installs and maintenance. Our sales have blown through the rough the last two years. We are established and this is our 8th yr in business. We have roughly 150k in equipment and trucks FMV. Just trying to figure out how to price a bigger company. What percentage of gross sales etc? How do we sell? Broker of sorts?

    Once again, we are just pondering the idea. We want to jump into a few other things.
  2. fitzg2md

    fitzg2md LawnSite Member
    Messages: 156

    Good rule of thumb is 50 percent of gross sales plus any assets like trucks or land. It will vary, but thats a good place to start.
  3. rodfather

    rodfather LawnSite Fanatic
    Messages: 9,501

    Talk to an A & D firm.
  4. Flow Control

    Flow Control LawnSite Bronze Member
    Messages: 1,267

    Serious? My company is for sale then. On the average how long to you think it takes a company to sell.
  5. bullethead

    bullethead LawnSite Senior Member
    from Texas
    Messages: 273

    What's an A&D firm? If it is a broker, I would say don't do it. There have been a few good landscape companies that i have wanted to buy, but they were all listed by brokers. Broker's job is to sell you on the concept that they can get alot of jack for your company, so you use them. Accordingly, they overprice the company and lock in a fee. Then you are married to the bonehead for awhile and can't unload your overpriced company. Try to do it yourself or the least come-up with valuation using some objective third party before listing it with a broker. Just don't let the broker value it for you.

    Personally, I value a company based on a multiple of its Earnings before Interest, Taxes & Depreciation (2-3x's annual EBITDA). If you are paying yourself a reasonable salary - you need to leave that in there, cause the next guy is going to have to pay himself or someone else a salary to run the company. I see this number backed out of the cost all of the time. If you are flushing certain expenses thru your company for the added tax benefit, then you should adjust for these. The price you come-up with using this model includes the assets (you don't get to add those on top of it). The more time you agree to stay on and transition the new owner, the higher the multiple I think you should get.

    Never price or buy a company based on a percentage of gross sales - you can have all the sales in the world and still not turn a profit - Focus on an adjusted earnings number. Good luck.
  6. rodfather

    rodfather LawnSite Fanatic
    Messages: 9,501

    Someone who specializes in Acquisitions and Divestures, does much more than a broker.
  7. bullethead

    bullethead LawnSite Senior Member
    from Texas
    Messages: 273

    got it - nj speak for investment banker, adios
  8. fitzg2md

    fitzg2md LawnSite Member
    Messages: 156

    Historically the way a service company is priced is based on gross sales. That being said, if you have a huge gross but you arent profiting much off the sales etc, then good luck selling...no matter how large your sales.

    Your company is only going to be sold if someone wants to buy it. If your numbers stink, no one will want to buy. However, assuming your company is turning at least a 8% profit after ALL taxes expenses, salaries etc, then half of gross sales is a good gauge. Maintainence usually sells for more than a install company because of the recurring work.
  9. TSG

    TSG LawnSite Senior Member
    Messages: 444

    You really can't use gross sales because there is no guarantee that the customers will stay with the new owners.
    Peg the value of equipment.
    Good Will is a low factor, unless you stay via managment contract.
    Multiple of earnings with all things taken into acct is where to start.
    Also, be prepared for an installment buy-out, depending on customers retained. That is what a Buyers broker will suggest.
  10. rodfather

    rodfather LawnSite Fanatic
    Messages: 9,501

    not at all, in fact, I worked for an A&D firm

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