Purchasing a minority interest

Discussion in 'Business Operations' started by Biz Buyer, Sep 10, 2019.

  1. Biz Buyer

    Biz Buyer LawnSite Member
    Messages: 1

    i am considering beginning to purchase minority interests in lawn care companies by purchasing a percentage of revenues. This allows the company to be valued much more than traditional metrics would. For example, if a company earned $100,000 in sales, I might be willing to pay $25,000 for just 10% of sales, valuing the business at $250,000! Does anyone have any comments or thoughts on this?
     
  2. Mdirrigation

    Mdirrigation LawnSite Platinum Member
    Messages: 4,393

    You will lose money , a 100k lawn business is a 2 man operation with minimal business savy
     
    Matthews Lawn Care likes this.
  3. snomaha

    snomaha LawnSite Bronze Member
    from midwest
    Messages: 1,628

    I have a comment and thought - why?
     
  4. Mark Oomkes

    Mark Oomkes LawnSite Fanatic
    Messages: 18,933

    Tax write off?
     
  5. jonthepain

    jonthepain LawnSite Bronze Member
    Male, from Raleigh
    Messages: 1,038

    So. Give someone 25k cash.

    They give you 10% of net each year. In perpetuity?

    With your numbers, If no growth, you are positive cash flow at year 3.

    Obviously there will be growth.

    Why would an lco (or any businessman) go for this?

    If I needed 25k, I'd go to the bank.

    What am I missing here?
     
  6. BigJlittleC

    BigJlittleC LawnSite Fanatic
    from Chicago
    Messages: 6,453

    Maybe I am missing something but how does putting 25k into a 100k business magically make it a 250k business?

    If this magically does make the business more valuable what good is that valuation outside of a sale? What's the point?
     
    hort101 likes this.
  7. Mdirrigation

    Mdirrigation LawnSite Platinum Member
    Messages: 4,393

    I get 25K for a 10% stake , I go out of business a week later and start up a different business doing the same thing , with $25K in the bank .
     
  8. BrandonV

    BrandonV LawnSite Fanatic
    Messages: 5,095

    In my little area of the world lots of wealthy folks have lots a lot of $ investing in landscape operations and nurseries. I don’t know you’re specifics but I’d be wary.
     
    hort101 likes this.
  9. ztman

    ztman LawnSite Bronze Member
    Messages: 1,360

    Looks like the set up is a usurious loan cloaked as ownership interest.
     
    tonygreek likes this.
  10. tonygreek

    tonygreek LawnSite Platinum Member
    Messages: 4,110

    Going only by the example you've given, this isn't well-thought-out.

    And your exclamation mark after $250,000 valuation gives me even more pause. To be more pointed, the exclamation screams scam.

    My only follow up question is "Does Lawnsite still prevent a new member from DM'ing people until they have some sort of track record on here?".
     

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