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View Full Version : Looking at Buying an Established Lawn Care Business


chriss
11-30-2009, 08:30 AM
I am looking at buying an existing lawn service business that has a very good repeat customer base with great cash flow. It has also increased revenue and profits every year since it was started 7 years ago. It now has 4 employees plus current owner and it currently only does higher end residential in 2 cities. Currently the business only does lawn mowing with some other basic services. It does not do any plowing and is only really open from April to November.

I have a few questions that I am hoping someone can give their advice opinions on.

1. Assuming you do a quality job what percent of repeat customers do you generally retain?

2. What are the worst parts of owning a lawn service business and managing employees.

3. If anyone has purchased an existing business before what multiple did you pay of SDE.

I am sure I have many more questions but I don't want to get carried away.

Thanks

StartALawnCareBusiness
11-30-2009, 10:34 AM
Hi chriss and welcome to the board. I see you're a new member here.

The questions you ask are self-dependent and can be answered better if we know your skill set. What do you bring to the table? Give us a brief resume'. Are you hoping to merge this business into your current lawn care business? Are you going to be a hands-on employer or are you going to manage your new customers remotely while your 4 employees do the manual labor?

Successful lawn care business owners are very hands-on and do a great amount of physical labor themselves. Customers want to know the work ethics of the owner. Your retention rate will depend on the relationships you can build with the current customer list.

BTW, have you had a chance to look at the financials of the business? How much does it make in a typical year and how much are they asking for the business?

Keith
Lawn Care Business Guidebook (http://www.StartALawnCareBusiness.com)

chriss
11-30-2009, 11:15 AM
I would be a hands on owner and working full time on it. I would not be merging it with another book of business. I have run one other small business before but it was a marketing/design company. I feel I could bring in good management skills along with additional marketing ideas to acquire new customers.

I have had a chance to review the financials and last year Revs were roughly 380k and SDE was roughly 170k. There is about 120k in assets and they are asking 450k.

StartALawnCareBusiness
11-30-2009, 12:51 PM
Personally (and just to be upfront) I am very skeptical of buying existing businesses and customer lists.

They're asking $450k and there is $120k in assets.

I'm not sure all that is included in the assets category but I would assume trucks, trailers, mowers, weedeaters, etc are included. Additionally, are storage facilities (storefront, workbays, etc) included?

I'm also going to make a basic assumption that goodwill is not included as an asset. If the company has a great reputation around town and you are buying the company's name and ongoing advertising, goodwill could be an asset worth many thousand dollars.

Okay, all that said...
450k - 120k = $330k

How was the SDE valuation calculated? 450 is 2.6 x SDE which is no great bargain but could be explained by instant revenue and great goodwill. Then again, we're approaching the winter months and revenue may be slower unless customers are on 12 months contracts. Why is the business being sold?

Are you paying $330k for the customer list? How many customers does this include? Basically, it sounds like you are paying shy of 11 months revenue for the customer list. If this is the case, it sounds quite high to me. We've had lots of discussions here on buying customer lists. 3 to 4 months revenue seems to be an agreed upon valuation. Also, you can expect to shed 20% or more of the customer list based on immediate attrition and customers who are non-profitable for one reason or another.

If makes me wonder if you could get your business up and running yourself, buy brand new equipment, hire one or two crew members, and advertise like crazy for a couple months before spring arrives. You might find that you would pick up customers quickly and still not pay close to half a million dollars for your business.

Anyway, this is all conjecture at this point. Have your accountant look at the numbers. He'll have a good idea of the true valuation.

Let us know what you decide:

Keith
Lawn Care Business Guidebook (http://www.StartALawnCareBusiness.com)

Steve
11-30-2009, 02:43 PM
How many customers do they service and why is the owner selling the business?

dhawk
11-30-2009, 05:11 PM
1. Assuming you do a quality job what percent of repeat customers do you generally retain?
Thanks

I agree with Keiths estimate on customer retention - but you can increase the odds if you are willing to work at it.

Go and meet customers before purchase if possible - find out if the reputation is really as good as you have heard.

Look at some of the lawns they are servicing - that will tell you all you need to know.

I wonder like Steve, how many accounts come with the purchase?

Anyways - here is my take on it, since I just purchased an existing, albeit was a LOT smaller than what you are talking about.

I am glad I bought a few (less than 50) accounts during start up. Paid less than 2 months rev on each account

It got me free exposure - being out there doing it taught me a lot, and allowed me to network

I am REALLY glad I started with less than 50. I would have been overwhelmed starting out scheduling 200 on my first week.

I had a 90% retention - but that was with going and meeting customers and doing a lot of pr work with them

chriss
11-30-2009, 06:30 PM
I am not 100% sure the total number of accounts he has but I am setting up another meeting to discuss things in much more detail. I would be taking over the company name and image so not strictly purchasing accounts. To me that should make it a smoother transition with most clients as they may not necessary have any relationship with the owner. Currently the clients are all million dollar plus homes so I am guessing as long as the crew are professional and do a good job he has a very high repeat customer base.

I know he has software in place to help with scheduling and his crew has been with him for a couple of years now which helps assuming they come back for next year. Part of my offer would be to actually purchase in March and part of the transition would be he has to help lock in x% of repeats contracts during the transition period.

They are selling to fund a different business opportunity and will sign a non compete.

Steve
11-30-2009, 08:04 PM
Keep us posted on how the next meeting goes.

They are selling to fund a different business opportunity and will sign a non compete.

It would be interesting to know what it was about this business they wanted to get out of. And what it was about this next business they were most attracted to.

dhawk
12-01-2009, 06:40 AM
Interesting that they have focused on high end clients.

I wonder how they market to them.......

Down here, the really high end customers are fairly inaccessible.
All of the multi million dollar + homes are under guard and gate.

I've managed contractors passes to a couple of those neighborhoods, but not many.

It is usually by invite only.

Good luck on your endeaver, and keep us posted!

Steve
12-01-2009, 05:09 PM
I just remembered this older post on how a member bought an existing lawn care business only later to find out the contracts he thought they had, were later dropped by the customers.

Read this.
http://www.gopherforum.com/showthread.php?t=8432

chriss
12-01-2009, 06:07 PM
Thanks for that post. It was interesting and I will make sure I am covered if I pull the trigger. One thing I would want from the owner during the transition period is to help re-establish the yearly contracts. If he could not help get x% then the price would be reduced a certain value.

From what I have read it seems over priced because of the risk of losing accounts but that doesn't mean that is what he is willing to sell it for.

I will keep you posted on what happens after I meet with him.

Steve
12-01-2009, 09:25 PM
Here is some more interesting information on buying lawn care customers.

One of the easiest yet most often overlooked way to acquire lawn care customers
http://lawnchat.com/?p=51

chriss
12-02-2009, 08:37 AM
Another interesting read and really makes me think about the valuation of the company. I would say a big part of the valuation is his relationship with the clients. Do they know him personally or do they just know the name of his business. If they know him and he is the face of the business then the valuation IMO is much lower then if they just know the company and would not really know if I a new owner was running it.

My opinion is for very high end clients (million dollar + homes) that they are generally not around to be social able with anyone that services their property and therefore don't have the relationships built that more average size home owners do. I would think they just want to know their lawn is being serviced to a high level of expectations and done so professionally.

I could be way off so if anyone has a good client base of very high end homes I would like to hear your feedback on the relationships compared to lower class home owners.

Thanks for all of the input so far.

Steve
12-02-2009, 04:47 PM
My opinion is for very high end clients (million dollar + homes) that they are generally not around to be social able with anyone that services their property and therefore don't have the relationships built that more average size home owners do. I would think they just want to know their lawn is being serviced to a high level of expectations and done so professionally.

We have seen it go both ways here. Some members have customers that seem to never be around but others have high end customers that want to get involved even with the work. So I can't make a generalization on this and be accurate.

There is about 120k in assets and they are asking 450k.

When we are talking that amount of money, I wonder why? Why jump into it at that level? Had you ever had a chance to run another business before? What in you is thinking this is the target you want to hit?

You could jump in a lot lower, have cash in the bank, make a lot of mistakes and still come out smelling like a rose. All the while being better off because of the experience!

What's your view on all this?

chriss
12-03-2009, 09:14 AM
I have had a 6 figure job for some time and have managed many aspects of a couple of different businesses. I am at a point where I am looking for an opportunity to grow a small business for myself rather then for others. I feel this would be a good opportunity for my future goals. The main goal would be to take a business I am interested in and grow it to the point where I could net a much large amount then 100k a year. At the same time creating a true value asset which can be sold much farther down the road or more self managed with extra staff when I am ready to partially step away.

I am not a fan of trying to create something from scratch and even more so in this economy where every unemployed person with a lawn mower may be trying to get some work as well.

I feel this opportunity has the making for what I am looking for. It has a good business model that I think makes sense. Serving high end clients and only in 1 town tells me there is a ton of room for expansion. The current cash flow is excellent where I could still pay myself a small salary such as 50k and put the rest towards growing the business.

To me there are two large risks. First one is I do not renew a good portion of the existing customer base. I will get a much better feeling about this after I meet with the owner about how involved he is this and what percentage over the last 3 years he has had repeat customers. Second one is I do not like the lawn care business. I have not worked in the lawn care business before but I love being outdoors and I enjoy and have pride in keeping my lawn looking very nice. After those two there are also tons of smaller risks as well but those are the two that I feel could make this a disaster if I pull the trigger.

Steve
12-03-2009, 04:15 PM
Second one is I do not like the lawn care business. I have not worked in the lawn care business before

Did you consider other business ventures as well? Do you have an ideal top 5 things you would like to get into? If so, what would they be?

chriss
12-04-2009, 09:39 AM
I do not necessarily have a top 5. I know that I am interested in a variety of things and also not in others. I would not be interested in any sort of Quick Serve Restaurants, Manufacturing, Bars. I would be interested in any service establishment assuming I could understand the service needs and do them myself if/when needed, fitness centers, e-commerce sites with niche products. I am looking for something with repeat customers or residuals as long as you service them to their expectations.

Steve
12-04-2009, 04:40 PM
A lot of times we see discussions on finding what your passion is and seeking that out in business.

The theory goes if you do what you love, the money will follow.

I think finding a passion in general can be extremely difficult to do and then finding one with potential commercial viability can be even harder.

Do you feel this is the case too? Or how do you feel passion and business relate or should relate? Do they or maybe not at all?