View Full Version : Potential to buy accounts and equipment
07-21-2012, 05:55 PM
Hey guys I have an opportunity to purchase a company from a guy that is moving away. I believe he has been in business for around 10 years. I will be getting a lot more details on the company and all the accounts once i meet with him. But before I do meet with him I want to get a little inside into what I may be getting into. As far as I know right now, he claims to bring in $85,000 a year doing the work with him and his partner in the company. He is selling the company for $35,000 and it comes with 14' enclosed trailer, weedeaters, edgers, zero turn, walk behinds and push mowers. I have equipment of my own but more equipment is always a plus. Not sure about equipment brand and all that good info we all want. My main wonder is where does he get the value of $35,000? Maybe that's what he wants but how should I try to calculate a fair price for the accounts which he says is 90% residential. I have read somewhere that people in similar purchasing opportunities will ride with the company for a couple weeks to see the routes meet the accounts and such. As of right now my accounts keep me busy 60 hours a week so that's not an option. Just wondering any good ideas on questions and concerns to ask when I meet him. Thanks in advance
Meeting him within the next few days
07-21-2012, 06:44 PM
If your working 60 hours a week now why do you need more? ask for tax records to see what he is making
07-21-2012, 07:33 PM
If he's pulling 85K and selling for 35K something doesnt add up. BUT- ask him for a P&L statement or proof of his numbers. Also, what about contracts with his clients? Are you planning on adding another crew? Sounds like your maxed out as it is, but your going to be adding quite a few more after the sale. IMO its not worth buying an existing business in this field.
07-21-2012, 08:38 PM
In regards to why do I need more? I think anyone that is in business should always be looking for opportunity to grow. I can expand with an entire crew for my commercial side and one for the residentials. I talk to him today and he has 58 accounts, 12 are small commercial accounts. He has tax records from up to 5 years ago. Without asking he told me he has a list of all equipment with serial numbers and all customers last names and zip codes they are in. If i sign a confidentiality sheet he will give me the list of full names and contact information for each customer. He said it takes 2 guys 4 days to complete all the properties. His partner in the company is retiring and the guy I talked to is planning to move to Colorado and willing to do monthly payments to ensure the client base is sticking around.
07-21-2012, 08:44 PM
Monthly payments isnt a bad idea.
From what I seen with buying accounts, you pay for 1 month of service. So if the total properties equal $7000 a month, thats the price.
As far as him making $85k, thats gross.
He seems to be willing to give you a lot of information. He might not be a bad guy to deal with if you can figure out a price that works for both of you.
I have purchased some accounts in the past, but I will not pay more than 3 times cut value for each, and the jobs have to be priced at least at 1 dollar a minute, and in my service area. I will not pay more than a third of new equipment price for second hand stuff. Too many unknowns.
Just remember, the purchaser holds all of the aces when negotiating. Not everyone has that kind of money to go off shopping for a business every day of the week.
I would be wary of 10year + old business as far as pricing jobs goes. Many business do not increase price inline with inflation.
07-21-2012, 08:51 PM
Monthly is definitely a plus since I can make the payments instead of having that much cash up front and it would put me at ease knowing I am not getting screwed because I am doing the work and making the money. And absolutely that's gross, taking out expenses and everything else I still think it would be worth having a crew take care of it.. The pricing is where I was stumped to how he got $35000, I was figuring something like the $7-8000 range plus fair market value for the equipment if I even need it. I don't think he is a bad guy he is a friend of one of my parent's workers, he has known the guy a good 10 years too. He told me if I am actually serious he will give me everything he has to show whatever I need to know.
07-21-2012, 08:55 PM
PVMS that's a good point about how they actually priced everything. After signing a confidentiality sheet I was for sure going to check out all the properties to make sure they are priced appropriately.
07-21-2012, 08:58 PM
Well I don't know that he would sell me the equipment and give me the list of his clients. That's why he wanted me to sign a confidentiality clause so that I cant just solicit all his customers.
07-21-2012, 09:12 PM
Well my thoughts in that was I was going to figure in that some will just not be happy with the works so I figured 5-6 of the customers leaving. That is a big worry that maybe they don't want my service but I would not pay the $35k and that's why I liked the fact that he was okay with monthly payments. And if he got a list to me of the customers we could let them know what's going on and see if they plan to stick around for another season. If not maybe I can negotiate into the final price some kind of deduction for each customer that is not a return for next season. I think there is great opportunity in this since he has established routes and been cutting majority of the yards for 5 years now. But it is a big risk to take at the same time. If he grosses what he is saying the work can easily pay the investment back quickly
07-21-2012, 09:32 PM
Just thinking out load but what if
he keeps the business "open" and you subcontract all the work, 50% of billed you are paid the other 50% pays off the loan balance. this way if you lose a customer you can still make payment.
07-21-2012, 09:34 PM
That's what I was thinking. I always lose at least a few customers each season which are usually the ones that only call every so often instead of getting on schedule. But I figure there is great potential for profit even losing some customers and still gives me an opportunity to market myself in all the new areas I will be in for potentially growing more! I am trying not to let the big numbers cloud my thinking because I would still want to provide quality service to all the new customers. I am going to negotiate that price for sure because I am interested to know where he came up with that number and how he actually values everything. He did say another company was meeting him on Wednesday to look thru all his paperwork and make an offer so I told him I wanted to meet on Monday or Tuesday!
07-21-2012, 09:37 PM
hmm that's good thinking out loud. That would definitely give me the opportunity to do the work pay the loan and not have total obligation if it did not work out like planned. I am going to talk to him about many options and that is one I will definitely suggest. I thought about maybe a "down payment" on the business because I know he is moving but said he can't move until he gets money from the business. So I somewhat feel I have some control over the sale except that there is another company looking into the sell too
07-22-2012, 08:46 AM
Buying a customer can be a big risk, He could help that alot by talking to his customers and letting them know he is turning over his business to someone else and assure them that they will be taken good care of...That way you could get thier reaction upfront...
07-23-2012, 08:40 PM
He did say he would let customers know there would be a change in ownership which I was considering keeping the company name since they are pretty established and said all there customers were from word of mouth. My business is mainly on the commercial side and that is where I focus most of my attention right now. So I was thinking just keep that one side as a residential company. I dont know may help on taxes too
07-26-2012, 04:46 PM
Well, paper work is now being done to transfer ownership to me! I will be making payments over the next 6 months to ensure that customers are not just going to all leave with me out all that money. Made an offer for down payment and the other company backed down! I should start on the 58 new accounts at the beginning of August
07-27-2012, 12:14 PM
Congratulations to you! Keep us posted on how the transition goes and how it feels to add all those new customers.
08-21-2012, 06:05 PM
Well after week 2 of doing all the new customers I met a lot of nice people that were happy to have a good service continue. The old company was doing the properties in 4 days with 2 people and we are knocking it out in 1.5 days with 3! So everything is definitely going right! Long hours and hard work will soon pay off. Equipment was a little bo bo, exmark pump went out.. But I wasnt really counting on the equipment that much.
08-22-2012, 12:55 PM
That is great news! Now with this experience you have had, what advice would you have for others considering doing this?
08-23-2012, 04:05 PM
So far my experience is going well. Customers are all nice and happy about the change going smoothly and I am happy that we are able to take care of the new properties in about 1.5 days each week instead of the 4 days it was taking the last 2 guys. Equipment we bought with the company is not in the best shape that I thought it was in, 2 weeks later and the hydro pump went out on the exmark 48. Sucks but the equipment was not really what I was interested in. Only problem I am having is one of the previous owners is calling behind me and checking to see if customers are happy. I had to call him and let him know that was not ok because it is not his business anymore.
02-26-2013, 08:26 PM
A little update on the accounts I purchased. It was quite frustrating after the first month or two because I had people dropping for various reasons. Some were family members, some didnt pay and some just said they did not need service anymore. My biggest problem was not the people dropping because before buying I assumed at least 10% would drop. My problem was more that the people that did stay on did not match up to the amount of cuts the contract said the customers usually do. Like customers that they said continue every other week service throughout the winter have either cut back to once a month or completely dropped until warmer weather. Overall it was worth the purchase just a little headache at first. I paid the company off in 5 months and now its all about making the money now.
Fuel has gone up to $1200-1500 a month, that's probably my biggest problem but its part of the business.
02-27-2013, 12:14 PM
That is a very interesting update!
Would you do it again? If so, what might you do differently about the process or the way you valued it etc?
01-29-2014, 09:48 AM
I know this is an old thread, but just in case anyone else is in the same position.
The easiest way to evaluate a company is 3x their revenue from previous year. So if they pulled in $20,000 last year, their business should be worth $60,000. This is for all businesses, but I have noticed on CL, that everyone undervalues their lawn care business a lot. They say they make $60k a year revenue but ask $20k to sell. I am thinking that a lot of people value their business as capital investment (equipment), and they don't consider their client list and branding as an asset.
01-29-2014, 02:05 PM
The easiest way to evaluate a company is 3x their revenue from previous year.
What is your view on why it should be 3x revenue?
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