Buying a well established Business

[ClassicCrane84]

Hello everyone, I'm new to the site and I need some input. I have been working for a Landscape design/build/maintenance/tree firm. We do all aspects of landscaping. The company has been in business for a long time, has a well established customer base and has had growing sales/profits for well over the past 10 years. My position at the company has evolved into everything but ownership of the company.

This year the owner has introduced the idea of me buying him out (he is nearing the retirement age). I am at the beginning stages of figuring out what the company is worth and how I am going to fund the buyout. I'm positive that he will work with me to get a payoff plan over the next 10 +/- years. So here are my questions and I appreciate any feedback. This is not the first time it has been mentioned but now it is getting serious.

1) How do I evaluate the business and what I should pay for it?

2) If he were to fund me could I pay him with profits of the company?? I know this could be interesting because he would still have majority ownership.

[Steve]

First off, welcome to our forum. It's nice to have you here.

1) How do I evaluate the business and what I should pay for it?

Have you figured out yet the total value of all the assets?

Next have you figured out yet the value of the customer base? Are they re-occurring customers? Are they on a contract?

2) If he were to fund me could I pay him with profits of the company?? I know this could be interesting because he would still have majority ownership.

I would think, having him self finance it would be better for you. There is nothing worse than thinking you are getting a great deal when buying an existing business, only to have something happen to it shortly after due to unforeseen circumstances. Even though you are in the business running it, you just never know what is going on behind the curtains until it is you who owns it.

Also, you don't have to lay out a lot of cash and you don't need to get approval to finance purchasing the business. The owner will have an interest in keeping it going for a long time to come if they are self-financing the purchase.

Why is the owner getting out of it?

[ClassicCrane84]

Thanks for your response.

There are no signed contracts for the coming years, we send out renewals every spring (beginning of March) but we do get the same customers back almost every year. I would say there is a 10% swing between loosing existing customers as well as gaining new customers.

The owner is nearing retirement age so he wants to slow down a bit and open a consulting business for landscapers which he would be very good at.

I know what the assets are worth on the books but I am in the process of figuring out what they are worth on the market. Lots of equipment so it will take a lot of time.

[Steve]

Well keep us posted as you go. The less money you have to spend out of pocket to make this transition, the better it is for you because you will still have that cash in case you need it for unforeseen circumstances that always seem to appear.