Possible business expansion???

[UPS]

Ok, here is my problem/question. This was my first full time year in the lawn maintenence business. I just graduated last May with a degree in business managament. This year went to be as expected but I'm at least hoping to double my business for the coming year if I keep doing this all on my own.

Just this week a lady I know called me up and said her son-in-law is wanting to get out of his lawn maintenence business. Now, I don't have all the details YET but this is what I know so far. He has approximately 12,000-15,000 dollars worth of equipment and 40,000 dollars worth of contracts. She said he wants $35,000 for all of it. I know there aren't many details here yet but what do you all think off hand? Is it too much money for that? Would I be growing to quickly off of someone else's work and me not be prepared for that type of growth?

Any opinions and comments would be greatly appreciated!

Thanks,
Brandon
Unlimited Property Services

[GrassMaster]

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<b>Welcome to the Lawnservicing Forum Community,UPS!</b> []

I'm moving this topic over to the:
Running Your Business - Office Issues Forum

You should get an E-mail about it T00!

I will try to get the Phil to answer this for you!

Me Personally, I would just do more Advertising & Work over my Regular Customers for some referalls, even if I had to offer them something. Say a Free cut if the referall uses you 5 times! Then they get free cut.

The Main Problem is, Now I'm just Guessing here, but Lets Say You them the Best job there is, You will probably Lose 40 to 50% of your New Customers that you Purchase from that Guy! Just My Thoughts Only!

[UPS]

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Thanks for your reply "Admin" I was searching for my topic before I got the e-mail. I do hope to get some responses and Phils would be greatly welcomed.

Thanks,
Brandon

[Phil Nilsson]

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Hello UPS,
Some thoughts ...

1. Can you handle the add'l $40,000 in bizz? ... ask for a recap of the total man hours to do all of this increased work ... what will it mean labor wise and (when) by calendar month is the work done? ... spring cleanups, fall plus regular mowing, etc ... know in advance the labor hours highs and lows of labor demands so you can plan labor needs.

2. Price for the customer list if residential would normally be worth between a low of around 15% to 20% to a high of around 30% of one years gross sales from customer base. Deduct materials put into job to arrive at <b>pure labor sold </b>... example ... sales $40,000 less mulch billed in the sales $5,000 net $35,000 X the % (If it was me I'd offer around 20% of gross sales all paid out over the course of the first season each month as dollars are collected from customers and if customers drop off, pymt on those specific customers stop) example take let's say $35,000 times 20% = $7,000 match it percentage wise to incoming cash pymts from customers.

3. Test the accounts for profitability ... $40,000 divided by the total labor hours = the dollars produced per hour

4. If you can't handle the whole $40,000 try to buy part of it.

5. Equipment - question is how do you finance it? ... maybe buy new and get the terms, rather than upfront from the seller. See if seller can sell own equipment (unless) he will finance that over a few years for you.

6. Retention - how long has he had these accounts? ... make an aging list ... 10 customers for 5 years ... 10 customers for 4 years ... 10 customers for 3 years etc etc ... brand new customers (first year) <b>are worth less</b> than the 20% to 30% because their (loyalty) has not been tested.

7. If you buy the accounts have the seller walk you around introduce to each customer face to face ... get acceptance in person.

8. Pymt history of each customer ... look at sales and pymt record each customer see if any late payers, non-payers are on the list.

9. Price to pay ... practical point of view ... figure the net profit for one year ... you want to pay to the seller no more than 1/2 of that profit, other 1/2 to you after 1st year you are on your own if customers stay or leave. If you have to put escrow money with (your) attorney ... release to seller at end of the term. Like in our example $3,500 during first year, $3,500 during second year.

10. When you arrive at total price to pay ... example $7,000 take the customer list and assign a value to each account based on relative percentage so if that account drops off, you have the value of that account .. example ... $35,000 sales - 3 customers - cust 1 is $20,000 cust 2 is $10,000 cust 3 is $5,000 percentage is ... #1 57% ... #2 28% and #3 is 15% ... or take each total sales gross per customer and multiply by the 20%.

11. Decision to buy? ... can you handle the new work? ... is the work profitable? ... can you come out with a positive cash flow from the purchase? answers all come back yes ... buy it.

P.S. If you do buy these accounts ... while you're going around to each customer getting introduced (a must) ask each one if they would be opposed to being billed using a charge card as the services are done (when) they are done ... it's 48 hour money for you and will give you almost instant incoming cash flow ... and it's (not) 48 hour money outgo to the customer.

[CCLS]

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A buddy of mine too over an existing company, when he took a look at what the previous owner was charging for some of the work he was shocked. Some of the accounts were extremely underbid, well below what my friend wanted to charge. My point is take a look at each individual account and figure out your profit margin for each. Just because he has $40,000 in contracts, doesn't mean you are making decent profit on each.

On the equipment. If you are not machine literate, make sure you have the equipment checked out by a professional. The last thing you want to do is inheret someone elses problems. Just from experience, buy new equipment if at all possible.

Last thing, don't get too big too fast.