purchasing a landscape concern

[Sound Landscape]

What would a prudent person pay for a concern with $500k in annual sales, $240k cash flow, approx. 38% revs from mowing. Has anyone on this board bought a functioning business or customer accounts. Any thoughts will be appreciated.

[GrassMaster]

Welcome to the Lawn Service Forum Community, Sound Landscape!

[Phil Nilsson]

"What would a prudent person pay for a concern with $500k in annual sales, $240k cash flow, approx. 38% revs from mowing. Has anyone on this board bought a functioning business or customer accounts. Any thoughts will be appreciated."

some "ballparks" ... if it were me buying it I'd offer current market value for equipment ... and from 20% to 30% for the customer goodwill guaranteed that the customer base would stay in place the first year (no fault provision) ... dollars held back for drop offs ... I'd want financing after 30% down ... for 5 years and payments tied (directly) to incoming cash flow from the customer base I had just purchased to balance payments with incoming cash and relieve any off season payments on the deal. If all these conditions were not met I would walk away from it since there are hundreds of "deals" that can be struck when buying green bizzes. It's a "buyer's market" right now and has been for many years.

Hopefully you'll get this at close to 20% for the goodwill, but the Seller may start at 30% and you'll compromise at 25% maybe.

Employees that come with the deal are worth at least $5,000 to $10,000 (each) in finding and training costs alone. This is something that is overlooked quite often when buying someone out.

[Seascape]

It would depend greatly on account type. Commercial or res. Break it down. Id have to see exactly what you are selling. That additional 62% be be anything. also would depend on account age, current life on existing accounts and a show of that caliber youd have to agree to probally 6 wks or more stay of operate. The equipment would have to be included more than likely and a non compete agreement would be nice.
mike

[Phil Nilsson]

Hello Seascape
Yes you're right ... many details to buying a bizz ... I've sold many of them here on the East Coast and go through a lot of details but have found over the years that after doing "due dilligence" the final consideration is cash flow and the amount of profits that are being purchased ... rule of thumbing it ... all else being equal ... for example if a buyer can come out hanging onto about 50% of the profit "uptick" after spending 50% of that profit in "payback" then it's workable ... at least from my point of view. That plus the protections for a downward drift in sales from the purchase.

a sidebar ... I also arranged "cashless deals" where the buyer is an established company that has asset strength. You'd be surprised how many people will actually walk away from their business without trying to sell the goodwill ... at the lower levels anyway. Buyer's market ... you can almost name your own terms at this point.

[Seascape]

Phil,
Is it pretty much a givin that youll see a downward drift in sales? "downward drift" sounds pretty radical. Is it a consumer confidence thing?
mike

[Phil Nilsson]

After buying customer accounts typical to see a 5% drop off in customers who decide to go with somebody else ... although have seen cases where there was no drop off at all. Just that the buyer shouldn't have to pay for customers who are not "there" so to speak ... thru no fault of the buyer, customer drop off needs to be protected against with credit toward the purchase price of accounts. Personally with the right protections in place a person shouldn't fear buying accounts ... because it can be the avenue to rapid growth ... employees in place, customers in place, equip in place ... now just a matter of managing a larger bizz setup and so working capital of 6 to 8 weeks needed to finance the new receivables.

[Seascape]

Buyers market for sure. So much for selling all this crap and opening a brake and muffler shop!!!!!!!!!!
mike

[Sound Landscape]

WOW gentleman!

The insights are priceless, thank you. Phil, your comment that buying accts can lead to rapid growth mirrors my sentiment exactly. Would you consider helping me structure a deal? I am a nubian yet I am funded and ready to move if all the ducks are lined up.

[Sound Landscape]

One more quick question.

Hundreds of deals around, as Phil put it, which I interpret as customers for sale. Where would one go to find such sellers?

Thank you again.

Andrew

[justmjc]

Okay, now do we look into our local classifieds for these accounts for sale or should we call up the many lawn care companies and ask if they have any they would like to part with?