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Buying accounts/Business ties

Discussion in 'Business Fundamentals' started by Camden, Nov 29, 2007.

  1. Camden

    Camden PlowSite Fanatic
    Messages: 6,598

    I value your opinions so please give me your $.02 worth on this...

    I was approached this past Monday by a local guy who's been in the business for a long time but now needs to hang it up due to health reasons. (He's most likely going to expire before Christmas)

    He's got about 100 lawn care accounts and 80 of them are snow removal as well.

    He has only 20 or so signed contracts and the rest are all on a handshake. He's expecting an offer from me based upon his total account numbers. I definitely want to buy him out because he does really well for himself. But am I crazy for thinking that there's no real value in any of those accounts that are done with a handshake and a smile? When I mentioned this to the guy he said, "that's how this business is". I don't know about that because they could bail on me tomorrow and I wouldn't have any recourse.

    I'm not going to purchase any of his equipment, this is just dealing with the sale of his accounts.

    Thoughts?
     
  2. Burkartsplow

    Burkartsplow PlowSite Veteran
    Messages: 3,245

    that is the business, no contracts, just go in a do great work and hopefully they stay with you. Maybe you can have him send a letter to his accounts telling them he is retiring and that he has a reference of someone that he feels would give them the same great service he gave them for the past so many years. run it by him. People dont want to have to go out and hunt for a new lawn guy. It will make the transition alot easier.
     
  3. LIBERTYLANDSCAP

    LIBERTYLANDSCAP Member
    Messages: 30

    :waving:If you take them on, and give them service they have been recieving at the same cost, probably 95% will stay with you. Then, after the first season, you can change pricing, etc. without much risk of losing them. This is what I have found.

    Good Luck!
     
  4. framer1901

    framer1901 Senior Member
    Messages: 813

    If you buy the accounts, base the price on paid invoices for x number of months. He's gotta have faith in you to perform, but you are only paying for properties that you keep.

    When I was in sales, we were paid based on this idea, automotive supplier stuff, very slow paying accounts.
     
  5. Gicon

    Gicon Senior Member
    from MA
    Messages: 989

    You can look at it two ways:
    1. You let him go out of business, or run the business into the ground, and have a fair chance at picking up the accounts without paying anyone.
    2. Buy the CONTRACTS for 50% of a one time's sale. You are to buy CONTRACTS only. You DO NOT pay for a list, or names, or a route, or a phone number, or a business name, or a repuation. You only purchase CONTRACTS. If he plows a $30 driveway, you give him $15, once, than it is done. The alternative is, you let him go out of business, and you will probably scoop up the accounts anyway.
     
  6. LoneCowboy

    LoneCowboy PlowSite.com Addict
    Messages: 1,760

    totally agree
    A contract means pretty much boo, if they want to go with someone else, they can drop you in a heartbeat with minimal impact.
    It's worth paying something for, probably not a lot, but something. You should do it now, so he can introduce you to the customers. You'll keep most of them (same average as your accounts). People don't want to mess with change, they just want their driveway done.
     
  7. MIDTOWNPC

    MIDTOWNPC PlowSite Veteran
    Messages: 4,452

    In my town alot of business is done on a handshake. I just bought out a guy who billed approx $25 000 last year in snow. I purchased that business from him for 50% $12500. There are some contracts and some handshakes. I can make that money back very fast, with my other contracts also. Also I am paying him out over 4 months. The first plow he came with me the whole ride. He called everyone and introduced us and handed us the business type deal, explained it to the customers. Everyone is fine with it and since then we have upgrade 75% of those customers to the sand and salt services that we can provide which he didnt. It was a heck of a deal but no one was willing to buy no contracts and no one had the cash. Its not worth what people think its worth to be honest. Most guys want 1 year if not 2 years of billings. Unless they are in stone contracts it wont happen. Especially if every other contractor is booked and no one wants to add more business.
     
  8. theplowmeister

    theplowmeister 2000 Club Member
    from MA
    Messages: 2,552

    Why are the hand shakes worthles? Even if you have a contract and you fail to live up to your part they will dump you. I would assume the seller would introduce you, do a good job and you'l keep them. Why do you need a contract you think your going to force the customers to pay you if you do a bad job? in 21 years of plowing Ive had 1 customer skip town owing me money... I dont think a contract would have stoped him.
     
    Last edited by a moderator: Dec 8, 2007
  9. camden,
    give me a call or email me.
    It's a lot easier to discuss this intelligently over a quick phone call.
    I've done millions in lawn care acquisitions and sold my lawn care and landscaping companies, so I can probably get you a fair idea with a quick sanity check.
    This is the kind of thing I love to do.

    Call me anytime at 763-213-2410
    Steve Hoogenakker
    Steve@Landscape.Pro
     
  10. big acres

    big acres Senior Member
    Messages: 653

    Camden... What's his reputation on the street? Is he respected? Are these commercial or residential?

    One thing's for sure, don't mention the guy's name to anyone. It sounds like a golden opportunity to swoop in with cash in hand and pick up a nice chunk of business out from under you -possibly dirt cheap due to the guy's misfortune. If you cannot work a deal, send me a pm!!!
     
  11. Camden

    Camden PlowSite Fanatic
    Messages: 6,598

    Thanks for the note! I didn't see this until today...I'll definitely be in touch with you.
     
  12. Camden

    Camden PlowSite Fanatic
    Messages: 6,598

    They are a mix of both commercial and rez. I've tried contacting the guy recently and his wife has been the one to do all the talking because he can't hear any more.

    I'm supposed to call again today so we'll see what happens.
     
  13. A Man

    A Man Senior Member
    Messages: 338

    Camden, I'm not sure if the deal has gone threw yet, I did exactly that 5 years ago when I was then 21 years old. I bought out a older guy who wanted to get out of the business. He had 65 clients all comercial and done on a hand shake for well over 20 years, he took me around and introduced me to every client and pretty much every response was " if you say he's good then we'll keep using him". I paid over a 100 000 for the business no equipment included and I paid it off 3 years later, worth every penny, havent lots a client yet. In my opinion it's the best way to grow quickly as long as you are buying out a quality business. Good luck!
     
  14. fknippenberg

    fknippenberg Junior Member
    Messages: 2

    We bought out another guy's snow route this year - $7000 for a dump truck, 2 plows, a sander and the accounts about 70 of them, both commercial and residential all done on handshakes. He wanted to cut back to just mowing and head south for the winter.

    Everything has been great so far... no issues with client loss.

    No one was notified in advance unless they called to confirm plowing. When we sent out the first invoice we included a letter from their former plow guy and from us explaing the change. We are keeping rates as is for the first year and will reevaluate at the end of the season.

    Most people won't drop you just because of the change. They don't want to have to search for a new company...they have no reason to drop you unless your service is less than what they are acustom to.
     
  15. Gicon

    Gicon Senior Member
    from MA
    Messages: 989

    Put some commas and decimal points in that 100 000 becuase you and I both know that at 21 years old, you didnt earn $100,000, and if you did have it, its safe to add you probably wouldnt be snow plowing for a living....
     
  16. JD Dave

    JD Dave PlowSite Fanatic
    Messages: 11,046

    He said he paid it back over 3 years. So what your saying no one that makes $100,000 through the summer plows snow?
     
  17. Gicon

    Gicon Senior Member
    from MA
    Messages: 989

    JD, he cant even spell. At 21 years old, no, he doesnt make $100,000 through the summer. When you were 21, did you make $100,000 in 8 months?
     
  18. montanag

    montanag Member
    Messages: 53

    Spelling well (or speaking grammatically correct English) is not a prerequisite for making 100,000 dollars per year. It is very common for people to purchase contracts based on a percentage of one year's revenue. That sounds ambitious for a 21 year old, and I only wish that such an opportunity had been available, and that I was aware of, it, when I was that age. I personally have met all new clients before purchasing contracts. That was a requirement before a final price was reached. I had good luck both times, only lost one account out of over 40. Best of luck.

    Greg
     
  19. How to Know what your business is worth.

    Camden,
    I was helping out someone else about business valuations, so I just copied it here. If you haven't already completed the deal, I'd probably offer him the revenue for the first 4 mowings once the customer pays, and tell him to sell his equipment on Craigs List so you don't have to deal with it
    All of this stuff below is how to valuate your business, which will help you to have a great perspective for any future business purchases!

    This formula is WAY too complicated for 100 resi accounts, but if you understand how much you could sell all of your business for some day by saving this formula, you can determine how much you can make buying out rival companies. I hope this helps:

    If you want a BUSINESS VALUATION, below is a very real formula.
    A REAL VALUATION, which you should run at least once per year so you know what your business is worth goes like this:

    Technically, it's based on EBITDA, which is Earnings Before Interest, Taxes, Depreciation and Amortization. If you would like to know more about that, just reply and I'll give you a better explanation that should be useful.

    It's basically a "cash flow" formlula. You take your profits, depreciation, interest expense, and any of your pay that is "excessive" to what you do. I mean for the crud we go through, I don't know if any pay is excessive, but in valuing our business, we want it to be excessive.
    So, while running your business, you run the mowing crew in place of a foreman and you make $80,000, you could put $40,000 back towards cash flow because a new owner would have to hire on a new foreman to run that crew:
    Formula works like this
    Profit $20,000
    Depreciation $30,000
    Interest Expense $8,000
    Excessive Owners Income $40,000
    Total: $98,000. Then you use a multiplier on this EBIT or EBITDA formula. Something like 2.5 to 3.5, so the business would be valued at $250,000 to $350,000. In this sort of equation, the value of the equipment is negotiated. IT can be rolled into the price, or the net value can be added, or the buyer may ask that the equipment be paid off from the $350,000 and be free and clear.

    The way to keep this clear is to think from the buyers view is:
    I'm going to buy a business for $300,000. I expect to earn $98,000 per year or get 33% for my money which is a lot better than Wall Street!

    Other factors, it's based on:

    1. Size of company. I would rather buy companies over $750,000 because there has to be some management or systems in place, but a business broker friend of mine says he finds many many more buyers of businesses of around $200,000-$400,000. We think it's because it's easier for another contractor to add that much service to his present line.

    2. Type of billing. I'll assume that we're talking about mowing. "recurring billing" is what brings in a bigger amount. When you have solid monthly billing, this is something that buyers can count on more than one time landscape sales. Commercial usually worth more than Single Family Residential.

    3. Spread out customer base. A Customer base that consists of 3 clients that make up half of the billing is going to scare some people away. A base with 50 clients with no one client making up more than 25% is pretty solid. This is also something that banks financing your company, or financing a sale will feel more comfortable with

    4. Growth. Most buyers prefer some decent, but not excessive growth. A 10 year company growing 15% every year sounds pretty solid to me with probably a solid customer base.

    5. Gross Profit margins.

    Anyway, if you have other questions, let me know,

    Best of Luck!

    Steve Hoogenakker
    Steve@Landscape.Pro
     
  20. Camden

    Camden PlowSite Fanatic
    Messages: 6,598

    D-Hook - I have not made any progress with this guy. He has such an inflated sense of what his business is worth that it's a waste of my time to even talk to him about it. Last time we talked he said, "I need at least 100 for my equipment..."! He's nuts and there's just no other way to put it.

    Also, he told me that he wasn't going to live beyond Christmas but I just saw him in a skid steer a couple days ago. So he's either making a miraculous recovery or he wasn't being honest with me when he told me of his "condition" back in November.

    Either way, your post was great and I copied onto a Word document to save for later.