Every once in a while, a business opportunity may appear that would make for a perfect fit. In this situation, shared with us on the Gopher Lawn Care Business Forum, a would be entrepreneur considered buying an already operating lawn care business from a friend who was moving out of town. He wondered if this opportunity really was good as it appeared while other business owners shared with him, their advice on it.
I have thought many times about starting my own lawn care business and have come as close as you can to doing it a couple years ago but got too scared of leaving my job to go through with it. However I have recently been presented with an opportunity from an acquaintance of mine. He claims to be making a living with his lawn care business. He has about 40 clients, none on contract. He has one employee that he pays $10 an hour and claims to make about $4,000 a month, nine months out of the year. This of course is according to him. He will be moving soon and said he was planning on just handing the business over to his employee when he left, minus the $5,000 in equipment he purchased. At first I had no thoughts about taking it over myself but since have been thinking this could be a great opportunity.
I have no cash on hand to speak of but decent credit. What I need to come up with is a good offer for something like this that is fair to the both of us. I’m hoping for some kind of payment plan over a year or two due to my cash situation. It seems like anything would be better for him than just handing the business over for free. Before I had thoughts of obtaining the business I said a few things like ‘dude, are you crazy? Why not sell the biz for some start up cash in your new town.’ I am now kicking myself for saying this as I think I got his hopes up on getting a lot of money for the business. He is now looking in the $20,000 to $30,000 range. If he could get that, more power to him, but I would love to buy it. I just don’t want to screw the guy over or myself.
I have a truck but no trailer. However that’s part of the equipment he has. None of the customers are under contract and I don’t understand the deal with contracts. Why are they worth so much more than non-contract customers? If a customer doesn’t pay you per the contract does anyone ever actually take them to court and what not? Doing so might cost more than the account!
I am thinking of making an offer of $4,000 to $5,000 for his equipment after I look at it and value it. Then maybe another $2,000 to $3,000 for his lawn accounts to be paid out from the time I start, to the end of mowing season. I am going to offer to pay myself $10 dollars an hour and give him EVERYTHING else until the $6,000 to $8,000 is paid to him. He might be concerned about not getting the cash for his equipment up front, since he plans to start again in his new town, but that is about the best I can offer. Then if he doesn’t take it, i’ll start my own from scratch next season.”
A second lawn care business owner suggested “if he’s making the $4,000 per month and his equipment is worth $5,000. I would be willing to give $12,200 for the business. In essence, $4,000 X 9 months = $36,000. Then I take 20% of $36,000 = $7,200 and add the $5,000 for the equipment.
At first some may say offering 20% of the annual lawn care income is too much. Most would want to pay 10% of gross sales and value of the equipment. But if you think about it and plan on staying at this for some time, then it is well worth it.
At a maximum of 20%, you would be paying $180 for each account. At first glance it may seem high, but you wouldn’t have to spend money in advertising or the time to go out and get customers or the bidding and all that goes with it. If you spread this over the amount of time you plan on staying in business, it seems like nothing.
For example, let’s say you had plans to stay in this business for the next 5 years. Then the cost of each customer that stayed with you over that time is only $36.
It is also easier to expand if you already have a base of customers. Advertising to the neighbors, friends, or their relatives. Also, you can sell other services like weeding gardens, adding mulch, trimming bushes/trees. The mowing is only the tip of the iceberg.
20% is a personal figure for me. Depending on how long you would be staying with the business you could pay more or less. 20% is just my maximum.
You have to figure out how much you can do with the money you would be spending on the business. For example if it ends up being $10,000, try to estimate how many customers you think you can get with an investment of that much. Also, consider what equipment you could buy with that money. If you think you can do better, then it’s not a good investment to spend that money on buying a business.
Besides, if you buy a business and keep it in good standing, when you are ready to get out of it, you could sell it for what you bought it or perhaps more and end up getting your initial investment back. So in that case your customers didn’t cost you anything if you get it back in the end.
I see many people get scared of all the money they spend in the beginning. But you have to understand these are investments and not expenses. The difference is that an expense is used up during the year: like buying gas or trimmer line. An investment increases in value and you can get it back when you sell the business.
So my final view is, don’t let this opportunity slip by, if it’s all legit like he says.