More recently, one of Bailey’s contractor clients paid around three times the monthly revenue for just the accounts, negotiating the equipment separately.
Bailey says there are three primary methods of acquisition. (See the online version of this article for a sidebar discussing the pros and cons of each.)
“The thing to remember is that there is no standard deal when it comes to buying a company,” Bailey emphasizes. “The one constant is that buyers should seek some level of guidance, at least from their accountant or a consultant. Obtain a copy of all the company’s service contracts as well as the seller’s personal tax returns. The documents will help shed light on the company’s profitability and stability.”
Like Bailey, consultant Kevin Kehoe advises prospective buyers to never pay one lump sum for a company unless they get a great deal. He also says buyers should be on the lookout for hidden liabilities.
WHAT THE SELLER SHOULD DO
Kehoe’s definition of a successful sale is one that makes both parties happy. Hence, he offers these “due diligence” suggestions to the seller, which, in turn, will please the buyer and facilitate a sale:
Financials. Have at least two solid years of profit by profit center.
Aging schedules. Clean up anything in excess of 60 days (accounts payable and accounts receivable).
Revenue. Document net revenue per hour performance for every job.
Job costs. Have solid job cost data for contracts.
Leases. Make certain that the lease is not expiring and that it is transferable.
Non-solicit agreements. These must be enforced for all key employees, up to date and signed.
Employee files. These should be audited for extraneous information and for immigration exposure. Resolve and/or bring up to date for present and past employees.
Contracts. Make certain contracts are up to date and transferable. Clean up contact information by site, address, contact, billing, and other related contacts in the renewal, decision-making process.
Legal. Disclose and resolve any recent and current legal actions. This includes any actions with customers, employees, vendors or government agencies.
Vendors. Document vendor contact list, along with any pricing and term arrangements favorable to you and by extension to the buyer.
Shop. Make sure your facility is clean and well-organized, and that repair and maintenance records are up to date on vehicles and larger pieces of equipment.
“You may want to retain the previous owner for a year or so, just to ease the transition, keep customer relationships in place, and retain other key employees,” Heaviland explains.
Also, ask yourself if you can generate the expected revenue gains from buying another company simply by hiring a good salesperson in your existing organization. If so, don’t buy the company—grow organically instead. “It will cost you a heck of a lot less, and you get exactly the type of clients and properties you want,” Heaviland points out.
Finally, another alternative to buying is merging. You exchange ownership interests after placing a value on both companies. If there are good synergies involved, your remaining ownership percentage can be worth more than your original valuation. “The due diligence investigation is the same as if you’re buying the company, though” Bailey points out. PRO
Methods of Acquisition
There are three primary ways to place a value on a landscape company. Here are the pros and cons of each.
There are three primary ways to place a value on a landscape company, according to Green industry consultant Rod Bailey, CCLP:
- Accounts only
- Assets (including vehicles and equipment)
- Buy the company lock, stock and barrel
• You don't assume any liabilities of the seller's business.
• Fairly simple transaction since you are just buying a customer list.
• Seller's customers are not obligated to stay with you unless there are signed contracts being purchased.
• There may be contracts involved that you don't want. Be selective if you can.
• Seller's business may continue.