HOW MUCH is a Landscape Business Worth? Acquisitions and Selling

Foreign.

It's Mike Andes and you're listening to the Landscape Business course podcast. Today I have a very, very special webinar that we're actually showing. But before we get into today's show, a big thank you to today's sponsor, which is Jobber. If you haven't already, go to getjobber.com im andes a n D E S.

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All right, so today is gonna be a long, long episode. It's actually a piece about half of a webinar that I did for ProPlus about eight months ago or seven months ago, whatever, May of 2019. So just to preface it, we no longer have a Pro plus group. That type of training is reserved just for the franchisees where it's more one on one with me. We go really deep and in detail on things. And so if you want to become a franchisee augustalawncareservices.com franchise, you can book a call with me, see if it's the right thing for you. So there is no Pro plus Group. I just want to be clear about that. We stopped that in October before we started the franchise for Augusta Lawn Care. So without any further delay, let's jump right into this webinar. This webinar is all about acquisitions, buying companies and selling companies, lawn care and landscaping, specifically what you can do to increase the valuation of your lawn care and landscaping business. And if you're going out and thinking about buying another company, what do you need to be looking for and how should you value that company? Regardless of you're just buying the contracts or if you're buying all the equipment and the brand and everything, what are the type of things you should be looking for? What are the type of documents you should be asking what kind of due diligence needs to be done in order for an acquisition to be successful? I'm gonna actually be showing you some of the numbers of companies I've bought, and I'd be happy to look at any acquisitions you might have coming down the pipeline. But without any further delay, let's jump right into it. This is again, several months ago, back on a Pro plus webinar. I've cut out pieces. You'll see there might be a gap here or there. So I've cut out certain pieces that were just exclusively for the Proplus group that would go really, really in, deep in detail and things that I just reserved for them. But about half of it I was.

Able to share here, and I think.

It'Ll be a lot of value to you.

So without any further delay. Here we go. So today we are talking about acquisitions and cash flow. And so I'm going to just kind of show my slides here and so you can see those. We'll go through them pretty quickly. And I'm just going to try to be as concise as possible, not getting too many tangents, but present all the information I want to talk about today. And I think regardless of how big your company is, how long you've done it, eventually you're gonna sell it, you're gonna give it to your family, or you're going to in some way end that business. And obviously, we don't want that to end in, like, bankruptcy or in a negative light. We want it to be sold, we want it to expand, we want it to. Or pass it along to our heirs. And so today we're really talking about all those aspects, like the exit, right? Like in. In the tech world, all they talk about is the exit. Like, when is Uber gonna go public? Well, when it goes public, that's when the investors can make money and actually make an exit on their investment. And so we as business owners have the asset of our business and there has to be an exit. And so that is usually in the form of being sold, acquired by another larger company. And we're gonna talk about today what makes a company valuable. So if you're from our perspective as business owners, how do we make our businesses more valuable and making them where someone wants to acquire them. And then also we're going to talk about what you can do when you're going out and trying to buy another business, buy a competitor, how do you evaluate and how do you valuate that business in terms of what you should be paying for it? So let's move along here.

So, yeah, first thing we'll talk about is how to make a business a sellable asset. One thing so many people talk about is, you know, the price of their business, what their business is worth. And so we're gonna talk about how to make your business worth more and how. Next we're gonna talk about how to increase the value of your business. And making it sellable is one thing I'm probably not gonna talk a whole lot about, is that there is a certain amount of selling, just literally the size of a business that will come into play when it comes to valuation. Like, if you're doing $500,000 in revenue, it might be making 150 grand a year. But a business that is making $20 million a year and might only have a 3% profit margin will typically sell for more just because there's more assets. It's a bigger. Like, there's usually more scale involved. And. And we'll talk about other reasons why today. But then we're gonna talk about how to value a potential acquisition if you're wanting to acquire another business. So I'm gonna take several examples of the companies I've bought. The Gym Paradise Lawn Care. I'm gonna look at my own Augusta, currently.

Our balance sheet, and see different ways of evaluating a business. Cause there's literally, as we'll get into the day, there are so many ways to come up with evaluation for a business. And so from the buyer's perspective, if you're willing to buy another company, you want to know which one's the lowest. You want to be able to go in negotiating at a valuation metric that is going to give you a really good deal. And so we're going to talk about some of those ways. And literally, you'll be able to go a range of values when you look at a business. And if you're going in as a buyer, you want to go with the lowest one. If you're coming in as a seller, you want to be educated enough to be able to charge that highest price of valuation. So let's go ahead and get started. First, we're going to. Part one is how to make your business a sellable asset. So we're going to talk about several different ways that your business can be improved and it can make it more of a sellable asset. Because there are companies that I've looked at that literally, I look at it and all it is a job for the business owner. And so if someone wants to buy that business, there's no value attached to that entity. It's literally the person that would buy that company is buying a job. And so they are literally gonna look at what's the profit Mark? What the profit? Like, is it $50,000 a year in profit? That's their job, is they're gonna work there and they're make $50,000 a year. That's how they're gonna look at it. Because it's a job. There is no.

There's nothing that supports the business. And so we're gonna talk today how you can actually make. Build your business thoughtfully and make it to where it's actually a sellable asset, something that someone attaches value to. And so the first thing is services offered. And so this can really be, you know, like really it's about recurring versus install. So if you were at the conference and most of you were, you realized, and we talked about installation versus.

Installation versus recurring work and the valuation that's going to be attached to your business. So this time of year, like when we're at presently 2019, the economy is doing really, really well. And landscape installations are super profitable because it's skilled labor, it's very hard to find contractors. And the building economy right now is booming. And so because of those things.

If you're doing patios, if you're doing pavers, if you're doing decks, fences, any sort of installation work, grading, excavation, like, you have a ton of work right now. And that's because the housing economy is very closely tied to the amount of work we as landscapers get for installs. Because installs traditionally are going to be around new construction. So that might be multifamily, that might be custom homes that are being built. But traditionally, landscape installation work correlates very, very closely to the housing market. And so in 2007, 2008 happened. That's why so many landscape install companies got wiped out. And the ones that remain was. Were the insta. Were the companies that did a lot of maintenance. And so that's what we're trying to look like, looking at the valuation of a business. An installation job traditionally is not something that happens over and over again. If you have an installation job might be $50,000, you install the project, and then you never hear from that customer again. And if you do, it's going to be setting up maintenance. It's not like they're going to have another $50,000 job the next year and another $50,000 the next year. So as the potential buyer coming into the business, that customer that you install that product on, they might have increased Revenue, top line revenue for your business, but they are not actually value to the business because they're not sticking around. There's no guaranteed income, and so there's no income that's continually coming in. So recurring services, things like mowing, weeding, like weed control, fertilization, things that are on a schedule that happen over and over and over again, although they might be lower ticket items and revenue wise, they're actually, you'll make less money from the perspective of a buyer that wants to buy a business and have a projected income. This is really important to them is having this recurring base of work. So we'll talk a little bit more about that in just a second. But at the end of the day, an install project is only worth as much as that one project versus a recurring service that really in theory has unlimited potential for 10, 20 years if you keep that customer. And so recurring revenue is always ideal when it comes to buying a business. If you look at all the acquisitions, like, if you look in like Lawn and Landscape magazine or any of these other magazines or trade journals, you will see.

The companies being bought out are fertilization, pest control and sprinkler maintenance and mowing. Like those are the kinds of. You really almost never see hardscape installation companies being bought out. And usually because they don't get massive, it's very hard to do project management on a bigger scale of a business. Whereas maintenance, things that are repeatable, things that are recurring, the revenue, it is scalable. It can, you know, you can have 100 people working for you doing the same type of mowing, the same type of properties in the same market, versus hardscaping, where it is very hard to find the work, estimate the work project, manage the work, and consistently produce a consistent result because it's very skilled labor. So if you look at all the acquisitions in our industry, almost all the time it revolves around maintenance of some sort. So that like maintenance of sprinklers is still really good maintenance of lawns in terms of mowing, fertilization, etc. And then also for bed maintenance, those are the things that are repeatable, things are recurring, and those are the companies that sell well in our industry and sell at a really good multiplier of revenue. So if you're looking to sell and you're wanting to make your business a sellable asset, you want more recurring services. And not to say that installation services are bad, but if you get an install, make sure you get the maintenance contract going forward on that project to make sure that you produce.

That Recurring service base is what should be growing with your business. So for us, I don't see our installation side of our business growing a whole lot more in terms of revenue. But every time we install, we're trying to get them on maintenance, and that's what's growing. The actual revenue of the business is the increase in maintenance. So that's that. Continue on here. Slide. So also when it comes to selling your business and the value that's going to be attached to it is what type of service are you offering? So the highest multiplier in our industry is if you have fertilization, spraying, granular applications. That's the best margin in our business. So you might have 70, 80% margin on a fertilization job versus 10 to 15% on mowing. And so the best multiplier is gonna be fertilization because it's very repeatable. It's mostly a sales game, and it's very much plug and play and scalable. And so because of that, if you look at acquisitions within our industry, companies that have fertilization built in, and that's like their main thing, that's gonna make the company value at a much higher rate because the services that they produce are of higher value. So this kind of ties into the install thing too. Like if you're doing a bunch of patios, pavers, and big installation projects, a lot of that weight usually is falling on you as the owner or one person as a project manager that's really skilled, that's just not scalable. Someone wanting to buy your business, if they don't have those same skills, they have to literally take that income off of the top line. They have to look at your service mix and say, okay, if 20% of the work is hardscaping, that I can't even do, that means 20% of the revenue is going to be gone when I buy this business. And they're going to see that, and they're going to recognize that it's, number one, hard to buy because you need to be a very educated buyer. And secondly.

If they buy that business and you leave or your project manager leaves, or whoever is skilled leaves, that's going to leave them in a hole with their customers. It's going to leave, like I said, the revenue part of that service is going to be destroyed in their business. So fertilization is the best. Irrigation is pretty close behind that. Maintenance, like mowing and things is, you know, lower. And then installation companies are even lowest because they don't have that recurring revenue coming in. And so that kind of comes back to the next thing which is making your company more valuable is contracts and guaranteed income. And so I'll go over this in a little bit when I talk about anytime fitness, because that's one of the big reasons why I bought the club for the amount of money I did, is that they have contracts in place. So at the gym they have where people sign 12 and 24 month contracts that promise to pay between like 40 and $50 a month. So when I bought the business.

There was a guaranteed amount of income coming in over the course of the next 12 to 24 months. And it was like in contracts like signed with payment information, like it was guaranteed income. I already knew that over half a million dollars was guaranteed to come in. Like if I came in and just did a horrible job of operating, I knew that guaranteed income of half a million dollars was coming in. And so when you look at your business, if you're willing to sell it, contracts is gonna be super valuable. 12 month contracts are super valuable because it solves the cash flow issue during the winter. Nine month contracts, I really like those. We're gonna talk more about different ways when we get in the cash flow aspect of things. But when someone's wanting to buy your business, if you have contracts in place, it means that it's going to take away the edge from the customers when they hear that the business has been acquired. So if they have contracts with say for Augusta Lawn Care and we have contracts set up in place with all our customers, if Joe Blow comes along and buys my business, they still have a contractual obligation that the customer has to fulfill. Thereby there's guaranteed income. And when it's guaranteed, it's not, it's in the bank, but it's basically signed on the guideline. There's a contract that will uphold that income being guaranteed to them. And so that's very valuable on a lot of people that come talk to me and say, hey, I want to sell my business in the next couple years. That's the first thing I'm trying to push them towards, is like, okay, you have a whole bunch of services. Let's try to get people on contracts. And even if it's just a nine month contract, even if it's just a set amount, something signed, something that they are locked into with something is going to increase the value of your business when it comes time to sell it.

All right, so this is another one company and team structure.

So you know, it comes down to like, how many levels of management do you have an office Staff in place. Do you have an estimator? And so, you know, I always talk about the different stages of your business. Like you out in the field as a crew member, you, then you in the office, then you as the estimator, then you as the CEO. If someone is trying to sell their business and they're in the field, they're in the office, they're estimating and they're not CEO. If they're in any of those first three phases, their company's going to be valued much, much lower. Because as a CEO, usually the person buying your business can take that place. It's harder for them to come in and estimate exactly the same way. You do know all the customers the same way because you have a personal connection with all them. It's even harder for them to be stepping the office. And now customers are used to emailing you, talking to you on the phone, communicating with you. Now that's very difficult. And then even worse, if you're out in the field and now they actually have to go out and do all those things, plus do the work, the value your business is gonna have, the price tag is gonna be much lower in comparison to someone that has delegated out the work out in the field, has delegated out the office work, has delegated out the estimating, and is basically managing the business as this CEO. And so you want to push towards that. We always are talking about that. If you're wanting to sell your business.

Team structure in terms of crews, do you have it set up with like crew leaders, crew members, do you have office staff? Do you have project managers? Do you have all of the structure of teams in place and are you having a massive turnover or is it pretty consistent? So that's all really important to.

To the value that a potential buyer is going to put on your business is when they come in, is everything going to fall flat or do you have a team in place that's going to uphold the office work and they know how to do all the billing and everything else? Do you have an estimator that's going to take care of sales and be able to make, you know, bring in new business? Do you have project managers out in the field that know how to do the work, know how to lead people, and more importantly, are all those people going to leave when you sell the business? If you built a business that's very much around you, it's going to be hard for a new buyer to come in and start managing your team. Like, I know in my company, if I sold My business, which I'm not. But if I sold my business, I'd say about.

A third of them would probably leave because they've bought into what I'm doing and the mission behind me and the business and what I'm trying to do for the industry and less about the job itself. So if someone else came in, bought my business, and they were like, hey, we're just going to make this location really big and we're going to make it more profitable and we're going to make it larger, that's not going to get. Probably a third of my employees are not going to be inspired by that and they're going to leave. And so that's a vulnerability if I ever wanted to sell my business. But if you're trying to sell your business, you know, you want to create systems and people, the people in place, the structure of your business to where someone else did buy it out that you. No payroll isn't attached to you.

Compensation packages aren't tied to, like, how you sell things like that, so that when a new owner comes in, people don't leave. And the structure of the business holds everything up instead of you as the owner holding everything up. So having a really good team in place is important. I think the value, like there's an actual dollar amount that you can attach to having a really good employee. So when I actually bought Anytime Fitness attached a value in my valuation to having one of the trainers that was super good. Stay there. I was like, she is worth at least $50,000 in terms of the valuation of this business, because she's that good. And then I also knew that having a, you know, I wanted to bring in new team members, and I knew if I could get a certain one that was super good at what she did. Office manager, actually, you met her, Sammy, at the conference. I knew if I could get her in, that'd be worth a lot more money, too. So that was one of the contingencies I had in the sale. So company structure and who you have on your team is going to play into the valuation of your business. And if they can work.

Independent of you, it makes it even more valuable for a prospective buyer that's gonna come in and need to learn a lot of things from your team in order to grow the business. So company and your team structure and the way that you structure your business in terms of the field, the office, sales and all of that structure is really important. So that kind of leads into the next thing, which is owner dependency. So how much does your business depend on you as the owner. And there's a couple things I think I have written down specifically about that. One is documented systems and procedures. So a couple things you can do to make sure that you have documented systems and procedures.

Is videos, videos, a training manual, things like that. It's not easy and like, it's very theoretical. And in theory, you make a really good training manual, a really good series of videos. And people watch them and they learn. It's very hard sometimes to get a new field member, new employee to sit down and watch these videos or to really care about reading a manual and opening them up. And like, you have very specific detail. 1, 2, 3, 4, 5. And like bullet points and checkpoints and.

Checklists, like all this stuff. It's very hard for them sometimes to focus. Sometimes your field crew, the laborers, they're out there and they just want to work hard. They don't want to sit down and read, they don't want to watch a video. They can hardly figure out how to watch the tutorials. And so in theory, you can make a really good training manual or a really good training tutorial system, Document the system and make the procedures. You can make it all look really good. But if people don't use it, it's really useless. And so this is something that we've been working with. And we're just finishing up condensing all of this training into like a 50 minute video for our field staff that I can give to a new training person. And they're gonna know equipment stuff. They're gonna know like trimming, zero turn safety. And we just compacted it and made it pretty interesting by having we actually just what we did. And this is what you might want to do for you is have a training day for your entire staff and either you or one of your team members basically train everyone there, get everyone on the Same page, make SOPs, standard operating procedures for how things should be done. Video the entire thing and then clip out certain parts or just edit it so it's more concise and that you can be your training video or your training tutorial for your new hires. So that's what we did this past winter in February. We had an entire day of training. I had Josh there videoing the entire thing. And then we cut it all down like 50 minutes. And that's the new training for the mowing crew. Then the landscaping crew is like an hour and a half that was cropped down. And in an hour and a half they get all the SOPs for how we do paver Patios, block walls, boulder walls and flagstone patios. The four things that we kind of do the most of for hardscaping. But primarily we were really focused on the mowing side, the maintenance side, because that's usually an entry level position. Someone that's not gonna have a huge attention span, someone that is going to be really wanting to just get out and get their job done and start making money. And you want to be like, hey, slow down. This is how we do things. These are SOPs and, and they can know from the get go what is expected of them. But don't just assume that if you make a good documented system and procedure and you document it really well that people are gonna use it. So a couple things I'll share also. For office staff, what we do for tutorials is whenever Liz like, so this is what I did for Liz when she came on several years ago. And that is, I was like, okay, there's all these things I do in the office. I just did screen share, like literally use QuickTime Player on my Mac. You can use other software too and just record your screen. And then what I did is like, okay, if I was billing, I would just record a two, three minute video of my screen and show what happens when I'm billing somebody. I explain it with my audio, my voice, it record it all and I'd save into a folder called Office Tutorials and just name it with something that was.

Pretty like self explanatory that they could search. So we still have that folder that I made for Liz. But now what happens is Liz will make videos for the office assistants all the time. So like okay, payroll, when she handed off payroll, she just made a video of her doing payroll and sending it to the bookkeeper one time. And now whenever the office assistant needs to go in there, she can just watch the video, make sure everything's good. And eventually she doesn't need the video, she doesn't need the tutorial. So for the office, that's worked really, really well. And even if you right now have like three, four people in the field and you're in the office, or maybe your wife is in the office or husband, like whatever it is, still document everything as it comes up. Like, okay, I'm all the time doing the same thing, let me record it, make a video. Because you know if you get hit by a bus, someone else could pick that, that video up and just keep the business going. And when you have documented systems and procedures and you have tutorials like that and you have the training videos it makes a potential buyer much more confident that when you leave, there's going to be systems and procedures in place that hold the business structure up. And they're going to go out and be able to go hire people knowing that there's a system in place to train them. They're going to be able to go and expand the business knowing that the office is going to have systems in place that will support that growth. So having documented systems and procedures is very important.

And the ways that have worked really well for us is doing a training day, videoing it, and then making it more concise via editing the video. That's worked really well for the field, for the office. We've done screen share saving into a folder just like lots and lots of that. There's probably, I'd say 80 of those videos now that Liz has made and made into that folder. And so anytime the office assistants need something, they can just search it in that folder and, and see if there's a video corresponding with how to do it. Obviously, if Liz got hit by a bus, that would not be cool, but the office staff could probably go in there and just watch some videos if they ever hit a hiccup or something was wrong. And so everything from the office to the person in the field to you as the owner.

How do you submit your sales tax? That should be a video. How does that happen? Things that you do as the owner should be documented. I had to document this last winter. Like, how to do an estimate, like shaking the hand when to give the business card the introduction packet. What to say in terms of like, why are you videoing at my house? Well, I'm making a video for the crew and use it as a way to sell the project. Assuming the clothes by saying when the crew comes up, they'll watch this video and just assuming the clothes right from the get go. And having to make all those things documented in terms of like, this is what you say when this happens. This is what you say when this happens. And making it all systematized and then documenting those procedures is gonna be helpful. Cause if I get hit by a bus tomorrow and they have to sell the business, it's gonna be a lot more valuable if there are systems in place that are documented that someone else can pick up and just start and continue the structure of the business. The documented systems and procedures are really important. And I really feel like you should do this sooner than later, like get started. Even if you have a couple people in the field, even if you do a training day and there's three of you out in the middle of a park. So what we did is we asked our local city be like, hey, we'll mow the lawn and trim all these bushes at this park for free. And that's what we used for training day. We went to a big park where we had lots of space for zero turns, lots of bushes to trim. And they're like, of course, like the city's like, great, that's fantastic. You go to like baseball fields. That was a. We had a backup plan for the baseball fields. By the end of the day, you can get like a park or something like that. Big open area, lots of area edge, lots of places to trim, make mistakes, things like that, if it's in a big open area. And so great place to learn. Even if you have two or three people, even if you're the only person in the office, it's great to start documenting these systems and procedures. And it can really be a mix. The main thing is it doesn't all have to be videos, it doesn't all have to be text, it doesn't have to be like a document you send everyone. I think the best training system and the best way of documenting your systems and procedures is a mix of videos, pictures, text, formalized on the job training. And when I say formalized, I mean like, day one, this is what they're gonna learn. Day two, this is what they're gonna learn. So they're gonna watch our videos for training day. But I know that day one and two, they're not gonna get on a mower, they're gonna edge, they're gonna blow, they're gonna line, trim, you know, then they can figure out the push mower. Then after that they can figure out the zero turn, then they can drive the trailer, then they can back up the trailer. So all of those things should be documented in terms of when they can be done, what's expected each step along that training. And the sooner you start doing that, the better as you begin to grow. All right. Another thing that is really going to make your business more valuable is absentee ownership. If you're wanting to sell your business to somebody.

If you can sell it as a business that allows for absentee ownership, the prospects that would buy our business go up dramatically because it allows for a passive investor to come along that's really good at managing a business, growing, scaling, marketing, sales, but doesn't want to be in the day to day operations. And so if you've been able to figure out the systems and procedures in your Business and make it where you can not have to live there the value of business goes up dramatically. This is why franchises and things like that are so successful. And so what I'd really recommend you trying to do, you try to leave your business for a day. Like try to like you don't have to take a vacation. Just don't, don't be there for a day. You could be do it for vacation or you could say hey, we're doing training. And you go do a training thing for a day, do it for seven days after that, then do it for two weeks. If you can stay away from your business for two solid weeks and everything goes fine, sales are continually coming in, the business is profitable, people still show up to work all of those things. If you're able to do all of that correctly and the business doesn't drown, then you're setting yourself for a very successful sale. Because that person can come in and they can know that they don't have to be there, they don't have to be locked down to this one facility. They can think more about the business as a whole. And so it was really eye opening to me like a year and a half, two years ago when I left my business for a week, it was like, oh, like things still happened and sales still came in and like estimators somehow figured it out and like did just as good as I do and projects went smoothly and I just have to connect once in a while on via phone, like so if you're able to make your systems and procedures to the point where you can become an absentee owner or not always have to be there on a day to day basis, that's very, very valuable if you're wanting to sell your business.

Alright, so I would really recommend try to leave your business for a day. Maybe don't show up, maybe feign that you're sick, See what happens, see where things break. And this is how I looked at a couple years ago when I left for a conference for a week. I was like, okay, let's see what breaks. Like where is the bottlenecks? Where have I not created systems and procedures or videos or tutorials. Like when you're gone for a week, you will figure out where the holes, where are the things that you're always doing that now no one else knows how to do. So I really challenge you, try to leave for a day, see what happens. Try to leave for a week, see what happens. Try to leave for two weeks. There was a book, I forget what it was, but he challenged everyone to leave for 90 days from your business and see how it runs. And the goal was to make sure your business runs fine without you for 90 days. And it's really, really interesting. And so the value your business will be alright. So another thing that when we talk about.

Making your business a sellable asset is what is the lifetime value of your customer? And so this is something everyone should be tracking. If you have service, autopilot or another software, it's pretty easy to figure out this number. Basically, if you take all your customers and you divide your revenue divided by the number of customers that you have, you'll get the lifetime value of your customer. And when I say lifetime, that's taking into account also how many years they stay with you. I'm more talking about here the value of a customer per year. That's more what I'm talking about like per year, how much revenue does each customer bring into your business? That's more what I'm talking about when I say lifetime value customer here. It's more like annual value of customer. And how do you figure out how to upsell them to other services? So if they're mowing and they're, you know, doing a bunch of mowing and you're spending say $1,500 a year with you mowing services, how do you sell them a $500 cleanup? How do you sell them $400 worth of fertilization? How do you sell them a $600 trimming job? All of a sudden you think that 1500 dollars per year client to a $3000 per year client and you essentially doubled your top line revenue without increasing the number of customers you actually have to go out and acquire. So the value of a customer per year or the revenue that they bring is very important. If you're having. The reason for that is because if your average value of your customer per year is like $900, that means that they might stay for four or five years, you might be worth four or $5,000. And if you have a profit margin of say 10 to 20%, you might make five to $800 per customer on their whole life. And that's a lot of work to keep a customer for five years for five to $800 in gross or in profit, I should say. And so what you want to do is say, okay, instead of going after the $900 customer, I'm going to go after the customer that's willing to get the trimming and the weed control and all these other bundled services and fertilization on all the high margin stuff and I blow up their irrigation and I start it up and you want to get that $3,000 plus per customer per year so that when a potential buyer comes along and you say, hey, there's five, I have 500 customers. And they're like, okay, that's cool. But each one of them pays $3,000. And that's why I have a 1.5 million dollar revenue business. That's more appealing than saying I have a thousand, sorry, I have 1500 customers and they pay me an average of a thousand dollars per year. So like literally the same amount of customers, but by increasing the, like creating add ons, upsells, adding the fertilization, all those things can really dramatically increase the value of that customer each year. And when you want to go sell your business, I promise you they're not looking for how many customers you have as much as how much profit does of those customers bring in. Because if you have 1500 customers that you have to deal with, I promise you, you're gonna have a lot of people in your office, you're gonna have a lot of office app, a lot of overhead. You're gonna have more trucks, more trailers. If you can have less customers, but a higher value per customer per year, you're gonna have less people in the office, less overhead, less trucks, less employees. So less drive time too by the way. So it's not about gross revenue when you're looking at your business as a sale. It's also like how many customers do you have? How many employees are you going to need to service those customers and how much overhead do you need to support all of those customers? You'd much rather have 20 great, amazing customers that pay you 100,000 a year than 2,000 customers that pay you $1,000 a year. The amount of infrastructure you will need to support the 2000 customers and is crazy versus the 20 customers that you can really focus on, really give really good support to and not have to have as much overhead in terms of office people, equipment, trucks and employees. So something to think about there too. Another thing that's going to make your business a sellable asset is creating a stable margin and cash flow. Alright, so.

If you look at each month within, this is something that is really indicative of a company that's mature versus one that's still growing really quickly or is still trying to figure things out is that over the course of a year your revenues can change quite a bit. But if your profitability is changing massively and there's a margin Difference that can show that someone's still trying to figure things out, or they haven't created the systems in place to create a stable margin. So what I mean by that is, if I make, let's say, $100,000 in the margin middle of the year, say June, you make $100,000 revenue. And let's say you have a 20% margin, you should have a 20% net income, like $20,000 in the bank. Now, if during the winter, let's say January, you make $50,000, the question is, is your margin still 20% and do you make $10,000 or does it shrink down to like 2% because it's the winter? And so what you want to do is create a stable margin throughout the year and. And throughout each annual year. So if one year you have a business and you're having a 20% margin, then the next year have a 5% margin, the next year you have a 24% margin. Then the next year you have 18% margin. Then the next year YOU have a 3% margin, then the next year YOU have 29% margin. It's all over the place. There's just no dependability, and there's absolutely no stability in that. And when someone's going to buy that business, they're just not going to be able to project revenue very well. And the confidence like this is a big part of this all, is confidence when someone's going to buy. And stable financials is a massive indicator of what your business is going to sell for. If your growth is slowly going up or going up each year, and your margin is staying consistent, and you're thereby making more net income each year, that is very appealing to a potential buyer. They can confidently walk in knowing that the business is healthy, it's growing, and it's staying profitable. It's not just getting big and getting more trucks and more employees and more customers without making any more profit. That's scary.

If you're growing, but your net margin or your net profitability, like dollars in the bank, is staying the same. That's very concerning because you're just making a big organization that's not profitable. So having a stable margin that is consistent a percentage over the course of each month as well as the course of annually each fiscal year, that's going to increase the value of your business when you want to sell it. So stable margin and cash flow. And so in our business, probably the hardest one.

We'Re going to talk about it later today, is consistency of cash flow throughout the course of a Year, really important. How big does your winter dip go? For some people in Florida, California, stuff like that, this isn't even an issue because they eat work year round. But there's almost always periods of time. And for most of us it's in spring that our cash flow goes really low. And then there's times like the fall, once we're collecting all these jobs and every other work is being paid. Now when we have a bunch of money in the bank, that delta between, between your low points of cash flow and your high points of cash flow, you want that to be as low as possible because cash flow curves throughout the year, which we're going to have in our industry. Like you're not going to be able to take it away necessarily. Even with 12 month contracts, there's going to be dips and flows of cash flow because your expenses are going to change based upon the labor. So like there's going to be changes in terms of cash flow.

But the problem is the amount of money that they have to keep in the bank and correlated to how low that cash flow goes. So for example, if your delta, if like you need $500,000 in the bank for a bigger business, you need that in the fall in order to get through the winter, and you know you're gonna spend $400,000 and get down to $100,000 in working capital, that $400,000 is dead money. In the middle of summer when it's sitting there literally just being weighted to be spent in the winter, that's dead money. And so if your cash flow isn't consistent and you have those big sweeps and you have the big ups, the big highs and the big lows, basically the lows is dictating how much money needs to be kept in the bank at all times, thereby locking up that money. So for example, Anytime Fitness, because they have contracts and they're year round and there's not much fluctuation in terms of how much money we make every month because people sign a year long contract and there's a lot of members and it's like a little bit more in the winter just because a lot of people are signing up. But it's pretty flat throughout the whole year. And because of that, as the buyer, I can go in there and know very well how much money I'm gonna make. And I don't have to keep much money in my working capital. I don't have to keep much money in the bank because I know that every month it's gonna consistently produce the same amount of money, produce the same amount of cash flow, produce the same amount of income and profit. And so I don't have to keep a lot of money in the bank versus a landscaping company where you do have a big dip in the winter. And you're gonna have to store up a bunch of cash to get through that. So by working your cash flow problems, working your cash flow issues, you can bring up the amount. That low. That low you can bring up and thereby decrease the delta of your highs and your lows, make it more of a stable model financially. So we'll talk more about cash flow and some of the ways to improve cash flow in just a minute here.

Another thing that people, someone will be looking at when it comes to your company and wanting to buy it is growth and expansion. So like I said, they want to see a healthy business that's growing over time. And it's not a bad thing necessarily, if you haven't taken opportunity to capitalize on all the ways that you could grow the business or you could expand. So, for example, like in my industry, in my market, someone could start the second location because we had two locations before and we consolidated to one. If they wanted to expand, they could easily start a second one and grow. They could offer different services. There's services we don't offer that we have not got into. They could offer different services. They could focus on services that we haven't really even marketed. They could capitalize on those. And so a potential buyer that's coming in, if they're a business person, they're looking at where all the opportunities to grow this business, to make it much bigger and to really come in and change the business and make it better.