Webinar: Buying a Lawn Care Company

Hey everyone, 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.

One of the things I love about.

Jobber is the ease of use for people just getting started, switching from paper.

And just scribbling things out on a.

Whiteboard or on an Excel spreadsheet and actually becoming a professional business and allowing them to accept credit cards and drastically reducing their cash flow issues. Today we're going to be talking about acquisitions and cash flow and things like that. One of the big ways to increase the valuation of your business is to have that steady cash flow. And one of the best ways to do that is accept credit cards. Jobber allows you to do that where the customer can pay directly from the invoice and and make sure that your.

Collections are very low.

Check it out today. Go to getjobber.com im andy, quote my last name A N D E S.

And try out their software today.

Alright, so today is gonna be a long, long episode. It's actually a piece about half of a webinar that I did for Pro.

Plus 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. But 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 if 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 adding, asking for 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 Proplus 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 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 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 the price of their business, what their business is worth. And so we're talking about how to make your business worth more. And next we're going to talk about how to increase the value of your business. And making it sellable is one thing I'm probably not going to talk a whole lot about is that there is a certain amount of size, 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 we'll talk about other reasons why today. But then we're going to talk about how to value a potential acquisition if you're wanting to acquire another business. So I'm going to take several examples of the companies I've bought. The Gym Paradise Lawn Care, I'm going to look at my Augusta, Currently, RP and our balance sheet and see different ways of evaluating a business. Because there's literally, as we'll get into today, there are so many ways to come up with a valuation for a business. And so from the buyer's perspective, if you're wanting to buy another company, you want to know which one's the lowest, you want to be able to go in negotiating at valuation metric that is going to give you a really good deal. And so we're gonna talk about some of those ways and literally you'll be able to get 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, 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 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 going to 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 gonna 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.

Like, really it's about recurring versus install. So if you were at the conference, most of you were, you realized, and we talked about installation versus.

Installation versus recurring work and the valuation that's gonna 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 when 2007, 2008 happened, the. That's why so many landscape install companies got wiped out. And the ones that remained.

Were the companies that did a lot of maintenance. And so that's what we're trying to 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. They're not. 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 as good, 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 kind you 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 is. 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 of. So that, like maintenance of sprinklers is still really good maintenance of lawns in terms of mowing, fertilization, et cetera, and then also for bed maintenance, those are the things that are repeatable, things that 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. 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 gonna be attached to it is what type of service are you offering? So the highest multiplier in our industry is if you have fertilization and spraying granular applications. That's the best margin in our business. So, you know, you might have 70, 80% margin on a fertilization job versus 10 to 15% on mowing. And so the best multiplier is going to be fertilization because it's very repeatable. It's all a big. 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 gonna be gone when I buy this business. And they're gonna see that, and they're gonna 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 gonna leave them in a hole with their customers. It's going to leave. Like I said, the revenue part of that service is gonna be destroyed in their business. So fertilization is the best. Irrigation is pretty close behind that. Maintenance like mowing and things is. Is 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, 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 are 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 into the cash flow aspect of things. But when someone's wanting to buy your business, it's. 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 gets in the bank, but it's basically signed on the dotted line. There's a contract that will uphold that income being guaranteed to them. And so that's very valuable. A lot of people that come and 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 like 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 than 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 gonna 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 need to do know all the customers the same way because you have now a personal connection with all them. It's even harder for them to be step in 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 that your business is gonna have, the price tag is gonna be much lower in comparison to, 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 the 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 and teams in place and are you having a massive turnover or is it pretty consistent? So that's all really important 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 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 gonna leave when you sell the business? If you built a business that's very much around you, it's gonna 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 gonna make this location really big, and we're gonna make it more profitable, and we're gonna make it larger, that's not gonna get. Probably a third of my employees are not gonna be inspired by that, and they're gonna 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 want to create systems and the people in place, the structure of your business to where if someone else did buy it out, that payroll isn't attached to you.

Compensation packages aren't tied to 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, I 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 an, 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 met. 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 in the valuation of your business. And if they can work.

Independent of you, it makes it even more valuable for 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. 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 system. Document the system, 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 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. I can give it to a new training person and they're gonna know equipment stuff. They're gonna know like trimming zero turn safety. 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 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. And so, 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 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, 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. 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, 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 if you get hit by a bus, someone else could pick that video up and just keep the business going. And when you have document 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 Gonna be systems and procedures in place that hold the business structure up. And they're gonna go out and be able to go hire people knowing that there's a system in place to train them. They're gonna be able to go and expand the business knowing that the office is gonna 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 them. 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 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, like, how do you submit? How do you submit your sales tax? That should be a video. Like, how does that happen? Things that you do as the owner should be documented. I 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. For the crew and use it as a way to sell the project. Assuming the close 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 and 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. 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. 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, 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 like 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. Alright. Another thing that is really gonna make your business more valuable is absentee ownership. So 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 your 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 is try to leave your business for a day.

You don't even have to take a vacation, just 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, things still happened and sales still came in and estimators somehow figured it out and did just as good as I do and projects went smoothly and I just have to connect once in a while on via phone. So if you're able to make your systems and procedures 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, like maybe don't show up, maybe like 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 do 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 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 can take that $1,500 per year client to a $3,000 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. 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 revenue, 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 and all the high margin stuff. And I blow out 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, I have 500 customers and, 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 $1000 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 are 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.

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 gonna need to service those customers and how much overhead do you need to 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 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 gonna 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 middle of the year, say June, you make $100,000 in 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 they 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 throughout, like each annual year. So if one year you have a business and you're having a 20% margin, then, then the next year you 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 coming in to buy that business, they're just not gonna be able to project revenue very well. And the confidence, this is a big part of this all, is confidence when someone's willing to buy. And stability, 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 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 wanna sell it. So stable margin and cash flow. And so in our business, probably the hardest one.

We'Re gonna talk about it later today, is consistency of cash flow throughout the course of a year is really important. How big does your winter dip go? For some people in Florida, California, stuff like that, this isn't even an issue. Cause they 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 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 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 is 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 waited 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 the, 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 on 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 and 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's going to 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 market, someone could start the second location because we had two locations before and we consolidated to one. And 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 big, better, and growth and expansion is one way to do that. Have a second location, you know, blow out a wall and increase the warehouse size. If they're like an inventory situation for us as landscapers, it's like, okay, can we expand to a different neighborhood? Can we expand into a different series of services? Like if, if you went and bought a lawn care business that was only doing mowing, but no fertilization, you could go in there and know that you can, you have an opportunity to sell a whole bunch more real profitable work by offering fertilization, weed control, spraying, et cetera, pre emergent, all those things. And so you can go in confidently as a buyer knowing that there's opportunity for growth and expansion. So when someone comes to buy your business, you want to make it very clear to them what those opportunities are. And this is important why you haven't pursued them, right? So you can't just like, oh, there's such a great opportunity and you can grow this business massively and there's every single business that's for sale out there. If you go to bizbuysell.com, like, every single one has, like, growth opportunities. And, like, with just a little bit of help, this thing can double in sales. Like, everyone's gonna say that, but you've got to make it very clear. These are opportunities that you could take to grow the business. This is why I haven't done it. It might be. I didn't have time. I didn't have the resources. I didn't want to. That's a good one. Like, hey, I didn't want to grow the business anymore. I wanted to get it ready to sell. So I was focusing on profitability. But, hey, you could do this in the future. This is how you do it. This is why you do it. Here's my plan for taking advantage of that growth and expansion. And you can implement these as the new owner of the business that's gonna be really appealing to them. Okay. So growth and expansion. Having that as an opportunity is really important for a potential buyer. Organic lead sources.

I'm gonna go a few more minutes here and then just take a quick break, but organic lead sources, this includes things like brand awareness. So this is. When you're looking at the valuation of business, there's something called goodwill. This goodwill thing has no. It has no asset behind it besides the name and the brand and all of this. So this is gonna tie into things like your brand awareness. Like, if you asked a hundred people in your county, how many of them would know your brand? How many of them know your business name? How many of them would recognize, for instance, like, Max there on the screen? How many people in our county would recognize that as our brand, that awareness? And this can come down to, like, your uniforms, your trucks, are they painted? Are they have. They have logos on them? Like, that's all brand awareness. Have you done a bunch of marketing? And thereby people in your area know all about you? So how are you getting leads organically and not through paid search is really important. How many leads are you getting to your web? Like, what's the flow of leads? Is it consistent? Do you have to pay for that traffic or people coming in naturally because of your signage out in the street or your trucks or you do great work or you have online reviews? All those things are driving organic leads to your business. This is another way that you can help increase the valuation of your business. If you have a waiting list or you're booked out, there's another thing that is going to be important because if you are always running a three or four day waiting list. In other words, like if someone buys something for you, three days later you're installing it. The problem with that is if leads ever get scarce, you could literally run out of work. And so someone that's coming in to buy, if they see a huge pent up demand for your services and you have a six week backlog for cleanups or for trimming bushes and then you have a six week lead time that is huge because they know that there's a pent up demand, that if they can make more efficient or hire more people or expand in some way, they are going to be able to capitalize on bringing that lead time down. So I'd really encourage you to make sure leads, your organic leads coming to your website that's been optimized, coming from your trucks that are painted and logoed, coming from your guys that are handing out business cards out in the field that organic leads that are coming in that are not being paid for, those are really important for a potential buyer to know that there is demand for your product. And if you have a waiting list that's backed up or backlog, they know that they can capitalize and make more money simply by expanding, getting more people and investing in the business a little bit more. Another thing, like I said, your website super important for organic leads that are coming in. And so having a website that is user friendly, that is mobile friendly, that has, that acts like an engine for leads coming in, that acts as a great way to fill out a form, send an estimate request form, like that's very important. What are those numbers? How does that track over time? That is something they can lean on. You want to make sure you see growth in those numbers year over year. Like how many web leads are coming in each month, how many are coming in each year? Is there growth they're going to be able to. I know that 800 leads come in through our website every single year and that's gone from 6 to 7 to 800 each year. I am very confident when I hand my business over to someone, they're gonna pay because they know they're gonna get like 8, 900 leads which is worth a lot of money in comparison to them go starting their own business. And so having organic lead flow is very, very important. And your website is probably the most important thing that's be gonna gonna drive those leads to your business. And when someone buys your business, they're gonna be looking for pent up demand. And pent up demand that is caused by Organic leads, not just by you pouring a bunch of money into cost per click, Google adwords, Facebook ads, etc. So, alright, so now you are going to be the buyer involved in the transaction. What are you looking for? How? Some of you I know have talked about buying some smaller companies, some smaller companies, competitors, and we have done that in the past. I bought two smaller landscaping companies. One that I'm going to talk about right now, another one was super small. I bought it for just a few thousand dollars and it was like 30 or 40 clients. But the one I'm going to talk about today is a little bit larger and we'll talk about that. So it's a great way to break into a market. Number one or number two, if you have a really good concentrated route and then a bunch of people within that route are another competitors, they're great to buy because now you know that all those people are inside of your route. It's gonna be super dense, it's gonna be super profitable. And so that's another reason why you wanna buy. So the small, little, little acquisition that I did, that was because I had a really good footprint in like a 1 mile radius and this guy only had like 30, 40 customers inside of that. And so I knew they would all be like money machines and literally within like three, two months, not even. I made up all that money back and so that was a slam dunk. The other one, we were in the north part of our county doing services and I wanted to expand to the south side. And so in order to do that you kind of got to drive like 20, 30 minutes. And so instead of going down there for like a couple of jobs, I just wanted to start off like with enough people to make it a profitable route. And so that's when I went and bought Paradise Lawn Care Services. And that's the one we're gonna talk about today. So part two, how to value an acquisition. So first of all, here are some of the documents you're gonna need. And if you're buying a larger company or a more sophisticated seller, they're gonna want you to sign a non disclosure agreement NDA. So there's some things you can't talk about. And I'd say about 95% of the deals that come my way from people on the podcast and things are I have to sign an NDA for it, which makes sense, I can't disclose any of it. And so larger companies are gonna do that. If you're just looking on Craigslist and someone's wanting to sell Their business. Usually they're not gonna make you sign an NDA. They're just gonna, like, trust that you're not gonna say anything. So some of the best deals you can find are people on Craigslist because they can get rid of their business fast and they know that you're not gonna do as much due diligence. That being said, their businesses are gonna have a lot of problems. And that also makes you eligible to then get a really good discount. So I wouldn't run away from companies that necessarily have bad documentation, have bad pricing or anything like that. Just realize you can price discount them like crazy. And if they need to sell their business, like, because of other reasons, you have a huge opportunity. So that's what Paradise Lawn Care was. And I'll explain a little bit more. But documents that you need, you absolutely must have a profit and loss for the past three years of the business, because that profit and loss tells a story. I would look at every single line item within the three years and see what story that tells. Is insurance doubling every year. There's a problem if that's not correlating with the gross revenue. Is employee wages dropping off every year and thereby the owner's doing all the work. Like, every line item tells a story. And you want to look at those three years with a fine tooth comb and just go through every single number. Those three years in profit, that's really the main thing. Like, if I have that, I can usually make a pretty good decision of whether or not I want to buy something or, you know, if it's a good deal. Secondly, you want to see the balance sheet, and this is important, a larger acquisition where you're going to buy the equipment and the assets. If you're just buying the customer list, basically, then you're gonna pay differently. And so we're gonna talk about several different ways now how you can value the company. And some of these work better for larger companies, some of these work better for smaller companies. But at the end of the day, if you're only buying the customer list, you're not gonna even take into account the assets of the business. And so we'll talk a little bit more about that in just a minute when I talk about Paradise Lawn Care. But I want to explain really quickly just to make sure everyone on the same page.

Income statement versus a balance sheet. These are like the fundamentals business 101. But you gotta understand balance sheet. The best way to describe it is it's like a snapshot. Balance sheet is like a snapshot okay. It's like taking. If I wanted to give you my balance sheet, which I'm actually gonna show you one. If I want to give you my balance sheet, it's a snapshot of all the balances in my account, whether it be bank accounts receivables, what debts I have, what loans, how much I owe, my credit cards, how much I owe to my employees and wages, how much my assets are worth, the balances of all those different accounts is the snapshot. It's a snapshot in time. So you can take any single second of your day and generate a balance sheet of your business based on the present time snapshot of your business. So it doesn't really tell a story. It tells a snapshot in time. The balance sheet. What a profit and loss statement or an income statement does is it tells the story because it tells over the course of time. So.

Even if you look at a profit and loss statement or an income statement from a whole year, it tells what happened over the course of an entire year. A balance sheet is a snapshot. Income statement or profit and loss statement is an annual or monthly. It's some sort of period of time that transpires. And so what's really great is if you can get a balance sheet and a P and L or income statement, if you can get one of those from every single year, because then the balance sheet is three separate snapshots and you can kind of piece together a story. For example, you can really detect if they have let their equipment go to waste because they know they're going to sell a business and they can tell that if you have the three balance sheets. Right, because the balance sheet, so equipment, assets, things like that, you can tell if you have those three snapshots, how much money was in the bank, what time of year, you can tell cash flow a lot better. Why are they selling? Well, maybe they're selling now because this is the time of year when they always have bad cash flow and there's no money in the bank. So determining your sales price is a lot easier if you have three P and ls, three income statements. And even better, if you can get three balance sheets almost all the time, a potential seller will give you a balance sheet present day snapshot. But if you can get three and then line them with the annual P, Ls, profit and loss statements, fantastic. That's what you want. But essentially, I just want to clarify. Balance sheet is a snapshot in time. An income statement or a P and L profit loss statement is over the course of Some period of time, usually an annual. But I also. You want to get down the monthly breakdown, the monthly. If they can provide that to you as well. Well, so usually what I ask for right from the get go is three years, P and L, with the last year being monthly. So I can see dips in revenue, things like that. And then also a balance sheet, ideally for the past three years, but at least for the current existing. What assets are in the business? So that's kind of the financial documents that are needed. So the first thing you want to look at is physical assets. Let me just see here if I actually have. Yes, I do. Good. So physical assets. I'm going to actually show you my balance sheet from Augusta from last week. I think they sent it to me. And so I want to explain to you, if you're looking at a business, physical assets are things that you can just sell.

These are your trucks, trailers, all your equipment, any sort of thing that you can sell. Office equipment, computers, all of that stuff. And what's very important if you're looking at someone's balance sheet, is to ask them and to verify are they giving you the replacement value, or are they giving you the cash value, what they paid for that piece of equipment. You'd be amazed at how many people will not ask this question. And they will assume that the business has $800,000 worth of equipment. They come into it and they realize it's worth like 30, 300 grand because the 800 grand is what they paid for it. But now it's all old, needs replaced, and it's not worth hardly anything. I got off the phone a couple weeks ago from a guy that bought a company that was doing $2 million in revenue, found out that the million dollars worth of equipment that came with that business was basically useless, and he had to replace it all. And he's gonna have to declare bankruptcy next week, like absolute catastrophe, because he did not verify that the balance sheet was based upon the replacement value versus the cash value. So he overpaid by $700,000 because he thought the assets were worth a million and they were only worth 300 grand. That $700,000 is what's gonna put him in the hole.

And bankruptcy is really the best option for him because he'd literally have to quadruple the size of the business and profitability in order to make the payment every month on that 700 grand. So. And have to go out and buy another $400,000 worth of equipment just to get by. So this is something, if you're buying a business, it's not light. Like you can really kill yourself over buying a business. And for anyone in Proplus, if you're ever thinking about an acquisition, just send me any documentation. I'm happy to sign an NDA and just be like the voice of reason, but almost like the devil's advocate because you will get wrapped up as a buyer in the emotion of growth as well as like their trucks or like the opportunities that they provide. I can offer like hey, this is what the financial said and you shouldn't pay more than X, Y and Z. Or at least this is a range that I would pay for it. And you should take that into consideration because if I would have looked at this guy's deal two or three months ago before he bought it, he shouldn't have paid more than half a million dollars for this business that was absolutely under capitalized. Bad equipment, bad management, horrible employees, lots of bad stuff going on. Customers like no contact, emails, like really bad. And so you can't look at like narrowly like oh, revenue, I'm buying a $2 million business, I'm gonna like double the size of my business. Well yeah, you're gonna double the top line revenue, but you gotta deal with everything else in collateral and that's gonna require a million dollar loan and $400,000 worth of new equipment right off the bat and hiring all their employees over again because the ones that are existing are not good. So like I've really seen acquisitions really hurt people, but I've also seen them really, really help and expand someone's business. So when you're going to buy a company, one of the things you want to look for, if you're gonna buy the physical assets, you gotta ask yourself, what can I go sell these for? Because if I'm buying a business for $500,000, but I know that they have $500,000 worth of equipment that like, and I mean $500,000 worth of equipment that I could sell tomorrow and make $500,000. That's a very, very low risk business. And usually if someone's having a horrible business and they're wanting to sell their company, they will sell it at equipment value only. And those are the deals you can get in on because you're literally buying it for just equipment. You, you're gonna need it anyways. And then you can go after the customers. Just make sure you're not overpaying like the guy just talked about for the equipment and make sure the assets are actually valued to what they're worth. And the reason is because you can leverage your debt against that equipment and have a much better loan term. So we'll talk about that in just a second. But when you're looking at a business, first thing you wanna do, if you're gonna buy all the physical assets, because I'm not a huge proponent of doing that, I'd rather just buy the business side. I'd buy the client clients, the brand, things like that. But if I'm gonna buy the whole company, physical assets that I could sell are really, really valuable. Real estate, trucks, equipment, all those things. What's the sellable value of those things? And then that's like, usually the base that people will then build their valuation on. It's like, hey, we have $100,000 worth of equipment plus, you know, we have so many clients and we have a website and they start building out. But physical assets is like the hardcore. The business. You could go sell the business, sell all the assets of the business, and break even if you're at zero, minimum. So that's always the starting point. If you're starting to.

Negotiate is what's the physical assets worth? And then you start building on top of that, what the business side is worth. And I'll get into how you can kind of break people down on that.

All right, so another way to look at the acquisition and what you should be paying for a company is the time to recoup the sale price.

Let me see here. Okay, so time to recoup the sale price. So if you're looking at a company, you're gonna pay $200,000 for that. The next question needs to be how long is it gonna take for me to make $200,000? And I don't mean top line revenue, I mean like profit. How long is it gonna take you to recoup the sale price? And for small acquisitions, this can be like a year. You can really make some really good purchases of buying people's client lists and recoup your sale price within, like less than a year. I wanna, for landscaping, I always push people if they're just buying client lists to try to recoup their sale price within the first two years.

That's just kinda my rule of thumb. But I've always shopped for a year or less. Like two years is what I'm shooting for. If I'm just buying the client client list, if I'm buying like the website and the brand, and I'm buying all the trucks and equipment, obviously it's gonna become bigger and more. And you're you're gonna get a loan involved with collateral and all that stuff. But when you're talking about just buying someone's client list, and when you don't ever just come up and say, hey, I'll buy our client list, you say, hey, all I need is like, this is how I pitch it is I don't want your. Like if I'm going into a business and this is how they'll do it. You know, I have $300,000 worth of equipment and I want $380,000 for my business. I say, great, I will buy your business. I just don't want any of the physical assets that you say are worth $300,000. And what you actually do is you say, first of all, if they say I want $380,000, then you look at them and say, okay, what's your physical assets worth? They'll pull out their balance sheet, they'll inflate all those numbers because they want you to feel good about yourself. And so what you do is, let's say it's 3, 300,000. They say, okay, I don't want any of those physical assets. I just want the business stuff. I just want your client list. I literally want a list of your clients. Their contact information, their pricing, their job history, and an email with you and me as a video that talks to the customers and says, what's happening with the acquisition? That's all I need. I don't need your brand, I don't need your website, I don't need your phone number. I don't need any of that stuff. I just need you to close down your business, have a cease and desist, have a non compete in place for all the customers. That's really easy. And give me that client list with the contact information and the billing information and all that stuff. And a video. Like, I can close within a couple days. I'm gonna be much faster than someone wants to buy that $380,000 biz, get a massive loan. I can come in with cash. It's a lot cheaper, and I'm getting the actual asset, which is the customers. And, and so, especially in our industry for smaller businesses, people are going to really heavily weight the balance sheet. They're going to really heavily weight the equipment. So your way out of that, instead of trying to fight them over the value of their equipment, just say, hey, I understand you have $300,000 worth of equipment. You go sell that on Craigslist. I'll just take the other $60,000 that you valued the Customers, and we'll call it good. And all of a sudden you're going to find them start like, oh, no, I overvalued my balance sheet. And they're gonna start doing stuff like that. And you are at a massive advantage when it comes to negotiation. Because they're not gonna let their whole business go for 60 grand. Like all the customers and everything, because they know they can't sell their equipment for 300. It's probably worth 80,000. And so they're gonna start stepping backwards. And then that puts you in a massive advantage to start negotiating and bringing other things. So, for example, I'd be like, okay, I'm gonna the 60. 60,000, for example. I'll start building on it. They're like, no, I won't take 60 grand for all my customers. Okay, no problem. Let's do 60 grand for the customers. Because that's what you valued on your valuation. I don't want any of the 300 grand. And then I'll start building out from there. Then I'll be like, okay, I want the website so that optionally could add you another 10 grand. I want two key employees that are gonna stay on. I'll tack a little extra for that. I want a week's worth of you introducing me in person. Or one of my people do their customers. That's actually. So I'll start tacking more money just to get them interested. But at the end of the day, when I look at balance sheet and I'm just looking at what's their assets, I take that out and then I strip it down to what the business is actually worth, or at least what they're valuing it at. Like, if they say there's $300,000 worth of equipment because they're gonna bloat that, they're gonna try to inflate that, great. But if they're asking for 360 grand, I'm gonna say, great, take your 300 grand. I want the 60,000 for eight. Everything else besides the assets. So that's a great way to baseline your negotiations. Cause that's like the lowest. They'll never take that. But it's a great way to bring them to reality and say, number one, you know what you're talking about. Cause you know what a balance sheet's all about. Number two, you're looking at. You're kind of calling their bluff and you get a massive advantage when it comes to negotiating. Cause now they're kind of stepping back and they realize that you know what you're doing. So I've always seen that being a really big. A great way to start the negotiations and then build up from there. But time to recoup your sale price is really important. Looking at that is important, I would shoot for under two years. If you're just buying Clemens client list, if you're trying to buy the whole business, it's gonna be different because you're gonna amortize your equipment over the course of, like, five years, for example, and so you're not gonna recoup your sale price of, say, 360 over the course of a couple years. Traditionally, if you have more questions about that, I had a lot more, but I don't want to go too deep on that one. This is the one I want to talk about more, because this is what I use for Anytime Fitness cash flow. If cash flow is greater than debt burden, literally, it's a check, like a pass or fail. In other words, does the profit that the business currently make.

If nothing was to change, would it cover the debt burden? So, for example, I'm going to actually walk you through Anytime Fitness's acquisition.

Paid 400. Sorry. When I came in the business last year, it was making under $420,000 in annual revenue. It was less than 420, which were more on 4, but 420 annual revenue, that was their best kind of month projection and whatever. 400. Let's just say $420,000 in annual revenue. The mortgage that I needed to take was $450,000 because I bought the company for 500. I had $50,000 down in cash, and then I had to take a $450,000 loan. And so my mortgage on that $450,000 is about $5,700 per month. 5734, something like that per month. That's my mortgage. Now. I knew from day one, like, based upon the profit and loss statements and everything, and I had five years of them. Based upon all that, I knew that the net cash flow, like profit from the company was making $5,900 per month. So that $5,900, the cash flow was greater than the debt burden or the mortgage that I had to pay. So I knew that if I came into this business and didn't change anything and just literally bought the business day one, I'd be, like, breaking even, making a couple hundred bucks a month, just, like, very rudimentary. It'd be paying the loan down. And, you know, theoretically, in 10 years, the business would be worth, like, 8 or 900,000. And I just sell it then and make a bunch of money at the end. From a cash flow perspective, it would break even. The idea is, if I can do that, but then also grow the business, make it better, scale it up, make it more profitable, then I can really capitalize on my investment. So that's what we did. So six months later, July, February, yes, this is March 1st last year. This is a couple months old, but it's still pretty similar. We're about 16,000 right now. But six months later, the net cash flow was $18,000. So now that delta between 5,700 and 18,400 is now sheer profit. And I didn't have to pay anything up front, so I recouped my $50,000 in cash within the first 60 days of getting Anytime Fitness. I recouped the 50 grand the way I set it up with, like, I got free rent as part of my negotiations. I got.

What we call club enhancement fee up front from the previous owner. It's like I paid off my 50 grand within the first month and a half. But then the cash flow from prior was enough to cover the mortgage. So I was like, okay, I'm safe as long as I just, like, run the business the same. Don't do anything to it, don't improve it at all. And then I balance that against all the things I think I can improve and generate more revenue and increase efficiencies and things. But I'm looking strictly at cash flow. I know that from day one, with the burden of the debt, with the extra 5,700amonth, I can still make it work. So that's how I looked at this. Acquisition is like, as long as I can break even from day one, I'll buy the business. And that's what happened. Six months later, it makes a lot more money and runs itself. And that's all profit now. And that's great. So this is another way to, when you're looking at acquisition is like, okay, what's my debt burden gonna be? What's it per month? What will this acquisition net me every month? Right? So I knew that it was gonna net me $5,900. As long as that number is greater than the mortgage, in theory, I should buy the business. Now, you have to take into account the fact that you're gonna have more stress. There's going to be pressure. You have to hire more people, more infrastructure, more equipment, more clients. There's a lot more involved in terms of just other stuff. But from a financial perspective, if cash flow is greater than your Debt burden. You should buy the business because over the course of time you pay down the debt and at the end of that 5, 10 year period of the debt, you have the asset of all those customers and all that revenue and now you own it 100% outright. So in 10 years this business will probably be cash flowing around $34,000 a month. Not 30, I'd say, let's be, let's say 30,000, it'll cash flow 30,000amonth in revenue because of the mortgage going away. Once it's paid off and once the my lease negotiation is done, it'll drop down two grand more. And then just the growth pattern that we're experiencing now. So from a cash flow profile perspective, that's how I looked at this acquisition. As long as I can break even when I take into account the debt burden. That's something you got to figure in. When you look at someone's balance sheet and it says then they made 80 grand, this is something very important. It says that they made $80,000 last year. But you're going to buy that business and it's going to cost $90,000 to service that debt. You are going to make a hole for your $10,000 loss on that year. And yes, you could say, well, I'm going to pay off the loan and then I'm going to own it. Yes, but you might not be able to sustain that time period having that loss every year. So a way to cover yourself is make sure that the profit that's going to be generated is greater than the debt burden. Okay, so hopefully that makes sense. And again, if you guys have questions or if you have deals that you want me to look at, just let me know. Alright, moving along. So this CPC versus CAC.

Is cost per client versus customer acquisition cost. So this really comes down to recurring services, mowing, fertilization, weed control, things like that. You take the number of clients they have. I think I actually did I do it. Yes, I did. Look at that. So I have an example of Paradise Lawn Care. I'm going to show you. But customer.

The number of customers, the cost per client. So for example, I'm just gonna make up some numbers real quick. Let's say $50,000 is the sale price that the person wants and they have 50 clients. Just for the sake of easy numbers. The cost per client is $1,000. So you have $50,000 acquisition price. You have 50 clients, the cost per client is $1,000. You are essentially paying $1,000 to, to get a new client. All right? So that's the cpc. That is the cost per client of the acquisition. And now what I want you to compare that to or versus that to, is the customer acquisition cost for you to go get a new client via advertising and marketing. So I'm actually just bring up an example. All right. This is a Paradise lawn care acquisition that we did a couple years ago. They were doing $320,000 in annual revenue. They had 90 recurring customers and 900 contacts. And the contacts is kind of gravy, but there is a massive amount of value to that because they weren't utilizing it. We ended up doing like email newsletters and all of that. So started harvesting those contacts and generated a bunch more customers. But for the sake of this example, I'm just gonna use what customers they had recurring already. So. So, but I put the 900 contacts in there. Cause that is a. I would have paid 18 grand for just the 900 contacts, honestly, just the email addresses and addresses. But I offered them $18,000. He originally wanted 120, but 80 of that was considered equipment. So I pared him down to 40. And then I just started paring down more because I started taking out customers that were way too low price. All the things I said, hey, there's 90 recurring customers that I can buy, buy here. So I was basically offering to. My offer to him was $200 per recurring customer. And so I was basically willing to pay for 90 recurring customers. I was willing to pay 18 grand. And literally all I got was the contact form, how much they paid for their weekly service, like all mowing weekly service, job history, email address, stuff like that. And then together we made an email letter that explained the acquisition and. And that we are transitioning.

And that's really important too. And that's something too. You can bump up your valuation if you need to, like, build it up. If they are willing to do that, you can add to your valuation if you need to give them more money. And so anyways, we'll come back to that in a second. But I offer $18,000, $200 per recurring customer. All right. Now, at the time that we did this, I knew our customer acquisition cost was $110. I knew that to get a customer, I just need to pay $110 into Facebook ads or Google AdWords or whatever we're doing now. Again, customer acquisition cost varies by the time of year. At this particular time, when I bought the company, our customer acquisition cost was $110. What that meant is I knew that if I pumped in $110 into the marketing funnel that we get X amount of leads. And out of those leads, one customer would would buy and that was 110. That number is a lot less right now because we're in the middle of spring and people are buying and all this stuff. This was like in February. So anyways, customer acquisition cost for us at the time was $110. So I knew that I was paying $200 for a recurring customer instead of $110. And what ended up happening is 55 of those clients out of the 90, 55 of them actually converted and are still with us today. What that ended up meaning is I actually paid $327 per customer, which is almost three times a 3x multiple on the $110 customer acquisition cost. So theoretically, I could have spent $110.

Buying new customers, basically, and I could have converted like 150 customers using that $18,000. This is the thing. You're paying the premium. You're willing to pay the premium because they're gonna be instantly set up. You're already gonna get them set up on service. You don't need to go send an estimator, you don't need to send an estimate. You don't need to follow up with them. You don't have to do any of the work to get them set up. It's already done for. You have job history of billing, everything set up. So you're willing to pay the premium and it's instantly set up. Like if you had to take, if I had to take 90 recurring customers today, it'd be be not easy for our company, right? It's not easy for us to like take in 150 leads, sell 90 of them, set them up, get a crew going. Like that would take a lot of work. So I'm willing to pay a premium for that already to be all done for them just to be routed into our route. Everything's taken care of. And so I was willing to pay the premium. These are the numbers you want to use if you're buying a client list. And if you're wanting to buy just the contacts and the accounts of some somebody that is doing return service based upon a per cut basis for mowing, this is the what you want to use because you want to make it very clear them like a big number like I'm willing to pay you $400 per customer. And they're like, wow, that's great. And then you say, or maybe they say, no it's not great. It's horrible because I'm not gonna make, you know, but 20 grand or whatever it is. Like, all of a sudden their number gets really small because someone's asking like 400 grand for. Let's say they say 300 grand of that is equipment. So they're asking $100,000 for the business side of things. If they have 100 customers, they're asking $1,000 per customer. Everyone in here can spend $1,000 on ads and make a whole lot more than one mowing customer. So, like, you really break this down for them. Just make it like, show them your customer acquisition cost. Show them how much you're willing to pay. Show them the premium you're willing to pay. And it starts to make sense for them. Like, oh, okay, if this person can go out and get me for $100, get a new customer, why would they pay 1,000 to buy customers from my business? And you can just make it very plain. This is how I set up my. This is how I would set up buying new accounts is this is my customer acquisition cost. Tell them this is what I'm willing to pay for yours. I'm paying out to get 2 or 3x multiple, 4x multiple in order to buy your customers. Because it's already set up. It's going to save me time. It's. You already have the rapport with the customer. I don't have to get them set up. And so I'm willing to pay a lot more. And then their mind, they're like, okay, that makes sense. And then they start again. You want to get them to see the lowest valuation of their business when you are looking at it. Because if they haven't done all those things we talked about earlier, like setting up a team, having a culture, having a company structure, having organic leads coming in. If they haven't done all those things, this is all that their company is worth is literally the customer acquisition cost versus what you're selling the customer for. Like, that's all it's worth. Taking out the assets. So that's how I kind of look at the client's cost versus the customer acquisition cost. First year generated from paradise lawn care was 205. And that is only from those recurring customers of 55.

It does not include all the contacts that we have continued to farm and harvest over the past few years and have probably generated, like, significantly more than that. But that first year of us buying Paradise Lawn care, we had $205,000 worth of revenue from those customers. Those 55 clients and $38,000 profit. So literally within six months, six, seven months, we paid off what we paid the $18,000 cash for Paradise Lawn Care. Massive slam dunk for us. We were able to get started in Bellingham, which is our south market. And now we actually moved down there and are really expanding. This is how we broke into the market and started having an awareness and gathering attention in that market was simply by buying someone's client list like this. This is the way to do it. If you're just buying mowing or recurring services and you're wanting to get the best bang for your buck, this, this is what you're gonna wanna use in terms of evaluating someone else's.

Alright, so I'm gonna cut it off there. And in the future we're gonna have more of these webinars about cash flow.

And some other things that we're gonna.

Be talking about, as I alluded to in this video. But I really appreciate you sticking around for so long. As a long webinar. If you would like to have these deeper conversations about these concepts, I'd love for you to come to Landscape Summit. It's in January of 2020 and it's for three days. Just go to landscapebusinesscourse.com conference or just go to the homepage and click the conference tab and it has all the details there. But in that three days you're gonna have a lot of types of information like we just had in this webinar, more in detail than the average podcast.

Cause we have more time.

And so what you've learned over the past hour, multiply that by 20, 30 times. That's what you're gonna get when you come to Landscape Summit.

I know you'll love it and you'll.

Be able to meet all these other landscapers. So I really look forward to seeing you there. And if you are interested in joining the franchise at Augusta Lawn Care and getting this type of training on an ongoing basis and really seeing how the systems are working. Some of the systems that we talked about today, like P4P and the different cash flow automations, things like that, things that we use at the. And we do for you at the franchise. I'd love to talk to you and@AugustAlongerSurfaces.com franchise. I'll see you there. Take care and have a great day.