Considering purchase of Owner/operator PW business

[idore2001]

Hi to all of you.

I'm new to the PW industry and this board, and considering the purchase of an existing owner/operated business with no employees. I've read post after post and saw a few PW business for sale questions and learned some tips. I'd like to request for your seasoned and experienced opinions for perspective, guidance, and wisdom as I consider this purchase.

Details:
PW Niche: Deck restoration and Residential Home cleaning
Appx. $80-$100K sales/yr (not verified)
Advertising per year: Less than $1500/yr.
Asking: $60-80K ($15K-$20K for truck & equipment)

EQUIPMENT:
- 98 Dodge truck and matching box top 60K miles
- Honda 3500PSI 13HP, 4 gpm w/ Wand & 200 feet of high pressure hose and misc. parts.
- Kraco Airless sprayer with all attachments and misc. parts and equipment for this step (second season with this sprayer
- Landa 21" Surface cleaner
- Existing Phone number (referrals & repeat customers)
- Web site domain address
- Copy of all taxes, customers, and history.
- Support & training in hand off to new owner

This is not a franchise, but fully licensed and bonded.

Reason for selling: he would like to relocate his family to another city many hours away.

Owner figures appx 5% customers are from Yellowpages, 45% referrals/repeat customers, and 50% new customers.

Been in business for 7 years and has built up a clientele and good reputation (i'm still verifying this). Phone begins ringing about now and keeps him busy all season into fall. He isn't interested in seller financing (could be an issue).

Summary:
The real assets are the equipment, truck and phone number. Certainly the owner can't guarantee the referrals or repeats. No contracts are signed, but customers know his number and truck. Comes with a website that could be brushed up. Records and taxes history have not been verified yet (all just verbal at this point), but owner will provide these once a committment is made for purchase.

With 45-50% of the business generated being repeat/referrals, and less than $1500 in advertising, I have trouble seeing value beyond 50% of a year's income.

Here is the consideration for offer:
Truck = $12,000
Used Equip= $1500
Phone No/Referrals/Repeats = $40,000 (based on $80K of sales)
Total = $53,500

Would this amount be reasonable. How much weight should be placed on the owner being able to finance?

I'd love your feedback!

Thank you very much for your help,

Bailey Krause

 

[ron]

ron p

my opinion is that you would be crazy to try to buy customers.
if you were buying contracts that would be diffrent.
there is no garrentee that those customers will follow you.
buy a nice used truck and a better wash unit then he has and build your own customer base.
$25,000 for a customer list,phone #,and 3 weeks of on the job training
did you get a list of exspenses for this biz?
insurace for biz.
insurance for truck.
book keeper
cell phone
biz. phone
amount of billing time
cost of strippers,nuet.,sealer
make sure you see the books and his last 3 years of tax returns if you decide its better to buy customers then to get your own.
Is this a year round biz? how meny hours per week? What type of work is he leaving to go do?
why is he getting out?
make sure he signs a NO-COMPETE so he cant come back in a year and take his customers back.
if i were you i would try it on my own before i spent that kind of $$$ but thats me.

 

[Mike Hughes]

Bailey,

Send me an email, please.

mike@evclear.com

 

[Jon Fife]

Hi Bailey,


I don't want to be personal about your finances, but if you have the kind of money to think about buying something of this size then i believe there are better ways to spend your money.

I am going to assume you can get your hands on 25K at the bank or liquid.

box van (used): 8K
hot water PW: 3K
wands, hoses, reels:$500
paint sprayer, shurflo setup, etc: 1K
Misc: 1K
office setup: 1K

ok, you've still got to start insurance, get licenses, etc

call Tim Cross (restorewood.com) and do his 4 day training program in Wisconsin (class, travel, etc: $2500)

Now we are up to 17K.

Spend 3K to start of the year for advertising and vehicle lettering, cards, postcards, website, etc

You still have 5K for the rest of the year to do a huge marketing blitz.

Do this stuff, and you'll make more than 80K (gross) the first year.

I merely want 2K for my consulting fee

Good luck, i think you'd be better off starting up your own, and it will be very fullfilling once you start getting some success. I think you'd be putting in a lot of money for a not so good return. If you are serious about doing a wood restoration business, spend the money and do Tim Cross' school. He not only teaches you how to do the work, but how to market, etc. This would put you years ahead of your competition.

good luck,

jon Fife

 

[Jon]

Hi Bailey,

Just wondering what part of Calif. are you in that there are decks to do? I pretty much figure Northern Calif. but care to say?

Now your quote below is the one thing that bothers me a lot,

"Records and taxes history have not been verified yet (all just verbal at this point), but owner will provide these once a committment is made for purchase".

So he wants a committment up front before he is willing to show you any type of proof, that right there is a sore point and here is why, say he does show you the books and his tax returns and you don't like what you see so you back out, he can then force you to go though with it and your stuck, like it or not right?

If it were me and I was determined to buy rather then start I would hire an account to go over his books and tax returns to be sure he did not doctor them up for the sale.

Sorry guys but I do have a distrust with this type of thing, anyone can doctor things up to show much higher profits then there really is, could most of you spot that?

An account trained in business and taxes could and would be worth paying for his expertise.

 

[ron]

jon fife

i wrote that the guy wanted the 25,000 just for the customers he wants $53,000
for the pkg. thats why i said he would be crazy.

 

[Steven Rowlet]

I agree with Ron. A big part of this business is personality, experence and knowledge. Just because he had the customers does not mean they will do busines with you. A few years back I had a guy try to sell me his business washing sidewalks for Kroger stores. He had no contracts , only a verbal from some of the managers and rented a pressure when he did the work. When I started asking these questions he could not be found. I told him he had nothing to sell. It kills me to see someone try to take advantage of someone due to the fact they have no knowledge of the subject. Jon Fife had some good advice also. If this business was as simple as a lot of people think everyone would be doing it. Just because you buy a pressure washer does not mean you know how to run a business. Study up on this business and I am sure you will take the advice from the good people on this board. Most people on this board will be more than happy to help you with your questions.

 

[Laurie Grathen]

As a SCORE counselor and a pressure washing business owner, this is exactly how I'd price my business if I were trying to sell it--the market value of the equiment transferred and 1/2 of the last year's annual revenues. Of course, though, he and I both have to remember that a business is worth only what someone is willing to pay for it.

Now, I also think, unlike some of my colleagues here, that the customers of an existing business do have a great deal of value. As I teach my students in Small Business Start-Up classes at the local technical college, and as I've written in feature articles for Cleaner Times in the last couple of years, in the early years of a business, cash flow is far more important than profitability. When you buy an existing business, the first years after you buy it are your early years and the existing customers create that all important cash flow.

Assuming everything the existing owner has told you is true, and assuming that you are as enthusiastic and competent at selling the business as he is, and assuming that you enjoy this business, I think that from the information you posted you can put together a decent business plan. If your credit is good, it's my opinion that a banker would have enough positive information to give you a small business loan to buy this business.

Now, several of the previous posters have good points. It's never a bad idea to have an accountant go over the books.

I also have several questions/concerns. First, $80-$100 K seems rather low for a 7 year old business unless he wanted to keep it small. One serious question to consider is what is the potential in the market. Do you have any competition? Is there enough work in your area to support growth?

Another thing that doesn't quite make sense to me is that 50% are coming from repeats/referrals, 5% from the yellow pages, he's only spending $1,500 on advertising. That's quite low to be generating $40,000 a year from new business. So where are these really coming from?

Bailey, you summarized the business information succinctly and asked intelligent questions. Steve was correct below that being a good power washer is far different from being a successful business owner. I also teach a class called Do You Have What it Takes? and it focuses on the personal characteristics of being a successful business owner. Seems from your post that you might, but that since you're new to the PW industry, you need to be sure that you also enjoy, or at least can put up with, the actual work of PWing. Of everyone involved in our business, that seems to be the single deal killer. Even my husband doesn't like it, but he sure likes owning his own business so he puts up with it.

My last suggestion is that you contact the local SCORE chapter (www.score.org) and get yourself a free counselor who will help you evaluate whether the business is legit, the books are legit, and help you put together a business plan and loan request package to take to the bank.

My husband and I LOVE owning a pressure washing company and I absolutely believe that anyone who really wants to can be a success in anything they PLAN adequately. Because in the planning process you will discover whether or not it will work before you spend the first dollar.

Good luck.

Laurie Grathen
All American PowerClean
Lake of the Ozarks, Missouri
573 346-2995
grathen@advertisnet.com

 

[ron]

well damn

that post by MRS. GRATHEN was one of the best written, most informitive,and helpfull
posts i have seen on any of these boards. Thanks and I hope to see more.

 

[Steven Rowlet]

I agree with Ron. Thanks for the post Laurie.

 

[Tim Smith]

Sounds Like A Pretty Good Target List

As an accountant, I often work as an consultant with individuals as yourself. I work through the Business School at the local University. I too have some concerns about the numbers, but I want to focus on the Customer List.

If this guy has been in business for 7yrs and has a good reputation with 50% repeat business - This is a valuable list. Its hard to determine the value of the business with the information that you gave. I would attempt to buy the equipment and list from the guy. An accountant or you can determine the value of the list by crunching the number. No, there is no guaranteed that these customers will follow you. Show me where there are guarantees in business except you worry and work a lot. As apart of purchasing the list, I would draft a letter to his customers, stating that you have taken over his business and plan to maintain the quality that his customers have grown to expect - get the guy to sign as if it came from him and mail. If you decide to go ahead with this - make sure you keep the name of the business and get his phone number.

I recently purchase a customer base list on cedar shake roofs. I ll let you know how it goes.

Email me and I will help you more with the actual numbers - if you like.

Marketing gets Customers - Quality keeps them! 50% is pretty good. Go through the books with a fine tooth comb.

A lot of people may disagree, but you can start a power washing business for less than $5000.00.

 

[Bill B]

I purchased my PW business nearly two years ago, and probably overpaid. I basically was buying some equipment and a strong customer list (my target market is building and construction, so I do have a strong repeat business). However, it turns out that within 6 months I completely revamped the technology and equipment the prior owner was using, so indeed I was really buying a jump started customer list.

I thought Laurie's comments were on target. I would add the following:
1. I recommend spending some late night hours reading some relevent books on small business purchase and operation. I would focus on the concept of adjusted cash flow, and put that concept to good use in evaluating the value of the business to you.
2. I have performed diligence on 30 companies in the past 3 years and the one thing I have learned is that if they are not willing to share tax info up front (after you sign confidentiallity agreement of course) then don't waste your time. You will spend a lot of time and determine that their "baby is ugly" later.
3. In some cities, the SCORE folks are associated with the SBIC, which I recommend you contact.

Back to my situation. My objective was to "buy the customer base" and then to diversify into other PW businesses. This board (and a couple of others) have been invaluable. I believe my only drawback will be hiring and retaining good employees. Hope you have better luck in this area.

If you would like any more detailed info please feel free to email at bill3752@aol. Good luck.

 

[Larry L.]

I would first want a look at his customers(accounts) and what he is charging each one.He could be the lowest priced around,can you do the same jobs at his price.
Just b/c you buy a customer base doesn't mean they will stay with you,they may not like your looks or the way you talk or a price hike or they may want to change P/W'ers anyhow.If you take over the business you may have to redo some of his accounts if the wash/seal job did not hold up.
I'd also would ride a week or so with him just to get a birds'eye few of the accounts and to see wheather the customer took a lik'ing to me.I have seen powerwashers sale out and be back within 6 months b/c the one they sold to didn't make it,which they knew they wouldn't but they updated their eqt. with the money plus lived a few months with the leftover.

Everthing could be on the up and up tho,you never know,you see all the advice and warnings.....if your doing alot of twisting and turning while asleep,setup and wake up and do your thinking and planning.

 

[idore2001]

Considering purchase of PW ..... Thank You

Big Boy, Ron, Steven, Tim, Bill, Laurie, Jon, and Mike,

I figured I'd see a few responses but was pleased to see such a pouring out of help and warmth on this board! WOW!

Thank you to each of you that have taken the time, thought, and energy for great responses! There were many questions that were asked amongst your responses..... I'll answer many of them here, but I suspect that some of the questions were presented as points to think about in my consideration.

I'm located in Northern California and the business area is a sizable market with two (known) competitors. The owner states that he's not familiar with hiring and retaining employees and chose to maintain the size ($80-100K/yr). This seems ok, but the non-compete clause is a granted in the contract.
My intent in buying the business is to build on the existing clientele.. working at getting contracts locked in, then expand into a growing community about 60 miles northeast of the current market (no competition in a rapidly growing city). The cash flow is what I'm after with the purchase (to help fuel the growth).

It's true, I have much to learn about the PW techniques and this board was a great find in starting the adventure of learning the trade! Wisconsin training sounds like a good idea (though a little cold right now, lol).
What I do have background in (and what inspires me most) is the business operation aspect, having owned two successful businesses in the past in construction and software development. This is a new challenge and I can passionately build it. It's not likely that I will be doing alot of the actual PW after the first year as the plan is to hire employees so I can focus on estimates and growing sales with expanded marketing.

I will be seeing my attorney and accountant later this week and will contact SCORE tomorrow. I plan to make an offer after meeting with all of them, but your responses have given me a good guage of valuating the purchase price.

Since I'm may be the only one that has shown any interest to purchase, he'll either accept the low offer and be done...or reject it, which could allow me to call him back in a couple of months and offer again (though I won't need the equipment anymore).

What ever unfolds, I'll post to the group what the results are. I'm looking forward to expressing the exact location after things come together. (don't want to give local competition any hints while this is being put together)

Again, thank you to everyone for such great feedback! It has helped tremendously. I look forward to reading your posts in the future and hope to contribute as I get my piece of the PW market pie up and running.

Cheers,
Bailey Krause

 

[Laurie Grathen]

Hey Bailey,

Randy and I lived in the Sacramento/Folsom area for 12 years (Randy was in the Air Force). Are you anywhere near there?

And we're from Wisconsin and you're right that it's COLD there! Come on down to the Lake of the Ozarks and we'll train you for free!

Best wishes!

Laurie

 

[Mark]

Bailey,

Looks like you received quite a Welcome from the members
here. It is the professionalism, and support shown by members such
as those who responded to your post that makes us Proud to be a
sponsor of this board.

We are based in Rancho Cordova / Sacramento California, (not too far from you.)

If we can be of service give us a call!

P.S. I know of several opportunities to buy P/W companies in Sacramento
area.
[hand]