If I buy lawn care accounts, will I be able to grow my landscape business faster?
Hey, if you’ve been considering buying lawn care accounts, or lawn mowing accounts, I’d like to give you some ideas to help you make the decision and decide if it’s right for you.
One thing to consider at the outset. The vast majority of lawn mowing businesses, or lawn care businesses are not sellable, meaning that they’re not real businesses. They can’t run independent of the owner. What you’re really doing is you’re just acquiring accounts. So, it’s really important to understand when you’re valuing the business, all you’re doing is buying accounts from the owner. You’re not really buying a business.
Yeah, maybe you’re buying some equipment and trucks; that doesn’t make a business. A business is the management team, the processes, the procedures, the marketing systems, it’s all that other stuff. What is happening most of the time, you’re buying accounts and you’re buying assets. Generally I don’t even like to buy assets. I’d rather go buy my own trucks and my own equipment, so you’re really focused on buying accounts.
The way I believe you think about buying accounts is, what can you go acquire an account for on your own? If you’re organically growing your business, meaning you’re growing it yourself, you’re not acquiring outside accounts and bringing them into your business, you’re growing organically from within. What does it cost you to get an account? Does it cost you 100, 150, 200 dollars? What does it cost to get an account through door hangers, post cards, letters, pay per click, SEO which is organic search, referrals, door knocking. What’s that cost? If it’s $150 then the top end that I’d be willing to acquire an account personally is $150. The reason it’s the top end is every day all day long I would rather acquire my own accounts organically than buy accounts.
The reason for it is when I send out marketing and I speak with a prospect on the phone and we sell them, they have chosen us, they have bought into our philosophy, they’ve bought into the way that we work. Whereas, when you acquire accounts, they didn’t choose you, they didn’t buy into you. They may not like the way you operate, they may not like the changes that you’re going to have to make to make them a profitable account. Because, let’s face it, generally if somebody is selling their company it’s because something’s wrong with the business, not because they’re making hundreds and hundreds of thousands of dollars a year.
Those guys that are making huge amounts of money that run awesome businesses and are looking for an exit, they’re generally selling real businesses. But the majority of businesses for sale are not real businesses. They’re being sold because somebody’s burned out, done, tired, and it’s not working. Generally when you acquire accounts there’s something to be fixed, and when you make the changes that need to be made and you change the original agreement you had with the client, they don’t like that and they have reason to shop around. An account you acquire yourself is far more valuable than an account you acquire.
Let me give you another example. Remember my main point here is that I wouldn’t want to pay more for an account than I could acquire that account for on my own. I would discount the value of the account I’m acquiring because of the risk I’m incurring knowing that quite a number of the accounts I’m acquiring will potentially leave because they didn’t choose me.
The other thing to consider is how do you price the account? I gave the example of what does it cost to acquire one. Another example is, let’s say that you decide to pay the total value of the accounts, so one year’s worth of revenue. Let’s say it’s a lawn mowing account. It pays $40 a week. To keep it simple let’s say that account’s worth $1000. If you pay $1000 to acquire that account, one times gross revenue, and that account is worth about 20% net, meaning you take about 20% of what that job pays a year and you put it in your pocket, that would take you 5 years to break even on that account. You’re going to basically mow that account for 5 years just to break even on the price you paid for it before in year 6 you actually start to make a dollar. Now you can make that type of stuff work if you have a great back end, you acquire the account and then you sell them lots of other really profitable services, but that’s not what most people are doing. Generally, you can’t make the math even work to pay one times gross revenue on the accounts.
I tend to prefer to value accounts like what we’re talking about here for 3 times mowing or 5 times mowing, or less if possible. You have to determine what it’s worth to you, and you have to determine at what point in the year you’re buying those accounts. If I’m buying it at the end of the year, they’re worth way less than if I’m buying them at the beginning of the year, because at the end of the year we might go through the off season, there’s a higher probability I’m going to lose those.
Think about those factors as you’re making the decision. My general answer is, it’s not worth acquiring accounts. The reason you do it is when you don’t know how to build your own business through marketing, or when you’re a big company and you’re trying to grow so fast that you can’t generate enough leads and grow fast enough organically, or you have so much attrition that the only way to replenish it and keep your company at the same size and growing is to go out and acquire businesses. That’s not the situation that the majority of us are in. So, those are usually the reasons you acquire accounts in my opinion, and I just don’t generally think it’s worth it. There are opportunities but you have to be super choosy.
