What is the industry standard starting price in negotiating to buy an existing biz?

Hi all,

My name is Mike and I am new to the WCR forum and a newbie to the WC industry. My wife and I have been looking and researching for a business to buy for over a year and we feel that the WC business may be just the business we are looking for. We are considering buying an existing business that has been around for over 10 years that is pretty much 50% residential and 50% commercial. The business also provides power washing, deck and gutter cleaning. I’m trying to get a sense of how some of you veterans place a price on a WC business assuming there are no service contracts in place. The owner is asking 10 months gross which I believe is high according to what I have read around on this forum. Is there an industry standard to start negotiations at? For example, 3 months gross, 6 months gross?

Also for anybody on this forum who is in California, when buying an existing biz, route or customer list, what is your strategy in making sure that the new employees that came with the route you just bought do not leave and steal your new customers (especially an employee who has been doing the actual work for some time)……in California non-compete agreements are unenforceable with employees……they are only enforceable against the selling owner.

Any input, comments, or advice is much appreciated….especially from women/mom owners……since my wife will most likely be managing the business while I keep my day job for now as a safety net.

Happy Holidays and Cheers,

If it’s just a client list, then 10 months gross is way too high imo. Has he opened his books to you? Has he kept good records? Profit and loss reports? Someone can claim they gross 100k a year, but what of that is net? What’s the state of the equipment and work vehicles that’s apart of the deal? How’s his marketing done? Are you keeping the business name or changing it? Answers to these questions can help you determined what you think you’d be willing to pony up.

I’ve bought two different window cleaning “businesses” in the last few years that were both strictly residential. However, I wasn’t interested in any of there equipment and there were no employees to absorb. Basically, I was just buying a phone number and a client list. One business I payed three months gross and broke even on that deal after about 5 months (lost some clients, but retained most) and another guy I payed just 1 months gross down and 10% for twelve months on any work we did from his clients. That deal was a steal and we ended up tripling his gross the next year by marketing his clients more effectively and offering them more services.

As far as employees go, I would think most of them would stay as long as you didn’t reduce their pay or change a whole lot of there “normal” routine.

Thanks, Clearview!

The owner is offering equipment such as truck, ladders, pressure washer, hoses, tools, etc. which is about 30% of the asking price. Of course I will need to appraise all this or see if I can get better, newer and/or cheaper equipment on my own. I will most likely keep the business name since it has a very good reputation and recognition in the area…plus I don’t already have a business name in the WC industry.

I like the 10% for 12 months on any work done on his clients payment model since this protects you if you lose any of his clients.

Again, I appreciate the input.

What part of CA?

I would not even sell my company for 3 years let alone 3 months. I think it is best to start from scratch. Also in a cash intensive business like this it is hard. Why would they be selling? If they are doing well like say 300k per year, what sense would selling for 75k make? Companies don’t sell when doing so well

I would never sell my business for a few months.
It takes a long time to build a route. There is no guarantee
that employees will not screw up and there is no guarantee that you won’t screw it up.
Hopefully, you will not do that.

How can there be an industry standard when there are so many different kinds of routes?
One might be all in a small area and another might be spread out to the end of the world.

I think residential businesses are more risky in terms of losing customers.

A few years back at an IWCA (2006) meeting the experts came to a consensus of 15% of gross sales. Sound great if you are buying but terrible if you are selling.

Definitely start from scratch. If you play your cards right you will be making some serious dough rather quickly. I’m living proof of that.

Either way, selling a $300k biz for $75k, something doesn’t sound right. take 1/10th of that $75k, $7500, Start your own company and spent the rest on marketing, and you will have a measure of success in a few weeks.

This year, it seems that for every $1 i spend on my business / marketing, I make $80 back. If you dropped $5k on the proper marketing at the right time of year, you’ll exceed the annual income of the business being sold.

Not to mention, seeing as how this business is being sold, there is a high probability that the current owner has lost interest. Lost interest = drop in customer service, marketing etc. Used this to your advantage and swoop in to acquire his business without paying a cent for it.

80 times your money back on marketing?? what is going on in Jersey, Im gonna go start another branch out there and my company will gross 2 Billion in a couple years…

really though, listen to what your saying. if you were to invest just 50,000 in marketing throughout the year, you would gross 4,000,000. these numbers just don’t make sense… 3 times your money back is considered a good ROI

I think it’s because he gets most of his business from search engine organic ranking of his website, which can only get you so much business a year. If you spend $15 bucks on hosting a month, you need to pull in $1200 a month.

Maybe I’m wrong, cuz he is making “serious” money.

Starting from scratch would be ideal but for my situation I need something that will generate serious income from the start. I guess I’m willing to pay a premium for something already set up.

With that in mind, hypothetically if you had to sell your biz because you were moving out of state and your biz was doing well, do you think a buyer new to the wc biz could come in and manage the biz without doing any of the actual work himself (meaning he would hire crews to do the cleaning)……and assuming you gave him proper training…………or do you think it would be just too difficult to do for both you and the buyer.

You can however here in San Diego it is not cheap to live so you would obviously need to make sure the people you hire can make a living or they will just quit and look for more money. You will need to work in the start plain and simple. I really don’t know what you would consider serious money

I have been doing this for over 10 years now and Ive never heard of anyone selling there business and being happy with the price they got.

I’m not a big company, so it takes a lot less actual work to keep my pockets filled. The more money you attempt to make, the more marketing is going to cost, and the rise in cost is not linear.

Hypothetically, Say my little company pulls $100k this year with $1500 in actual, tangible marketing. To take things to $200k, I’d probably have to up the ante to about $10-$15k a year.

At this point in the game, I’m happy that I’ve found a few cheap marketing methods that work for a business my size. Its quality over quantity.

The organics do treat me kindly, but I honestly, the websites only cost me like $3-$400 a year to operate. There are a few other things I do, but I can’t get into them here, seeming as 10 new WC companies pop up in my neighborhood every week

This is why the WCRA wants YOU, Chris “Cwality” Cartwright!

Thanks for that.
Soak everything in new guy and gal, this forum will make you rich if you take it in right.