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I have been approached twice since the beginning of this year to offer advice regarding the viability of buying an established Garden Business. One enquiry came from someone who is new to horticulture, wanting to purchase an existing successful firm and simply take it over, thereby avoiding the usual Start Up problems of establishing the business.
The second was from an established Landscape firm who wanted to diversify into gardens maintenance. Again, they sought to fast track their investment by taking over an existing business for sale.
Over the past fifty years, I have seen some successful mergers and start-ups, essentially following the above scenarios. But they are the exception rather than the rule.
My advice to both of these enquiries was largely the same.
Whatever you do, carry out a very thorough and extensive survey, not just of the business for sale, but of the whole surrounding district. Is there a local need for this business? Why is it up for sale? What is the competition? What is included in the sale asking price? What reputation does the firm have within the industry? It does not matter how much or little the cost of purchasing the business appears to be. What exactly are you being asked to pay for?
The common attribute of ‘Goodwill’ is frequently mentioned. What does ‘Goodwill’ mean? Goodwill from whom, to whom? Any previous affection the current client base may have for the old firm will disappear as soon as the sale goes through – perhaps even before then if the current customers decide to look elsewhere knowing that the old regime is coming to an end.
It is a fact that you cannot buy customers. Their loyalty will be with whoever can do the best job for the cheapest rate. If they even suspect that a business may be about to change hands, they will make other arrangements sooner rather than later.
Also, it is a fact that you cannot ‘sell’ your staff as part of any deal. The new owner may get along very well with the existing employees, but they cannot be included in the purchase package.
Establishing a fair price or valuation
The asking prices of some of the businesses for sale are difficult to comprehend.
A quick on-line check shows just how many firms there are for sale. Although mainly single market style firms specialising in Lawn Care, others boast of a wide range of landscape and maintenance opportunities.
£125,000 asking price for a firm turning over £250,000. Another asking £100,000 for a turn- over of £200,000 showing a profit of £50,000. Yet another, £30,000 for a turnover of £50,000 with no mention of profits.
Whilst these figures may include a lot of tools and equipment, when I researched these particular firms, the price was for ‘The Business Name, Current Client Base and Goodwill only’.
Taking the £100,000 firm as an example, if you purchased this business you would be expecting to make no income at all for two years (£50k ‘profit’ p.a. each year for two years). Within this figure there must be a lot of expense for transport, tools, insurance etc, before any money was taken out for wages and salaries.
My advice was to think very carefully, and examine the alternative ways to open a business.
The Industry Newcomer had £100,000 to invest in a new venture. That money could buy a couple of new vans, wages for competent staff, a lot of tools and advertising/marketing. They could create their own marketplace, image, training programme and become attractive in their own right within the first year of trading.
The second person runs a successful hard landscape business in the South of England, and thought he could see an additional business opportunity to increase his companies offer by employing a crew to maintain the gardens they had constructed.
This scenario is more likely to succeed, as the customer base is already in place, and a degree of genuine goodwill exists as the client has prior knowledge of the competency of the parent company.
However, the same degree of logic should be applied. He was only being asked to pay £15,000 for a small maintenance business, with a very modest turnover and profit margin. The price was for the ‘Goodwill’, a company website (which would be useless to his business) and a current customer base.
I asked him to think about the likely expenditure he would incur if he simply updated his website to include maintenance, added some maintenance equipment to his stable and took on an additional employee to start carrying out maintenance, building up from one member of staff and growing organically. If the venture proved successful, expansion would be natural.
Moreover, if the maintenance team were to have some input from the construction staff as required, the new squad could handling any snagging jobs left over from the hard landscape projects, thereby creating a seamless system, geared to the needs of the firm and existing insurances, compliances and yard space.
There is certainly room within the industry for ‘Take Overs’, and the most successful of these have involved firms that have a strong identity, strict compliance systems in place, and are large enough to employ staff who are not embedded into garden situations where the employee is the sole point of contact with the client. The customer becomes upset when ‘their’ gardener is removed from their garden, and they lose their regular person.