Acquisitions Anonymous - #1 for business buying, selling and operating - This $9M Landscaping Business Looks Great… But Is It Really?

Episode Date: February 28, 2025

In this episode, the hosts break down a North Carolina-based landscaping business listed for $9 million, generating $1.8M in EBITDA on $8.2M in revenue. Sounds great, right? Not so fast. They dive into hidden risks like customer contracts, labor concerns, and equipment valuation to determine if this is truly a great deal—or a potential headache.With 52 employees, $2.3M in equipment, and major growth potential, there’s a lot to love… but also some red flags. They discuss why the seller is moving on, the impact of H2B visa labor risks, and the real cash flow number buyers should consider before making a bid. If you’re eyeing a blue-collar business acquisition, this episode is packed with insights!🚀 Our Sponsors:Elder Zain – The CPA firm for entrepreneurs, now offering the Builder’s Package: a full-stack CPA solution for tax, bookkeeping, and fractional CFO needs—all at one simple monthly price. Learn more at edlerzain.com.HoldCo Conference – The must-attend event for business owners and investors in the holdco space. Stay tuned for more details!📢 Follow Acquisitions Anonymous for more great deals:🌐 Website: https://www.acquanon.com/🐦 Twitter: https://twitter.com/acquanon✉️ Subscribe to our Newsletter for more deals weekly: https://www.acquanon.com/newsletter🔔 Subscribe to our YouTube channel: https://www.youtube.com/@AcquisitionsAnonymousPodcast?sub_confirmation=1🎧 Listen on your favorite podcast platforms: https://www.acquanon.com/episodesSubscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

They've got good margins. They say they've got clean books. And if they've got good operations, like, that's kind of why I like this one. There are a million type landscaping services companies that I think have functionally no enterprise value. If you've got a business throwing off a million eight a year and you've done all this, why are you selling now? Welcome to another edition of Acquisitions Anonymous. Today, Valentine's Day, Bill and I took apart a landscaping deal in. North Carolina. It's a pretty good size one. And you'll find that I had a little opinion about it,

or the industry in general. But we have a lot to talk about with this one. There's a lot to consider when you look at landscaping deals from employees to equipment and CAPEX and seasonality. So we talked about all of that. So please enjoy the episode and let us know what you think. Are you ready to take the leap into business ownership but you don't know where to start? Well, look no further than Acquisition Lab. The premier recent, for entrepreneurs seeking to buy their dream business. Founded by Harvard MBA, an acquisition expert Walker Dibble, the lab is your fast-tracked success in the search diligence and acquisition process. With hands-on support, world-class resources, and a community of like-minded entrepreneurs,

Acquisition Lab gives you the tools and confidence to navigate every step of the journey. And we're proud to call Walker and Chelsea, the lab's director, longtime friends of the podcast. They're passionate about helping entrepreneurs like you take the next big step. So don't wait to make your business ownership dream a reality. visit AcquisitionLab.com today to learn more and schedule your free consultation. And when you do, be sure to tell them the Acquisitions Anonymous podcast sent you. Hello, Heather, and happy Valentine's Day to you. Happy Valentine's Day.

I got my pink on. I tried to make the background pink, but it looks purple. So sorry about that. Close enough. Right shade. You're much more fester than me in my blackhearted T-shirt. That I know. This is not right.

You need to go change. I did dress my daughter head to toe in. pink, including pink cowboy boots today for school. So she is rocking it. She's rocking it. I'm sorry. I missed that. Yeah. So it is also Friday. And not sure when our listeners will be listening to this, but it is Friday for us. The weather is nice, but a little bit cold and I'm feeling good. It's raining in California. Raining. Ah, well, the weather is finally nicer somewhere else than besides California. This is the first. Yes. You win. Yep. So it's just us today, but we have a good deal.

And I think we're going to have a little bit of banter on this because I think we might have different perspectives. I have a bias possibly, maybe. All right. So this is from our future podcast sponsor, Biz, Bicel. It is a beautiful picture here, well-established landscaping company located in North Carolina. No. They are asking for $9 million. So this is on the bigger side, which is why I picked it. There are lots of little onesy-to-sie, two guys in a truck, landscaping and lawn care companies. But this one makes $1.8 million a year in cash flow on $8.2 million a year of revenue. It says they have $2.3 million of equipment, which is interesting. and it's established in 2011. So it's been around for 13 or 14 years now.

Asking price $9 million. It is a successful landscaping business with great cash flow. The business has demonstrated robust growth with projected revenues of $8.2 million in 2024. This is driven by strategic marketing positioning and continuous service enhancement. They offer a wide range of services to residential and commercial clients throughout North Carolina, reducing dependency on any single revenue stream. The company's financial health is underscored by its steady revenue growth and efficient cash management.

These combined with a clear vision for expansion and differentiation present a compelling opportunity for buyers seeking a stable yet dynamic business in the landscaping services sector. It's an excellent opportunity for an existing landscape company wanting to expand or an individual with the drive and experience to own a successful business. The owner is willing to train a new buyer to ensure a successful transition. They have 9,400 square feet of leased space. Their lease expired last month.

So you probably need to talk about that during the sale process. They have 52 employees. All of their FF&E, their furniture's fixtures and equipment, also known as lawn mowing machines at trucks, which is valued at $2.3 million for what that's worth is included in the $9 million purchase price. The company has two facilities. One is on an acre of land with 1,200 square feet of office space and a 1,200 square foot shop. The second location is on 1.3 acres with a 7,000 square foot shop and office on it. The competition, there are several landscaping companies in the area. This company is much larger and allows for a more competitive price structure.

The company differentiates itself through a strategic blend of competitive pricing, quality service, and exceptional personnel. Now, the growth potential is unlimited due to the continued growth in the North Carolina coastal region, as well as the western part of North Carolina. There is also potential to expand into new markets and diversify services, including law and treatment and in-house irrigation. The excellent books and records, Heather, would make this a great business to get SBA financing. Oh. They did not say pre-qualified, which was nice. That was nice of them, yes. But excellent books and clean records.

That's always nice to see. seller is willing to train and why are they selling the seller has other business opportunities and interests and this is for sale by ken per year of VR business brokers who was kind enough to put on a suit for this photo and looks very professional yes he does so what do you think Heather well there's a lot to unpack when it comes to a landscaping deal which you know and there are things that are rarely stated in the teaser they don't mention contracts so something that makes a landscaping business a little more valuable, especially if they've got commercial, which they say they do, would be contracts of any kind, you know, ongoing maintenance contracts.

So I'm curious if that means they don't have any because you think the broker would have liked to highlight that. And there are, you know, there's a question of how the revenue is mixed between maintenance, you know, ongoing just regular maintenance revenue versus project installs. That's a big deal with landscaping because, you know, the projects obviously can create lumpy revenue and, you know, it can, it can just make the margins also inconsistent. And also demand is somewhat, you know, it's, it's not as necessary, right, to do these big installs most of the time.

There's CAPEX to consider with all that equipment. I love how they said that the equipment's all included, but, you know, it should be. How would you buy a landscaping business without the equipment? Yes. And I wonder how they value it. You know, when they give you that big headline number of 2.3, is that the depreciated book value or is that the original book value? You know, there's a lot to consider there.

How old is that equipment? There's a lot to think about in terms of how much actual cash flow you get. If the million aid is EBITDA, meaning they added back depreciation, then your cash flow is probably going to shrink when you figure out what the maintenance CAPX really is. So lots of things to consider here, but a big one is labor. They said they have 52 people. That has been a constraint for any of these blue collar businesses.

I know North Carolina is a growing area, but a lot of these landscaping businesses have relied seasonally, at least, on H2B visa workers. So anytime I get a landscaping deal, I ask my client to find out, you know, how much they rely on H2B visa workers. rely on H2B visa. With all the immigration talk, if you're looking at a business right now that relies on that, that would be a bit scary. That would be a pretty high risk factor. In the past years, prior to this administration, I think people had the notion that, you know, we would continue that program and there would be no issues with it. But I think right now you have to, you have to think twice about anything that any business that's relying on H2B. Yeah. I mean, definitely with all the

immigration talk lately and who knows what's going to happen here in 2025 and beyond, the labor pool that you use in a landscaping business is the labor pool that is in the crosshairs of all of this political turmoil. So yeah, I would be a little worried about that my labor cost might go up a bit over the next couple years if all of this comes to pass. Yes. You mentioned the $2.3 million of FF&E and wondered if it was the depreciated value and I almost laughed out loud. I have never once seen it be the money. the depreciated value, have you?

Was I being nice? Yes, I was being nice. Yes, it was not the depreciated value. I'm sure they took accelerated depreciation, bonus depreciation, and that's all fine and good. And that's why a buyer will be encouraged by a broker, add back all this depreciation. They accelerated the depreciation. The equipment's all still good, right? But you as a buyer need to come in there. The answer is somewhere in between.

You know, there is, you know, wear and tear that's happening to that equipment, even though it may not be at the same rate that they depreciation. It's appreciated it. So, yeah, you get a little pickup by adding back accelerated depreciation, but you've got to subtract something back out for just the normal replacement costs and maintenance in fixing this equipment. Everybody that I have worked with that bought a landscaping company or even any company that was heavily dependent on equipment has come back after they closed and told me I had to spend more money after close on the equipment. It was not in as good as shape as we thought. Yeah, every time. Classic. Classic. I mean, I would say this is a key point of diligence if you are buying a business is dependent on the equipment. You need to get someone in there to put eyes on the equipment who understands that equipment, right? Like an appraiser or a mechanic or whatever type of equipment you're buying, even if it's manufacturing equipment. Someone's got to come in there and evaluate that equipment so you can understand the true state it's in and how much deferred maintenance, CAPX, is embedded in there.

Yes. And no matter how good the expert you bring in, they're only going to have a limited time. They're not actually out there using the equipment every day. You're still going to be guessing. That's what I always tell everybody. Maintenance CapEx. People ask me, well, what's the formula? How do we calculate this? There is no perfect formula. You know, you're just going to have to go at it a lot of different ways. Try to get as much information as you can. And then be conservative because you're still probably too low. You know, you still probably are going to end up spending more on the equipment. The other thing, thing about Quitman, we talk about this a lot, is if you're buying this to grow and they're talking about, you know, all the growth in North Carolina, sort of being what drives this business, I think, you're going to have to spend a lot of money to grow. I find it interesting that the, that the teaser says you can take advantage of coastal North Carolina and Western North Carolina. Isn't that kind of a long... That's the whole state. That's the whole state, yeah. Right. That's not close to each other, right? Like, how far drive is that? Yeah, well, that's my, well, so it's six or seven hours kind of corner to corner on North Carolina. But they do have two locations.

So, and they sort of hinted throughout the teaser here that they had some geographic diversity. So I would be curious to understand, like, is one of these locations in Raleigh and one of them's in Asheville? And they do service the whole state. I would still think from two locations that's still a lot of driving to do landscaping. I don't, I don't think they're really covering the whole state. So I would want to understand what geographic area they're in. That being said, like, there are not, there are some, but there's not a lot of bad ones in North Carolina. Like, if you're near a major city, almost all of our major cities are growing well. And this is, you know, this is just climate-wise, like people consume a lot of landscaping services in North Carolina because we have a long growing

season and, you know, you can do a lot with your backyard around here. And similarly, if you have commercial property, stuff grows out of control and you got to be on top of. it. But yeah, just generally, you're right, Heather, like utilization of the FF&E as well. Like, if this stuff is 105% utilized and you can't grow at all without buying more equipment, you want to know that. If it's 50% utilized, then your next dollar of growth is actually quite profitable, right? Because it's just more volume through your same mowers, you know, or whatever other equipment you have. So equipment utilization rate plus the quality of the equipment and the deferred capax embedded, the maintenance capbacks embedded in that equipment are two things that are really important to

understand. And there's logistics. Okay, if you have two locations and a lot of equipment and a lot of people, this is a lot of logistics planning that you have to do with every project. You know, what size crew do you have to go, has to go where? Are you, you know, sharing the equipment, probably certain types of equipment you're sharing between these two locations? I've seen some of the software that landscaping companies use to manage all of that.

it's, you know, it's important that they have really good systems. I would think at this size with two locations, that's something this business probably has nailed down pretty well because they've got good margins. I like the margins. They've got good margins. They say they've got clean books. And if they've got good operations, like that's kind of why I like this one. There are a million, you know, mom and pop, two guys and a mower type landscaping services

companies that I think have functionally no enterprise value. Right? But this one, though, seemed a lot different to me because of the scale. It's got 50 employees. I'm willing to bet some of those employees are managing the other employees. So, you know, I would look for kind of tiering here. I bet they're not just all 52 people pushing mowers, which is good, right? Because you have middle management.

It's got $1.8 million of EBITDA or cash flow, as Bizby Sell calls it. So, you know, this feels a little bit more institutionalized. Clean books, good software. you know, this, this is a viable business. Like, it's plausible to me. There's enterprise value here, which is not always true. Now, the seller is not selling for retirement. It was, what did they say for other to pursue other business interests?

I never like that one because that tells me, potentially this is a younger seller. This is not someone of retirement age. And I'm always a little suspect if you've got a business throwing off a million eight a year and you've done all this. why are you selling now? Why not just keep it, especially with 52 people. Maybe you've got a crew. It's maybe not as demanding at this stage as it might have been earlier.

So I question that a little bit and it may be more so because this is the industry. I have a little list of industries in my head that I kind of question the ethics of a little bit. Really? Why? Yeah, because of, you know, I think in the last 15 years, I've probably, done with SBA loans, I've been involved with maybe a thousand transactions. So small businesses that were acquired. So that gives you a lot of experience and a lot of talking to clients after deals have closed about what really happened. There's one, you know, there's, there's one thing we do before the deal closes and there's a lot more that we learn after the deal closes. And the learnings

have been, it's just, it's an industry where there's a lot of deals where the seller lied. frankly, just to spit it out there. Even one case of mine, you know, a client of mine where they actually sued the seller and won because the lies were so egregious. I mean, they had the employees lying during diligence and all kinds of things. Wow. And there's smaller lies. There's bigger lies and smaller lies.

But anyway, I just think this is an industry where I've seen more of it than any other. So a higher fraud rate than is typical. Yes. And some of it for no good reason. You know, like it wasn't even necessary. It was more like just the, that's the way it works in that industry. And they don't feel like they have to tell the new buyer everything before they buy. They'll figure it out later kind of thing.

So anyway, that is just a bias that I have formed over time. Hey, Michael here. I have something to tell you. I used to think franchising was kind of a dumb way to get into entrepreneurship, but my mind totally changed on everything around the topic. And so whether you want to learn. more about how franchising works or you're just curious or heck you want to just show up and make fun of me i do these monthly lectures uh online they're free and i bring in folks and we talk about things that

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Come hang with us. That's interesting that it seems to be a pattern. How do you, of course, that doesn't mean that all landscaping businesses are fraudulent. How, what would you do to protect yourself a little bit more against that type of thing in this transaction? Well, one thing I would do is, and I know I get a little heat from this on social media is have your entire deal team be not someone recommended by the broker. In other words, do not go to a lender that the broker is pushing you towards. This is an area where the broker can be talking to your bank without you.

They will. They do it all the time. And sugarcoding the answers and whatnot. And you will never even know it. So your entire deal team needs to be totally independent. You need to be very careful with all your interactions, maybe bring your deal team members like your QV provider or whatever to some of the meetings that you're having with the seller so that they can hear the answers and see if that makes sense

in the numbers that they're looking at when they're doing the diligence. I just think you just put everything on a higher level of care and you make sure your deal team is very solid and knows this industry. I think those are some things you could do. Okay. Interesting. Is there, I mean, you'd certainly want a Q of E, right? You'd certainly want to tie out all the income to all the bank accounts, understand where the revenue is coming from, understand all the expenses, make sure that there's not hidden expenses, sellers paying in cash. This is the type of industry where you would expect that some of the guys are getting paid in cash, and you got to make sure that's all on the books. Yep. Right. So again, you're going to want me to tie out the bank accounts, not just look at

their accounting. Yeah. And what you're talking about is called a proof of cash. So you get the proof of cash right away. Just go straight to that and see where the, red flags or yellow flags might be and then dig in on that on your diligence. And then just be really conservative in bringing down that ebidah, you know, with everything that you find out. Be conservative about it and don't overpay. I mean, I think that's the main risk is that if you don't, if you don't get at the real ebidah that you are going to experience and that's something that happens in this industry with acquisitions, you're going to be over levered potentially. So you've got to be conservative in the ebidah that you think you're really getting.

This million eight is probably my guess. It's a million three. Especially if you look just on the proof of cash or including all of the deferred capex. Maintenance capax. You know, figuring it your employee costs are going to rise. Maybe some things that aren't accounted for correctly. You know, like just rough guess, it probably shrinks by as much as $500,000.

So I absolutely believe you could be right. I think that highlights why buying bigger businesses is so much better. Because that while cash flow going from 1.8 to 1.3 is bad. It doesn't make the business inherently broken. You got to pay the right price for it, but it's still making 1.3 in cash flow. If you go from 600,000 to 300,000 in cash flow, it means it's a fundamentally, different business. Right. Right. Like that might be it's too, that makes it too small. Yeah. You know, or or it makes it, you know, now you can't afford to bring in a manager, you know, or so it changes so much about the business when, you know, your kind of diligence adjustments take it or your real life adjustments that, you know, the, the shit happens adjustments

take you down from from 600 to 250 or from 600 to 400. That changes a lot. One eight to one three changes the purchase price, but it doesn't necessarily fundamentally change the nature of the business. That's right. And this is what it's all about with this industry is get the right EBITDA, so you have the right purchase price, and then the right structure around that. You know, you also want a seller note. You want a seller note. They need to have some skin in the game so that they're not getting fully paid out day one, and they have a reason to pick up the phone when you say, how do I fix this machine, or how do I talk to this employee, you know, that I'm having trouble with or what, whatever it may be, you know, I think transition is rough with these businesses. This is not an easy

transition stepping into an industry like this. There's projects going on, possibly even work and process. There's maybe seasonality. So you also have to think about when you're going to close. There's seasons, obviously, you're landscaping. So you have to understand when the highs and lows of the seasonality occur throughout the year. And ideally, you want to step in at the end of a low. So you're just right before the high season kicks in. You have a couple weeks to kind of get settled and then the cash flow starts coming in. Seasonal businesses, obviously you don't want to close at the beginning of the slow season when you're not going to get much cash flow, you know, and you just put all this debt on to the deal.

So those are some of the other considerations. You're so right about the power of a seller note because even though a seller note is guaranteed, right? you are obligated to pay it. It's a debt instrument. If you find a whole bunch of fraud in a business that you've bought, or I won't even go to the fraud word, but just misrepresentations or, you know, things that are different than what you thought you were buying. It is a world of difference, even if you have the same claim.

And even if you don't have offset rights against the seller note, you can still take offset that against the seller note and people do in practice all the time because possession is nine tenths of the law. That's right. And if you have his money, it gives you so much more leverage than if he has all of your money and you're trying to using lawyers who are expensive, by the way, very expensive. And the court system to try to get your money back, it raises the threshold. I mean, you're not going to, if you're several hundred thousand dollars is too low to sue somebody over. That's right. If you think there's several, several hundred thousand dollars is very easy to withhold from a seller note and argue about yeah absolutely so

you exactly you need a seller note ideally you do have the right of offset you know they'll if you have a good lawyer they're going to put a right of offset in that note i like deals as a lender you know for safety purposes that have a seller note and an escrow holdback so the seller note is sort of the longer term skin in the game from the seller and the escrow holdback is usually a shorter term like six, 12 months of transition issues, just making sure the seller performs on all the things that you said needed to be performed on for transition. I think having both of those is really nice. I mean, obviously, you can't always get the seller to agree to it, but that's the starting place for me, especially to me in a business where I have that, you know, question about

how honest everybody's being. Then I want a note and an escrow holdback if I can get it. Yep, I agree. Yeah. Okay. So Heather, you told me before we start recording that you don't love landscaping businesses. Yes, that is true. Do you hate this one just as much? I like this one more than most.

So you did find a good one. Of course, it's in North Carolina that, you know, that makes it better. It's in a growth area. And it seems like it has a lot of good qualities. I need a lot of diligence before I want. would say I really like it and especially to be very conservative with the structure. Just all things that we talked about, just be conservative with it. But this is probably a pretty good one.

This is one that can trade, I think. Yeah, that's why I picked it. I think there is enough there that this can trade. You probably need a little bit more structure and a little bit deeper diligence than you would do on an equivalently sized business because of the industry. You've got a diligence to the equipment. I would also like to see the residential commercial split, and I hope there's more commercial than residential. But overall, I think this could be a good one.

I know there are people out there that look for landscaping deals. I wouldn't be surprised if one of them bought this. Yeah. Probably not for the 5x EBITDA they're asking, by the way, which we didn't mention. That was way too high, yeah. Yeah, that's too high. What they're probably doing, I did kind of the back of the envelope mat, $9,000. is 5x 1.8 million. But if you take the 2.3 of FF&E out, it becomes 3.75X. So I have a feeling

that is what our broker here is doing. We've already talked about the fact that that FF&E is probably not, or actually worth 2.3. And I also don't, you know, maybe 3x is the appropriate multiple for this business anyway on a modified, you know, conservative EBITDA. So I don't think this goes for anywhere near 9 million, but I do think it will go. which is different than many. Yep, I agree. I agree. Thumbs up very, very, uh, sort of.

Not bad. Transactable, just not at 9 million. Yeah, I agree. Um, okay. Um, well, thank you for turning in to this week's Acquisitions Anonymous. If you liked this one, we have done almost 400 episodes of this podcast, uh, which means we have done almost every type of business conceivable, including the one that you, dear listener, are probably interested in.

So if you go to our website at acqueu anon.com, you can see all of our back episodes. You can also get on our email list where we will email you the teasers of everything we cover on the show as well as some analysis. If you're more of a text person instead of an audio person, you can get all four of us, all four co-hosts in your inbox. So hop on our website and sign up for our newsletter. Thank you for joining us on this episode. Happy Valentine's Day.

and we will see you next time.