Have you ever thought about selling your snow and landscape company or buying another one to grow? Well, I just got out of my live webinar with Christeen Era and Steve from Green Profit Academy, all about how to run profitable mergers and acquisitions. It was awesome, and the audience asked a ton of great questions. So for today's video podcast, I'm just going to replay the Q&A, because people asked incredible questions that I wrote down on the back of a notebook about culture and, "How is mission, vision and culture actually a key part of a merger and acquisition?" Steve just celebrated his 40th year in business and has done several mergers and acquisitions and gets into that. Somebody asked about earnouts. Can you just pay a referral fee when you're buying a company and how does that work?
Or what about selling a client list? How much should you value that if you're, you're going to buy somebody else's client list? And how is that different from just paying a commission? Which one's better? You're talking about how to value, how to evaluate each division. So if you have a landscape division, a maintenance division, irrigation division, a snow division, how do you keep track of that in a way that a potential buyer would want to see? And how can knowing this now actually help you run a better business?
Steve's laws... I love Steve. They're like his core values. He shares what they are, and I love them. And he shares why he hasn't listened to them and what happened when he didn't. He was acquiring a company that didn't share those values. And what is the value of a website? I'm going to share with you how you can track the value of your website. So it's a business asset that somebody could buy and how to actually put that sales and marketing data into QuickBooks so you can actually generate a number and should you buy a competitor just to put them out of business? An interesting idea is shared. So check out today's episode of The Landscaper's Guide and let's get into it.
Hey, it's Jack Jostes and welcome to The Landscaper's Guide. This podcast helps the snow and landscape industry learn sales, marketing and leadership ideas. And we're going to play some footage from the Q&A of our live webinar, and you don't want to miss other events. So make sure that you subscribe at landscapersguide.com/podcast. We'll send you our top podcast right away, plus invites to our upcoming events. I had a question for you, Steve. You had said in the one-sheet, where you're summarizing your business that it should include the vision, mission, and purpose. And I was curious, why is that actually important when you're selling your company?
How Do Vision, Mission, And Culture Impact Mergers and Acquisitions?
Steve Bousquet:
It's a cultural fit, and you want to make sure that you're on the same page with where they were driving this company for 30, 35 years. The mission is very important. It represents what the owner believes in and what they support. So if the mission is, "How much money can I grab out of this business?"... and I've run into a lot of companies where the owner's mentality is, "It's me against my employees, it's me against them," and it's, "How much can I grab?" And if that's your mission and your business, then that's not going to be a good fit for my company, because that's not our mission. Or what their purpose or why is... If it lines up to yours, it's better. And whatever your mission and vision is, I'm not poo-pooing or saying it should change. You just want to make sure that you're on the same page.
Jack Jostes:
Well, and what can go wrong when it doesn't fit?
Steve Bousquet:
You have disengaged employees. So if they come onto your team, they're already disengaged, because they know the owner was... I call it a money-grab. And so if the employees are not being developed and they're not being nurtured and they're not being taken care of, it's just a job, they're just showing up for a job. And we don't want people that are just showing up for a paycheck. We want people that are showing up to grow and develop as, not only as a landscaper, a lawn care person, but as a person in the community that my business operates in. And I'm not asking everybody to have that vision, but I need something close to that for the business to work.
Who Helps Find A Company Who Meets Your Culture When You're Trying To Also Be Careful To Not Let Anyone Know That You're For Sale?
Jack Jostes:
And Kurt asked a great question. Who helps find a company who meets your culture when you're trying to also be careful to not let anyone know that you're for sale? So how do you go about vetting that and finding that cultural fit without letting on to people, "Hey, we're getting ready to sell the company," which can spook a lot of people.
Steve Bousquet:
There are a number of ways. Associations are really good. If you're in associations, you kind of know who's in the association, they've been around for a while. There's also different brokers who you can get to know. I would always recommend trying to get to know some brokers before you're ready to buy or ready to sell. And have conversations with them, invite them to visit your business, and get that out there. There's a number of brokers, there's guys in the northeast, there's guys in Tennessee for lawn care, landscape businesses. But associations are good to know, because people typically that are heavily involved in associations have a value system that matches up with ours.
Jack Jostes:
Very good. We had a question, and I absolutely advocate for joining your state and national association. We're members of the Illinois Landscape Contractors Association, the Texas Landscape Contractors Association, the Associated Landscape Contractors of Colorado and NALP. And I found that those are really, really great and a great way to network and partly find a potential buyer or seller just from showing up and networking at those things. For sure. So I was curious... There's another Jack here. I'm not sure I understood the question. Jack, are you here to ask your question? If you could unmute and turn your camera on, we'd love for you to ask your questions about the earnout-based acquisition. Are you able to ask that, Jack?
Can You Just Pay A Referral Fee When You're Buying A Company?
Jack:
Yeah, absolutely, I will. And thanks for the opportunity. All this material that you've provided is super, everybody that's talked today. My question is, we've made a few acquisitions that are larger acquisitions over time, but I've also realized that we'll receive calls from time to time from other local companies that know us or know of us in the market, and they'll say, "Hey, I've done it for 20 years, and I think I want to hang up my spurs." And then you look at the financials. And number one, the business is really not worth what they want. But then number two, they don't really have much of a business. It's more of an owner-operated company, where they've been pulling a salary out and that's sort of like the net profit, if you will. And so I've tried a couple approaches here actually this year with two companies, and ultimately they just ended up closing the company, which was sort of crazy and we ended up picking up some of their clients that way.
But my approach was, "What if we don't give you anything upfront, but we'll pay you a percentage of whatever we generate off of the clients who successfully transition?" So that's what I call an earn out. It's like, "Okay, we're not going to really have a lot of risk in the very beginning, but we're going to do everything we can, and we expect you to help us to get those clients transitioned. And then we'll provide you clear accounting of exactly what we did. We most likely, because we're bigger, we'll upsell them on other services, and we'll pay you some percentage of that revenue on everything we generate for that client over a period of time." So that's really what was the genesis of my question.
Steve Bousquet:
So we've done many of the smaller ones, because, like you said, it's not actually a business. Many of them don't even have a website or they have no employees. So we basically just come up with a percentage and we pay a percentage that eliminates all my risk. And then the other thing is we're showing up and doing every application we're upselling. So potentially, they could end up getting more revenue from that. But the thing is, depending on their pricing, that's usually the issue. They're way under-priced a lot of times, and I mean up to 20% to 50% under-priced. And what was interesting is typically, you lose about a third of those customers right away, regardless of if you raise the price or not. They just go away. One third will stay, they just don't want to change. They'll pay the price. And it's that middle third that you can build the relationship, explain the price and keep. So we're finding that, even on the smaller ones, we're keeping almost a little under two-thirds of their customers.
Jack Jostes:
And Steve, in that earn-out model, roughly, what commission percentage, ballpark, is kind of customary right now?
Steve Bousquet:
So it depends on how long they want the commission for. It depends on how big the price differentiation is and how much we have to move. Typically. Between 5% and 15%.
Jack Jostes:
Okay. Well, I wanted to share that I acquired a company, two companies, with that model. And one of them didn't really go well. They were closing a department of their company and we acquired that department. And I didn't know enough at the time to dig into this, the reason they were closing it was it was unprofitable. And one of the key reasons was that they were significantly under-priced. And so when we came to those customers, and we were like, "Hey, your websites were built really poorly and to fix them, here's the price." They were not thrilled. So that was just one lesson for me was to learn, even for a earnout, for a referral commission, you've got to get clear on, "How much are these customers used to paying? Are they actually a fit for your company?" Because in that case it wasn't, but I definitely think it could work. And maybe there's less of this long-drawn-out, expensive process with lawyers and stuff.
Steve Bousquet:
That's just a one simple page agreement. I do have an attorney draft that. I work with an attorney, so she'll draft that. I'll have them look over that with their attorney, because I just want to make sure they don't come back and say they misunderstood it. And that 5% to 15% could be... Maybe it's 15% a year for three years, or maybe it's 5% for five years. It really depends on the quality of the account and, "Is it priced right?" If it's price right, it's worth more. So we're looking at... It's going to cost us about $200 to get a new customer in our marketing spend and not including the sales $200 to $300, and they're going to generate an average of $1,000 a year, that's our sweet spot.
Jack Jostes:
I like that. I like that you've figured out that number ahead of time. Like you were saying earlier, having that in mind can kind of remove some of the emotion from this. We did have good questions from Richard and Kurt. So go ahead and unmute, turn on your camera and ask your question. We'd love to hear from you, Kurt, if you're up for it, or Richard.
Can Landscape Companies Buy/Sell Client Lists?
Richard:
My question is, so we do about $500,00, $600,000 in revenue, and there's another small company locally that's interested in selling basically a client list. How do you know employees, know equipment? How do evaluation on roughly a $300,000 company when you're just purchasing a list of clients?
Steve Bousquet:
What's the service that they provide?
Richard:
They do basic lawn care, lawn mowing and general property maintenance. They don't do any real applications. So our company, what we do, we do organic turf management, ecological green infrastructure design, and we also use electric and robotic mowers. So there's a huge potential for upselling on all of these clients that this potential seller may not be aware of that we might be interested in doing.
Steve Bousquet:
Let's say his net is 15%, so he's netting $45,000. So if you do three, multiple three, that could be 135,000. That would be pretty generous in that, mowing and maintenance offers. People are delusional. Sometimes they'll ask for $300,000, because that's what the spray companies get. I would look at what his gross profit margin is, how much he generates of that $300,000. Cause you're going to have to replace him.
Jack Jostes:
Steve, I'm curious, why wouldn't we just pay, do the earn out model, the referral commission? Instead of trying to evaluate this $300,000 company, would it be better to just say, "Hey, we'd love an introduction, and for the clients that we retain, we're going to pay you X percent."
Steve Bousquet:
You absolutely could. And you could do it based on figuring out what the value of that is, based on his percentages. Yeah, like I said, there's different ways. Does he need $50,000 for some reason? Is it-
Richard:
Yeah, yeah. Part of it is the delusional part of it, exactly what you said. For his $300,000 list of clients, which, like you say, you might retain your lucky two-thirds, he wanted $1.5 billion. So at that point, I was like, "We'll have to think about it." Obviously, I was trying to find out best case scenarios of how, again, we can attain the client list and still acquire the clients and hopefully he's comes to his senses. That's really... Obviously he's not going to do $1.5 million.
Christeen Era:
Before our call, Steve shared with me that the company that he was looking to buy last year, they went under and now he's just picking up their customers without paying a penny.
Jack Jostes:
Right? And that's where, again, outbound marketing, direct mail postcards, in addition to being found online, you can generate a lot of your own leads. So what are you really buying, and is there a less expensive way to get those clients? And it could work out. I think there's a lot of nuance to it. We've got two minutes. So before Christeen leaves, were there any questions for Christeen? I know that Kurt had one. Go ahead, Kurt.
How Do Potential Buyers Evaluate Each Division Of Your Business?
Kurt:
The appraisal part of it, if anybody has input on that. And then what we are working on, and I think Steve mentioned that, is all our different divisions, what is their profit on each part of it? Because we have irrigation, we have maintenance, we have tree installation, we have the landscape projects, the outdoor spaces. So yes, we're working on breaking that down. Is that something an appraisal company wants to look at? How does that work? And finding somebody that knows our business.
Christeen Era:
So first I'll just add a few strategies in there, because we've worked with many companies to break down the profitability per division. And I call these profit centers in a company, where you know are going to have different services that you deliver in your company that are highly profitable and others that are not as profitable. And this is usually a blind spot in companies, where they'll go, "Oh, well my irrigation is super profitable, or my lighting is super profitable." And then once we dig into the numbers, we find that there's like two de departments in the company that have been limping along and are being carried by everything else. And what they assumed was highly profitable wasn't.
And we use the scalable growth business model assessment, which is an advanced method of profit-first. And just by getting your books in order and making sure that you're tracking those numbers properly, you can set this up to where you don't only need to use it in an appraisal process, but you can use it in your company to make some very vital strategic decisions as you move forward and make plans and even decide, "Well, we're going to get rid of this dead weight, and we're going to invest our money here," and maybe even putting a pin in it to create better profit centers before you sell so you could be strategic about it.
So that's something I'll bring to the table is just a little bit of wisdom on where to focus, when you could use the profit-first system to identify that building out in your books in advance. It's going to serve you long term strategically and when you are ready to sell.
And an appraisal company won't exactly do their due diligence on finding your profit centers in your business, because they're going to have to dissect your books. So this is something you're going to want to do in advance to make sure that your books are telling the story and you're not relying on an appraiser to do that for you.
Jack Jostes:
One thing I wanted to share about that, of getting that profit and loss by class dialed in, is that how you would recommend doing it, Christeen?
Christeen Era:
Yep. We either use class or location, depending on how you want to set it up in your business.
Jack Jostes:
So Kurt, if you had irrigation, landscaping, nursery design, and you could generate that profit and loss by class, you can also then bonus your teams based on that and incentivize managers and project managers and people. That's one thing that helped me. And I shared on the podcast that I had a ton of debt at Ramblin Jackson, and one of the things that really helped was getting clear on each department and what did we need to charge, and how much money were we making, or how much money were we not making, really, and then including my team in helping fix the problem. So I think there's a lot of value in setting it up in that way. I'm not sure how yours is set up currently.
Kurt:
Yeah, we're using QuickBooks, we're getting closer at all those numbers, and we do have a good accountant. And it's all good. And I just want to say thank you, and you've helped us a whole lot. So everybody out there Ramblin Jackson has helped us a lot and our branding and marketing and all that for sure.
Jack Jostes:
Thank you. Yeah, check out Unique Landscaping, and thank you, Kurt, for coming and saying that. Does anyone else have a question for either me, Steven, or Christeen or anyone else here? I encourage you to ask a question. Quinn, did you see any others?
How To Onboard Employees When Acquiring A New Company?
Quinn:
I didn't. I have one personally. I'm just curious for Steve, just a heads up. I'm also Quinn, I'm the landscape marketing assistant with Ramblin Jackson on Jack's team. And I was just curious, I know you mentioned when acquiring a new company, you want to look for ones with the similar culture obviously. And even when finding one that's similar, have you had any personal experience with pushback from previous employees of that company? And if so, or how did you handle it and then get them accustomed or on board?
Steve Bousquet:
So yeah, when we do, we do an interview with the employees that were there. And it's interesting, we look at a lot of other previous engagement. So we're asking for stories about people. How did they show up in difficult situations? And the person that has the weirdest stories, it was the person that didn't fit. Like unusual behavior or really selfish activities. He wasn't a team player, victim mindset, things happened to him. You couldn't take responsibility for stuff. After we were interviewing him, he decided that there's no way he could be part of our company, because we have this set of immutable laws. And it's like, "Show up on time, be honest, do what you say you're going to do, be respectful." He just could not buy into that, of course not because of him, but, "Nobody was going to do that live up to that."
So we knew immediately. And he just quit. He didn't even come on board. And other companies we bought, we basically give them a little bit of a trial plan and if when they have paid activities that they can go to for professional development and they don't show up, or they show up and they're not engaged, we coach. And then we literally have a chart. Are they capable but unwilling? Are they capable? Yes. Are they unwilling? They're not willing, so then they have to leave. So if they're capable but unwilling, they leave.
Jack Jostes:
When in the process do you do that little trial period? Because I think you need to work with people in order to see how they work. And at Ramblin Jackson, we have our core values, and they're actually the what guides how we select employees. And so we have ways of vetting them. So for instance, one of them is be on time and prepared to add value. If someone shows up a minute late for their interview, we actually end it. Right? So that's like a little test. And then we do skills assessments. We have them do just small basic stuff.
For our account managers, they need to be able to listen to clients, take notes and follow up. So we have them listen to a recording and type how they'd follow up. And it's like, "Did you Google how to spell xeriscaping? Or did you type "zero scaping" as two words? Cool, you can't work here." How do you do that though with a company? How do you vet their culture without... And when do you do that? Before you get seven months in with attorneys and lawyers and CPAs and valuation companies and all this expense? How do you figure that out?
Steve Bousquet:
A lot of conversations with the owners. And then we have a conversation with the managers, and then we look at their folders and we see what's going on. If this guy has 38 lates in 60 days... Or we'll ask to see timecards. Who's late? And what happens a lot of times, the owners are so desperate to have employees, they let this bad behavior go on and on. So it's a predictive model. Now, is it 100%? No. We've had people that were like, "Okay, this is a different company, I have to show up differently, and I do want to work there." So they show up differently and they stay.
Jack Jostes:
Thank you, Steve. Quinn, thanks for that great question. Steve, if we had a question from Todd Reinhardt in Illinois who asked, "If you could share what are all of your laws. What are Steve's laws?
What Are Steve's laws?
Steve Bousquet:
So we just went over that. We just went over that this morning. So in between rounds, we start with immutable laws. And my team had input on that also. And it's simple. "Be respectful and be polite. Be respectful to the clients, vendors, teams, equipment, uniforms. Be on time. Being on time is part of being polite and respectful to your team members so they can count on you. Own your actions. Be accountable by realizing that mistakes are part and failing are part of learning and progressing. We trust that you are working honestly and sincerely. We understand we all make mistakes. Honesty is very respectful to everyone involved.
Sharing honest bad news is better than hiding the truth. Everyone makes mistakes at times and may need help understanding instructions or explanations. Be honest so progress can be made. Give and take. Flexibility is a two-way street. As a family business, we understand people need flexibility and we need our team members to show up strong at work. And do what you say you're going to do when you say you're going to do it." Nothing crazy, but it comes with a sense of responsibility.
Jack Jostes:
Yeah, it absolutely does. And I share a lot of those values. And I know that if I were vetting a company who didn't share them, I think the real risk is to your current people. When you have people on your team who don't share those values, the real risk is that it's going to frustrate your A players to leave. If they're constantly picking up the slack for somebody who's late or doing a sloppy job or they're rude to customers and they have to call and take care of it, at some point they're going to leave. So I think it is very meaningful to have that and to vet it as part of an acquisition. I'm curious if, Steve, you had any questions for me or Aaron or Quinn or anyone else, if anyone had another question before we wrap up?
What The Value Of A Website Is In The Purchase Of Another Company?
Steve Bousquet:
I think we had talked about what the value of a website is in the purchase of another company. And I think that would be interesting, to see the value. Because if you have a company that... There's a friend of mine, people just want to buy his logo on his website. They don't even want to buy the company, because he has so much brand recognition in that market. That is so valuable to certain people. So what's the value of that website, a high quality, lead-generating customer support website to a company?
Jack Jostes:
Well, and I think that some of the things I shared today about tracking, "How did you hear about us?" In your contact form and recording your marketing source is one of the ways that you can demonstrate the value of it. And then if you take it a step further and measure how many of those leads closed and what was their value, and, when you create your invoices in QuickBooks, if you track that marketing source, you could actually answer that with a number. "Our website produced this much revenue last year from this marketing source." Our trucks... Not only is there the value of the truck, but our signage on our trucks generated this much work, because we're tracking that in there. So I think otherwise you're kind of guessing what's the value of it and, "Is it perfect?" And the other asterisk that I have to share with that is often it's a culmination of those things.
People are seeing your trucks driving around, they heard from a neighbor you did a good job, they Googled online and then found you and they read the reviews. So it's sometimes hard I think to know exactly which one, and it's not like you're going to stop having signage or stop having vehicle wraps or stop having a website. I think they all go together, but when you do track it, you can really assign a number value to it.
One follow up question for you, Steve, is in that example of the local brand that has the logo, they've got the website and somebody would buy that, should they merge them into one new brand? Or how do you buy that and... You know what I mean? Then are you then owning and operating two separate companies and two separate brands, or how does that actually work logistically? How could you maintain that brand and website without it becoming part of the acquiring company?
Steve Bousquet:
There was a company called Bonanza. It was a steak company, steak franchise, like restaurants. And Ponderosa bought it to bury it. So the company that wants to buy it can't compete against this guy.
Jack Jostes:
So you're essentially buying your biggest competitor to put them out of business.
Steve Bousquet:
Yeah, yeah.
Jack Jostes:
Interesting.
Steve Bousquet:
And he can keep his customers, he'll have to rebrand and everything. That that's my opinion. That's why they want to buy it.
Jack Jostes:
Yeah, I think, long term, that can be the transition strategy. And for a period, though, having some of it, maybe even the old website, still up, so when a current or previous customer Googles it, finds it, they're then finding the new company and knowing that, "Oh, this company is now a part of this other one." That's how we've handled it for some of our clients.
Aaron:
And I think could they just traffic that so if they search that and it hits that, it just bounces to their website?
Jack Jostes:
Well, so there's a couple things. One is you could do a 301 redirection. And that's where... Let's pretend that I have Steve's website.com. If someone types that in, and I have a 301 redirect, it's kind of like when you forward your mail at the post office and it just goes to the new website, Jack's website.com. The other option, though, would be to keep Steve's website published and just edit all of the content on it. So it says, Steve's Lawn Care is now a part of Jack's lawn and landscape and click here to visit Jack's website. And the value of that is if this old website ranks for the brand name Steve's Lawn Care, because your old customers Google it, they forget it, they forget your phone number, it's still showing up, and now it's just telling them about the new company. Jesse, did you want to ask a question?
Jesse:
I wanted to make two points. Point number one is part of the merger discussion that you were talking about earlier, Steve was discussing earlier, is what I found very useful. Jack, you know we merged with a tree company over the past couple of years, and it turned out to be the best investment we've made, because we were heavily reliant on snow. And well, we had no snow. Winter did not arrive in Baltimore this year. So it was great benefits, even greater than we initially anticipated by having another division, another lucrative division. So I wanted to point that out.
And secondly, I wanted to give you a shout-out because Ramblin Jackson put us on a map. We did not exist in Google. We were, I think, in page 27, Y & L Landscaping. And now we're number seven in there, and actually we're number two on the business listings for the past... And it's only been I think seven weeks since our website went live. So thank you Jack and team. We greatly appreciate that. And there's a tremendous amount of value. Anyone out there looking for someone to make a big difference on their website and on their marketing should definitely reach out to you.
Jack Jostes:
Well, Jesse, I really appreciate you saying that. And just today, one of the things that we did to help them with their merger was we did a news release. So one of the things I want to share is you've got to let the public know, "Hey, this is good news, this is a good thing." So we did a news release. I'm going to share my screen. That news release was picked up by themarylandtribune.com. And so on this... So Steve, I was just talking about the linking strategy. They've got a link to their website here. The old one is still up and the goal over time is for Pikesville Tree service... and they were just on our podcast and they talked all about how it went. So this still ranks number one for the brand name, and on it... Now when we're here, we're learning that it's now a part of Y & L, right?
So now, all of those old customers are like, "Oh, cool." And it goes to this page there where it's all about the merger and acquisition. We made a video, we've got photos of the people. They have this awesome generous Mitzvah Monday program. So lots of good things. So the goal here is to transition the old customers to the new company. And Jesse, one really cool thing, it's coming up. Ooh, look at this. This page right here is on the top of the second page of Google. So we just published this. The goal is to get this to rank really high. And at some point, once it out ranks or ranks near this page, we'll just get rid of that website.
Lots of great questions, tons of value presented by Steve and Christeen from Green Profit Academy. I had a blast just during that Q&A. I hope you learned some great things, too. And I'd love to see you at our next event. So we host live and virtual events. We go to trade shows, we have booths. So check it out at landscapersguide.com/events. See our show notes for a link. And if you haven't already, subscribe at landscapersguide.com/podcast. We'll automatically send you our top episodes, our new episode each week, plus invites to our upcoming events. My name's Jack Jostes and I look forward to talking with you next week on The Landscapers Guide. If you're looking to attract more A players to your team, it's time to level up your job post so you stand out. Join me on Wednesday, May 10th, for my live webinar with Team Engine, How to Write Killer Landscape Job Ads That Get a Response. Register online at landscapersguide.com/events.