You have the opportunity to purchase a landscaping business. How would you decide whether or not to buy it, and how much to pay for it?
This question is a good candidate for the Five Cs. Determine:
- How would you evaluate the sincerity, honesty, and integrity of the owner of the business? Do others that they deal with (employees, suppliers, customers) value them as partners, or are there character issues?
- Is there any legal action pending against the business?
- Does the business have a positive employee culture? Does it engage in any charitable or environmental initiatives?
- Is the business turning away new customers due to lack of equipment/ employees?
- Are the assets of the company (property, plant) strained or in a state of disrepair?
- Is the landscaping business carrying any debt? What is its debt ratio?
- What is the company's cash flow like over the last five years?
- What is the company's new account history? How much business is new vs. repeat?
- Are any of the business' assets impaired in any way? Obsolete equipment, for instance?
- Describe the market space the business occupies. Is it a leader? Are there many players?
- What defines dominance in this market? Cost? Economies of scale? Speed to market? Relationships with customers? Where does this business fall against the aforementioned metrics?
- Is the market for landscaping saturated? Are there opportunities for expanding the current customer base?
- What advertising and promotional activity has been done? How much does the business spend (as a percent of sales) on marketing its services?