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buyout

Discussion in 'Commercial Snow Removal' started by plowdog, May 12, 2006.

  1. plowdog

    plowdog Member
    from MN
    Messages: 40

    Hey guys-Been working with a guy for 12+ years and he wants to get out of the biz.Has 1 big contract and a lot of equipment. He would like to stay on as a "consultant" for 2 years or until I am comfy with the operation.He's asking a big price for the whole thing- any hints, tips or suggetions on walking into a "big business".
     
  2. Mick

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

    There have been a few threads on this subject, but the first thing I'd recommend is to make the price contingent upon the number of existing customers who stay with you for a particular amount of time; stated in the contract as a percentage of potential income. This would be for the plowing portion of the purchase and may be in addition to a small set price for the route, itself. So let's say you agree to purchase his equipment for $20,000. He has existing customers (route list) of 10 customers at an average of $30 per customer and it snows an average of 15 times in that area for an average potential anual income of $4500 (10 x $30 x 15). So, maybe offer him 1/2 year annual income as a price, payable as: $500 up front and $1,750 by June 1, 2007 if all the existing customers remain with you for at least one full winter. Then have it so you deduct any lost potential income - ie: customers who find someone else, move or decide to buy thier own plow.

    Also include a "noncompete clause" - he will not solicit or accept customers for snow related services in that area for a particular amount of time.

    I would not attach much value to his "consulting" services. You can get as much and as good advise by coming to a site like this and asking any question. Unless he's going out with you, this would also be faster.

    You said he has one "big" contract. Even if this is his only customer, the principles still apply. Work up a Business Plan to make sure that "lot of equipment" isn't going to cost you more than the potential income will cover.
     
    Last edited: May 13, 2006
  3. plowdog

    plowdog Member
    from MN
    Messages: 40

    not too worried about losing customers- if one goes they all go. He has the contract for 2 more years and an optional 3 more after that. He is checking to make sure the contract can rollover to me without having to re-open to bidding. As far as the no compete clause- I know he won't start this biz over,health concerns and the long hours are taking their toll. If anything he would take the pride to recommend someone to me- I've steered many jobs that were to big for me to him, he knows what I can do.
    We're talking a big chunk of change- the high end of six figures. What do I need to do as far as financing- i.e. what kind of cash in pocket would I need to get started. Dave
     
  4. Mick

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

    The high end of six figures? That'd would be $999,999. If that's the case, then you need a good background in general Business practices, hiring and managing employees/contractors and a good background in the snow&ice management business specifically. For reserves of maintaining and repairing equipment, buying materials, covering wages until contract monies come in, etc, I'd still recommend a Business Plan and pay attn to monthly cash flow with the idea of having two to three months of projected cash flow needs and about 1/4 of equipment value for repair and replacement needs. Then figure typical maintenance needs for the equipment you have (oil, lube etc).

    At the level you're talking about, you're likely not going to be doing much direct service delivery (plowing).
     
  5. plowdog

    plowdog Member
    from MN
    Messages: 40

    Is there a rough draft of a business plan on this site? What should it include? Should the value of the buyout include the value of the contract ( 2 yaers remaing) and the value of the equipment or only one year? As far as not doing any plowing, I would be doing alot. This is a hands on deal, no desk job. The business end I have a handle on. The hiring is done so everyone is an independant contractor. As far as liability ins. is there a rule of thumb on how much is needed?
     
  6. Mick

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546