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purchasing accounts

Discussion in 'Business Fundamentals' started by EZSnow, Sep 3, 2003.

  1. EZSnow

    EZSnow Senior Member
    Messages: 205

    Through a friend, I have an option to purchase some accounts. The accounts are in an area local to the rest of my accounts, and they are mostly commercial. Most of them are seasonals with a 1" trigger, averaged over something like 15 snowfalls. I think it's a list of about 10 accounts. This guy sold his truck and is getting out of the biz.

    I was concerned with paying a flat fee for the list and not being guaranteed that I'd get the accounts, so here's what I offered:

    I offered to pay him 10% of all accounts signed up and paid. I heard back once, and he sounded interested, but I was wondering if this is a fair deal for him, me, or both? He told me to call him back this week, so I'm due to chat with him again. Just looking for a little PROFESSIONAL advice!

    Thanks guys-
    Derek
     
  2. Lawn Lad

    Lawn Lad Senior Member
    Messages: 407

    Offering a percentage on signed contracts is a good way to go. Make sure you define specifically what services you're buying. That way if you sell add ons or upgrades that you're not paying a percentage of the gross billing on the end of the season, only what was handed to you.

    Also, can't stress this one enough. As a part of the purchase agreement, make sure you sign a non-compete for the businesses you're agreeing to buy. Nothing worse than a guy who sells his work for cash and then goes back to the customer and starts working for them again. You may not think this is going to happen, but you should still include a penalty if he does. As well, he must agree that he has not sold the list to someone else nor will he sell it to anyone else in the future. THe agreement should state you are purchasing proprietary information that will become the property of your company.

    Outline payment arrangements in your agreement. Base it off of when you get payment from your customers so your cash flow doesn't suffer. There should also be a provision that lets you out of paying for a customer who stops service mid-season.

    Based on the total amount anticipated you'll pay for the season - pay 20% at the beginning of the season as a down payment/good faith payment. Then structure payment from there to reflect your billings. Hold back a small percentage at the end of the season just to make sure all goes well. Make final payment after you have received final payments within in 30 days.

    Good luck with the purchase... not a bad way to add accounts.
     
  3. wyldman

    wyldman Member
    Messages: 3,265

    I just sold off a whole slew of big accounts.Lawn Lad covered most of the details.

    Have your friend help in signing over any contracts,and introducing you to the clientele.You can also negotiate paying less up front,and more down the road in recurring commissions.Then if you happen to lose an account,you don't pay on it anymore.
     
  4. EZSnow

    EZSnow Senior Member
    Messages: 205

    Ok, so this situation isn't all that uncommon... I will do my best to protect myself as you have suggested. Is 10% a fair offer? Obviously, I don't want to pay more than I have to, but I don't want to be an idiot for offering a ridiculously low amount. I wouldn't feel as though I'm losing my shirt at 10%, but if I'm already generous, I don't know it enough to be confident in turning down a counter-offer of 15-20%... thereby losing my shirt:eek:
     
  5. Lawn Lad

    Lawn Lad Senior Member
    Messages: 407

    20% is a fair profit on the job, assuming you're doing the work. This guy isn't doing the work and is simply receiving benefit for having the existing customers. Since you have to resign everyone then I'd say 10% is the most I'd want to pay.

    Does this deal include a percentage on salting services? Will you be salting? One thought, if you felt good about the deal once you start talking with him, you might offer him one flat fee for revenue from salting instead of the variable amount you'll owe him as a percentage of revenue. Sort of like cash lottery ticket or long term payout.

    You might pay him a stated percentage on xx saltings to be paid either more aggressively than the plowing portion of the contract or by the same terms. By fixing the salting at a rate he is guaranteed an amount as are you - if you apply more than estimated for the season (which you should by the way you structure) then you're keeping full billings.

    How often was he salting the properties? If he salts after each plowing, assuming 15 saltings (1:1 salt to plow ratio), then offer to pay him the percentage on 10 or 12 saltings no matter what happens with snow fall during the year. If the ratio of salt to plowing is higher (review his invoices for the properties to verify accuracy) than set the number to a higher threshold to where you feel you're being rewarded for the risk of taking on a set contract with him.
     
  6. EZSnow

    EZSnow Senior Member
    Messages: 205

    Ok, so this situation isn't all that uncommon... I will do my best to protect myself as you have suggested. Is 10% a fair offer? Obviously, I don't want to pay more than I have to, but I don't want to be an idiot for offering a ridiculously low amount. I wouldn't feel as though I'm losing my shirt at 10%, but if I'm already generous, I don't know it enough to be confident in turning down a counter-offer of 15-20%... thereby losing my shirt:eek:
     
  7. EZSnow

    EZSnow Senior Member
    Messages: 205

    Sorry, LawnLad- I think I was working on my post before yours popped up. I kinda nickel-and-dime at writing posts. There has been no speak of saltingwhatsoever... In our market, it seems that a few people are salt-sanding, and even fewer are using straight salt. Regular salting is a hard sell around here, but is getting easier with the increase in injury attorneys. As far as I know, we're talking about almost exclusively seasonals, up front, paid-in-full annual contracts. The couple per-push accounts would be set on an average of 10 (a little low) and he would get the whole first push fee... after it was paid. The comission from the seasonals would just be paying him 10% after I have a whole season of dough in the bank... or a new blizzard 810 on the truck.