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selling part of snow removal contracts

Discussion in 'Business Fundamentals' started by waterpick, Jun 17, 2008.

  1. waterpick

    waterpick Junior Member
    from ontario
    Messages: 5

    I will be in the process of selling off part of my contracts for snow removal.

    I was wondering if there was a rough formula to price out how much to sell contracts for?

    I have been told two different numbers ranging from 2-1 to 3-1. There will be no equipment in the sale, just the contracts..

    Any help is welcome,

    thank you
  2. JD Dave

    JD Dave PlowSite Fanatic
    Messages: 11,032

    How large are the contracts and where exactly are you located?
  3. waterpick

    waterpick Junior Member
    from ontario
    Messages: 5

    most of my contracts are residential, except for 6 commercial locations and they are all located south of the 401 in toronto and etobicoke.

    The reason for the post is i have a potential buyer, but just not sure what to qoute him as a sale price.
  4. JD Dave

    JD Dave PlowSite Fanatic
    Messages: 11,032

    That's exactly where all my snow is, lol. I don't understand what you mean by 2 to 1 and 3 to 1, please explain.
  5. waterpick

    waterpick Junior Member
    from ontario
    Messages: 5

    This is what a couple of people have told me. If your snow contracts generate 50,000 in a winter season, if you want to sell these contracts, you should be asking for 2 times or 3 times what your contracts bring in.

    So they are saying at the above amount, i should be asking anywhere from 100,000 to 150,000 for the contracts alone.

    Does that sound right to you?

    by the way, what's your company's name?
  6. grandview

    grandview PlowSite Fanatic
    Messages: 14,609

    Maybe I'm wrong. But if you try and sell me contracts I want to know where they are. Then I'll just bid them myself.I doubt you'll be able to sell a blind contract.
  7. waterpick

    waterpick Junior Member
    from ontario
    Messages: 5


    sorry, I ment grandview, it's been a long day.

    maybe I wasn't clear.* I'm working with a potential buyer at the moment and was justing posting this for some advice on what I should be charging the buyer for my contracts.I'm not trying to advertise the sale of my contracts here.* I was just looking for some help.
    Last edited: Jun 17, 2008
  8. JD Dave

    JD Dave PlowSite Fanatic
    Messages: 11,032

    Good Luck getting 2 or 3 times what your contracts are worth. I think 10 %/year for 3 years is more then fair. Unless these jobs are guaranteed for life, no one in there right mind would pay that much up front. JMO
  9. JK828

    JK828 Junior Member
    Messages: 18

    To my knowledge, contracts are sold on a percentage not a multiple of profit. Why would someone buy your $50k contract for $100-$150k and work for free for 2-3 years? You are acting only as a middle man and should get paid for being a contact only.

    THEGOLDPRO PlowSite Veteran
    Messages: 3,136

    i would never buy a contract i'd mearly find out what the contracts were and go to them and put a bid in myself. im not gonna pay 2-3 times what the contract brings in a year that redicioulous not to mention what happins if the contract gets dumped the following year for a lower bid your out alot of money.
  11. waterpick

    waterpick Junior Member
    from ontario
    Messages: 5

    Thank you for the replies.

    I did believe that the 2 or 3 times did seem high.

    Thanks for all of your input.
  12. novasnowplower

    novasnowplower Member
    Messages: 49

    Why would you sell them off and not sub them out? Both make money and oyu dont have to do the work
  13. CGM Inc.

    CGM Inc. PlowSite Veteran
    from Ontario
    Messages: 3,589

    If you ask me a contract isn't worth much or anything!
    10% maybe of the value but how do you ensure the client doesn't terminate?
    It is usually the relationship with a client that is worth money.

    I just bought the company 3 years ago and went through all this, if the clients would have terminated the contracts after the sale within contract terms I would have been SOL!
  14. IMAGE

    IMAGE Sponsor
    Messages: 1,736

    You could try to work it with the buyer that you get a % of the gross billed amount of the contracts for up to the first 2-3 years. Payable at the end of each season. Then you get a check for the next couple yrs, and its fair for both if it snows a lot or not.
  15. scottL

    scottL PlowSite.com Addict
    Messages: 1,600


    There is the tangible part of the business ... equipment and signed contracts. Then the intangible such as a companies name, website, papers, reputation.

    You have to figure 3 parts to your pricing of a company. Equipment, Contracts signed and then perceived company value.

    Just contracts would depend upon length of term, length of history, value of previous years serviced averaged. Then factor how badly you want to sell and move on. Typically I couldn't see anyone buying based on 2 or 3x contract value nor for a repeating yearly value and have the payments spread out. Sooooo, then your down to an average break even value or to allow the new owner a first year profit turn around.
  16. YardMedic

    YardMedic PlowSite.com Addict
    Messages: 1,266

    I've heard of this technique before. It seems to be a win/win because now the seller has an incentive to market the new owner's service as a means to maintain good income for himself during those couple years. If I haven't built a good name for myself in the first year or two, any lost clients are not a concern at that point.
  17. Neige

    Neige Sponsor
    Messages: 2,195

    So by the sound of things most of you don't think your clients are worth much. So after years of work building up your client base all your expecting is to get is 10% of the value of your contracts? So a 500 grand snow revenue company is worth only 50 grand. There are definitely some considerations to take into account, but you are all selling yourselves way to short.
  18. YardMedic

    YardMedic PlowSite.com Addict
    Messages: 1,266

    10% is pretty low, but consider that people are making the choice to get OUT of the snowplowing business for some reason. There's either better money with another job, no money for them in their current business, no more desire to do it. Every one of those factors has a negative impact on value. Look at it this way: if you're selling a half million dollars worth of snowplowing contracts, you're either stupid or desperate. Again, that comes at a cost to the seller
  19. Neige

    Neige Sponsor
    Messages: 2,195

    I have bought out 3 competitors over the last 4 years, they each came to me wanting to get out. There were other interested parties, lucky for me I was in good standing with my bank and was able to secure the loans needed to purchase them. I paid 50% of the value of the contracts, with no guarantees. It has been the best move our company has ever made. Now my runs are so tight, making it practical impossible for someone to penetrate my market. When the times comes for me to sell, I could either sell it off in sections, or the whole thing. When I show the potential buyer or buyers the revenue I have achieved over the last 5 years, I will hope to get more around 75%. Remember its a business we are selling, something that some of us have spent years building. Now if we look at the OP looks like he is just selling of some clients, I would be interested if it were already in my market, and the price is to my liking. I may offer him as much as 25% but I would need to have the contracts signed in my name. Thats how we got the COSTCO distribution center. Its been 5 years and counting since that transaction.
  20. YardMedic

    YardMedic PlowSite.com Addict
    Messages: 1,266

    Very nice! And I hope you know my previous thoughts weren't directed at you. My point, though, is still that most are not going to sell off a business at top dollar because something will be forcing their hand to do it in the first place. Then we take advantage of someone's need or desire to get out of the biz by paying less than the 75% of your profitable route. With any luck, the day you want to sell, you won't be in a position of needing the sale immediately.