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Buying Contracts, Smart/Dumb?

Discussion in 'Commercial Snow Removal' started by PGHplowguy, Dec 13, 2012.

  1. PGHplowguy

    PGHplowguy Senior Member
    Messages: 102

    Hey all,

    I have an opportunity to buy contracts from a local snow removal/landscape company. He is selling all of his equipment and also his cutting maintenance and snow removal contracts. The snow removal is all commercial with a few condo complexes.

    My questions are:
    What ensures that the property owners allow a new unknown company to take over the existing contract? They would have to agree and sign a contract with the buyer of his business. Obviously the future years would be up to performance. The first year is what I am questionable about.

    Has any of you done this? What types of contracts do you write up? Are there any stipulations on the property owner not allowing the buyer the contract? If I was a manager/owner of a lot and found that someone sold the contract that I give out I'd be pissed. I wouldn't honor a new contract with the buyer, who is a true unknown to me.

    Any intelligent responses are appreciated.
  2. alldayrj

    alldayrj PlowSite.com Addict
    Messages: 1,108

    Why wouldn't he just sub it to you? I can't see how you could buy them for any sum of money and still turn a profit with the slim margins we are seeing
  3. PGHplowguy

    PGHplowguy Senior Member
    Messages: 102

    Looks like he has had his fill and is moving out of state with his family. The contracts are decent with fair rates. The price he is asking is also "fair". If we actually get snow this year money will be made. Then if they are kept it is well worth it.

    My concern is that the contracts really are not his to sell.
  4. alldayrj

    alldayrj PlowSite.com Addict
    Messages: 1,108

    I would probably try and go there with him, have him recommend you, match his price on a new contract, void their contract, and throw him a couple bones as a thank you. I think there is just too much risk otherwise unless you pay a lawyer to handle it
  5. ducaticorse

    ducaticorse PlowSite.com Addict
    from we
    Messages: 1,426

    From what I understand, contracts are like mortgages, and can be bought and sold. Laws vary from state to state, so to find the answers to these questions, I would suggest consulting a lawyer with a license to practice with a specialty in contractual law in your state. Do not seek out legal advice on an on line forum, EVER.
  6. pabaker66

    pabaker66 Senior Member
    Messages: 117

    why wouldnt you just go with you bought his snow removal company and nothing changes?
  7. Advantage

    Advantage Senior Member
    Messages: 766

    We've done this on a small scale before. I believe the ONLY way to do it is purchase of the client list for an agreed upon "small" money down plus percent of sales retained. This way you only pay for the accounts you are able to keep.

    For example: $10,000 down plus 20% for three years. This is also a motivation for the seller to see to it that you do well and maintain their clients.
  8. grandview

    grandview PlowSite Fanatic
    Messages: 14,609

    Equipment you can put a price on. He should throw in the contracts and you decide if your going to give him something for them at the end of the season.
  9. m_ice

    m_ice Junior Member
    Messages: 8

    like the last post, I agree...dont put all the money up front. I have purchased contracts before on the lawn side of the business. We negotiated a down payment with installments spread throughout the year based on customer retention. Which insured from my standpoint that he had an interest in seeing to it that they stayed. However, not every seller would go for this. You also might check with your banker, every service industry has a multiplier for what they call "blue skies" and it varies from region to region.
  10. PGHplowguy

    PGHplowguy Senior Member
    Messages: 102

    Thanks guys for the input. It is very helpful. pabaker, I do not understand what you typed.

    I do like the idea of a down payment and then a % of profits. That seems fair to him and not as much of a risk to me.

    As far as price. What do you guys think is a good number? Suppose X is the gross for one winter season. Should his selling price be 10% of X or 2X, ........? I'm sure there is a very wide range in this.

  11. snowplowpro

    snowplowpro Senior Member
    from NJ
    Messages: 926

    First how do you know for sure that these places he is getting rid of are good paying customers and second he may be leaving these customers on bad terms like he did crappy work or something wasn't done right and is he gonna just give everything up or is he gonna help you and work with you a couple times to make sure everything is fine and dandy.
  12. PGHplowguy

    PGHplowguy Senior Member
    Messages: 102

    We rode around and looked at half of them. He also provided a price list without the addresses. He gave the addresses on a different sheet at my strong pushing though. It is obvious he doesn't want to give anyone his route with his costs... but at the same time nobody will pay him a cent if they do not know what they are getting.

    He has contracts for them all for this season, so it looks like the terms are dandy. If he does not sell them he will simply stay another year and carry on his business.

    Without any of you giving personal info... What is a good gross $ on a single plow and salt event in one night (all your locations over around a 7 hour run)? Figure you are running two trucks. Thank you.
  13. snowplowpro

    snowplowpro Senior Member
    from NJ
    Messages: 926

    Well depends cause every ones contracts are different and some people do it by inches or per push or hourly etc. Every places contract may be diffrent.
  14. grnstripes

    grnstripes Senior Member
    Messages: 237

    everyones opperating expence is diffrent so I think you need to sit down and figure out
    your hourly opperating expence and what you could do his route for while still making money
    typically contracts will sell for about 15 - 30 % of they'er value.
    If you can pay them a amount in that price range and still make your hourly opperating expence then I would not be afraid of purchacing his contracts. Make sure you get a non compeat signed by both you and him before starting and also keep a clause in there that price is reduced for every customer who leaves due to the change of hands after X %. Typically you will lose about 6% of customers due to a change in ownership
    make sure he will stay around during the transition and meets with all customers and yourself to help smooth over all relations
  15. Mega cab

    Mega cab Member
    Messages: 56

    You should check around with Better B B and maybe some local suppliers and see how they view him. Also maybe ask around at the condos (dont tell them your plans but see if he is liked or disliked.
  16. PGHplowguy

    PGHplowguy Senior Member
    Messages: 102

    Thanks, all good thoughts.

    I know everyone's billing and operating procedures and costs vary a lot. I was just asking a general question of what you guys think/know is a average gross price for a single plow/salt event for a one or two truck operation. No worries, it is OK nobody wants to answer that question.

    In my opinion anyone that charges hourly is either in a bad area where they are forced to or plain dumb if they can charge per event and choose not too.
  17. MahonLawnCare

    MahonLawnCare Senior Member
    from Ohio
    Messages: 852

    Your best bet is to continue business as usual and keep his business name for the rest of the winter. In Spring, send out letters and announce the ownership change. I have bought accounts many many times. If I find a good deal, I purchase them. It's cheaper than getting new business from scratch because these people are already buyers. As long as your pricing stays the same for at least a year and your service is as good or better your good to go. As far as real market value of contracts , on the lawn side, accounts typically sell for 30-50% of their projected value. Better accounts, longer terms etc. are on the higher end. The best decision I ever made was to buy out a landscaper when I was 22 and it grew my business by leaps and bounds. It was about all the money I had saved up but I knew it would be worth it, and it was. If you don't take a leap, you won't get anywhere.
  18. KYsnow

    KYsnow Member
    Messages: 76

    I can't understand why you would think this. Sure it's great to charge by the season when when have a winter like last year, but someone is always going to get screwed.

    Every event is unique so charging by the event caries great risk.

    Charging by the hour is simple and clean and you know roughly the amount of time it will take anyway. If the event drags on you come back and plow and charge. Most by the event contracts have a time clause that unless the snow stops for a certain number of hours it's all the same event.

    You need to rethink your opinion!
  19. Flawless440

    Flawless440 PlowSite.com Addict
    Messages: 1,543

    Might not snow this year..

    To easy to land contracts to pay for them..

    Cash is king, keep it