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Purchase of snow business

Discussion in 'Business Fundamentals' started by RAS, Sep 6, 2013.

  1. RAS

    RAS Junior Member
    from 22310
    Messages: 1

    I am looking at purchasing a small snow removal business. My main question is:
    Does anyone have a purchase agreement they are willing to share. I will run it past my attorney but I'm sure he would charge me more than the deal is worth to construct one from the ground up.

    Given the state of the declining amount of snowfall in Northern Virginia, I was wondering what a company grossing an average of $20,000 over a seven year period is worth. All of the clients are in a tight route and are primarily commercial plowing, walks and ice melt.

    Thank you
  2. grandview

    grandview PlowSite Fanatic
    Messages: 14,609

    If you know the addresses ,just go bid them. No guarantee they will stay with you .
  3. cet

    cet PlowSite Fanatic
    Messages: 7,257

    I would be willing to pay 20% for everyone that stays with you. Pay him as you get your money and not before.
  4. leigh

    leigh 2000 Club Member
    from CT
    Messages: 2,342

    Probably worth very little. It might be a loser. 20 k gross means very little. Could be losing money. You need to have it looked at by a specialist. In this business, retention of clients is a challenge. Any hard assets included? Is it a turn key operation? Maybe pay a small commission that would shrink over a couple year period.
  5. BigLou80

    BigLou80 Senior Member
    Messages: 558

    What exactly are you purchasing ? A client list ? Hard assets ?
    $20,000 over seven years is NOT a lot of revenue, you couldn't even pay off a pick up truck with gross receipts that low after fuel and labor you would just barely break even on the plow it self.
  6. 1olddogtwo

    1olddogtwo PlowSite Fanatic
    Messages: 12,174

    Its averaging 20 thousand per year the way I read it
  7. SnowClear

    SnowClear Senior Member
    Messages: 106

    You've probably already made your decision on this, but I'd like to add to the discussion.

    The company has not grown over seven years. A company that has stagnant growth and is this small is difficult to justify as having any monetary value. The company is not an endeavor that has sought to increase revenue or increase market share. Multi-year contracts will add value, but not much. Take the gross minus the cost of goods sold (what it cost them to provide the service) and multiply that by a number in a range from 0 to 0.25. I'd only use a 0.25 multiple if the seller can provide evidence of customer loyalty. Without customer loyalty this company isn't worth anything.

    CET's suggestion of 20% per contract is probably on the generous side.
  8. framer1901

    framer1901 Senior Member
    Messages: 852

    There's really nothing to purchase. A business is really only worth it's assets and a percentage of those asset values at that.

    If there is assets in this deal, pay what you believe they are worth.

    As to the list of customers, it is really worth nothing as there is no gaurantee that they won't cancel two days after your purchase. Getting any new customer without all the legwork involved is worth something though - I'd personally think about a declining commision based on PAID invoices. 10% first year down to zero, maybe two or three years payments, nothing more.

    Scratch this deal out on a napkin, the money amount doesn't justify legal fees: I'm gonna buy your truck and plow for xx.xx, I'm gonna pay you 10% 1st year, 5% 2nd year and 3% 3rd year on paid invoices, you aren't going to come back after these customers for five years. sign here.
  9. Wayne Volz

    Wayne Volz Senior Member
    Messages: 694

    Great post on this guys

    I think there is very little here as well. Although the average may be okay for your company, it is a small amount of gross revenue even in a low snow market. With something this small, the loyalty is often to the Owner and not the actual service being provided.
  10. MSsnowplowing

    MSsnowplowing Senior Member
    Messages: 761

    Are the clients a per push or seasonal rate?
    Are they locked in a long term contract or by the year?
    What shape is his equipment in?

    Like others have said you could buy the business and they all drop you unless they are under contract and even then they could still drop you.

    Your best bet is to buy the equipment and run a percentage to the seller of the listed clients WHEN THEY PAY YOU.

    As for some who think it's not worth it because they haven't grown, well I keep my business small, I only do 12 to 16 contracts a year, I have been offered bigger contracts and more money but have declined -(no I'm not nuts).

    I prefer a smaller client list less pita factors and stress.
    We get the job done in a timely manner even during major storms.
    Our clients are always happy with the job we do and I haven't lost a client yet, they stick with us.

    But even with that I could still lose them to a low baller and I know that.

    That's the nature of this work that you need to understand if your getting into it.

    Even the best of clients who might love your work could drop you if a low baller comes in and promises to save them several thousand.

    Of course that guy shows up in s-10 pickup truck with a 6 foot blade trying to push a foot of snow because he waited till the storm was over.

    Then comes the call, "can you come back?"

    How many of you have gotten that call?

    If you go for it, good luck and I hope it works out well for you.
  11. SnowClear

    SnowClear Senior Member
    Messages: 106

    Spot on. Loyalty develops into something accountants call goodwill and it can make a huge difference in the valuation of a company. However, if customer loyalty is devoted to the owner of the company and not the company itself, then the company revenue stream is largely unstable and unreliable regardless of contractual obligations (as others have stated already). There are ways to make revenue streams, on a whole, more stable and reliable and it starts with solid company procedures, retention of top-quality employees and so on. Prospective buyers want replicable processes that generate revenues consistently.

    Comments about a company being small and without (or little) sale value does not mean small snow company's aren't valuable to their customers. Many residential and commercial snow consumers prefer small snow service providers because the owner is readily accessible. I know when I'm selling snow business to a customer (residential or commercial), I want to get to the decision maker that has the most influence. Customers are similar in that respect - they want to have access to the decision maker of the company too. Everyone has their own goals. To each their own. Just know what to expect upon your journeys end.

    Another way of thinking about this is to imagine you're nearing retirement age... What do you want to sell? How many options do you want to have? To sell your company's physical assets only or your company's physical assets and the revenue stream? Physical assets like plows and trucks are depreciating assets (losing value with each passing day), physical assets like land and building structures are appreciating assets, and revenue streams can be valued at a multiple. As inflation erodes purchasing power and depreciation erodes equipment value (a double whammy) so it seems to me the only way to exit a company with a few extra bucks is to build enterprise value (See Mike Rorie's column on building enterprise value in Snow Business Magazine for a few tips).

    My post deviates a little from the original poster's question. Yet, I'm excited to see that the original poster's question has elicited some excellent wisdom and multiple perspectives from a variety of markets across the continent. Great stuff.