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Selling a snow business

Discussion in 'Business Fundamentals' started by wyldman, Jul 10, 2003.

  1. wyldman

    wyldman Member
    Messages: 3,265

    I have been approached by a new local company to purchase and take over our snow operations.They are new in town,and want to take over some large accounts to get started.They run successful businesses in other parts of Canada.

    They wish to purchase most all of our trucks,equipment,storage and salt yard,and all of our commercial contracts.I plan on keeping my two 12 valve Dodge's,and two S10's.They don't want our company,or company name,just or clients,and equipment.

    I have never sold a business before,and don't know a lot of the little details necessary in a transaction of this magnitude.I do believe their offer is more than fair.

    There is no mention of a non-compete clause for current accounts,but I would continue to receive a commission on all existing accounts which continue to renew.They do not want our residential,or any small commercial under $10K a season.They also do not want any of our drivers.It's a hard decision,because a lot of my guys have been with me for many years,and count on the income from winter snow work.I would not be able to keep them all on board without our current contracts,and it would take me a few years to build a new client base.

    This sounds almost too good to be true.I could take over any old accounts which are unhappy with the new contractor.

    So some of my questions are :

    If a non-compete clause is not used,are their any other legal issues regarding clients returning to us for service if unhappy with the new guys ?

    What kind of money\percentage would you expect to get for selling contracts,equipment,etc ? Also any ideas on long term residual commissions on renewing accounts ?

    They expect me to have all the contracts rewritten in advance,and renewed in their name for a minimum period of 3 years,before the deal is completed.This concerns me,as it may upset some of our clients,and if the deal falls through,they may not renew.Are there any better ways of doing this,so the clients are assured they will be serviced,and not scared off,and to afford some sort of guarantee for the buyer that the clients will return ?

    I was thinking of having them hire me as an employee for a year to help smooth the transition.Do you think this would be a good idea ?

    I do plan on building my snow business back up again in a few years.I will keep the auto\truck and computer biz's in the meantime.I'm afraid that selling out to another company may hurt us long term,as new clients may get word of what happened and feel that we may sell out on them again in the future.Do you think this may be a problem ?

    I am still kind of up in the air over this whole deal,as it just came out of the blue.I would like to step back,and take a break for a bit,as i've been hard at it for many years.I just purchased a new house,and will be moving soon,and the kids are growing up faster than I would like.Need some time to spend with them,and this just may be the ticket.I just don't want to make a mistake that will hurt us long term.I am also looking at maybe getting into remodelling houses for resale,or becoming a custom builder.This transaction may just help finance those ideas.

    I'm a mechanical type guy.I can build,fix or repair just about anything,but I'm no expert when it comes to the business end of it.I know there are a lot of excellent members on here who may be able to offer some insight.Any input on this matter would be greatly appreciated.

    Thanks in advance.
  2. Rooster

    Rooster Member
    from Kansas
    Messages: 650

    First and foremost: TALK TO A LAWYER, one that you trust (I know lawyer and trust in the same sentence).

    Look at like selling your regular mechanical repair business, locally in my area, I have herd 2.5 times the yearly net.

    Not sure, just my .02 worth.

    BTW: If you sell that doesn't't mean you can quite comming to plowsite!!!!!!

    Good Luck!

  3. wyldman

    wyldman Member
    Messages: 3,265

    I should have mentioned it in my post,but I have run it by my lawyers,and they say it's OK so far.We'll have to see when it gets down to the nitty gritty.

    Even if I do sell it,I'll still be around here ! :D

    BTW Rick,did you get that wiring diagram I mailed you ?

    JD PLOWER PlowSite.com Veteran
    Messages: 751

    Chris I think the best thing to do right now since it sounds like your not sure of anything yet is to ask for some time to think this over. Do a lot of reading and ask your lawyer if he has ever done this before (on this scale), if not maybe find an attorney who specializes in this type of work. Mostly I would suggest going very slowly with this whole process and don't do anything if your uncomfortable with it. Good luck.

    Heres some reading material I found with a quick search, might be of some use...
    and others...http://search.yahoo.com/search?p="selling+a+business"&ei=UTF-8&vm=i&n=20&fl=0&x=wrt
  5. Lawn Lad

    Lawn Lad Senior Member
    Messages: 407

    You took the first step by talking with your lawyer. Hopefully your lawyer will be able to connect you with someone who can evaluate the worth of your business. There are a number of methods used to evaluate your business based on net revenue (assuming you're profitable), assets value (book value, cash value, etc.), cash flow, EBITDA, etc. Each valuation has it's strong points and weak points for that matter. For instance EBITDA might be better for start up companies or fash growth technology companies or when comparing values of one company to another company in a different industry (I think... going off of memory here).

    So I would recommend placing a value on your ENTIRE business using several methods. You'll find a number that seems right since each one will be different. That will be your starting point.

    Part of this financial evaluation will be job costing each customer. Segment out those that the purchaser is interested in. See what impact financially it has on your business. You then could place a value on each contract that they purchase and add up the value of those contracts and either do a lump sum or sell them individually. Having a % over a three year term after the sale is incentive for you to help with the transition.

    As for equipment, generally that's pretty easy. The equipment has a street value of $xx. You might have depreciated it so there is no book value. Everyone knows what the market value is for the equipment, so that's what you'll most likely use. Sell the equipment separate from the jobs. They may want to buy your equipment since there is no set up time or premium to pay that initial depreciation when they drive it off the dealer's lot. But now you're faced with replacing/upgrading at the costs they are trying to avoid. You may be fine with it, but I'd consider this cost when you think about rebuilding. You may not want to sell all of your equipment. Price it accordingly - and if they buy it regardless of the price you placed on it considering your inconvenience to replace it... then you made out. Again, it will be another negotiation point.

    Do you need to stay on as an employee? Only if they offer and it has to be part of the deal and it's what you want, otherwise I'd let them run the show. You might include a consulting clause in the contract. You might figure you'll give them 20 hours of consulting with the purchase agreement which expires on xx date for which they can use your time in any capacity they see fit. After that date (time used or not) your time is invoiced at $xx / hr. Let them use you as an independent consultant, but then you're not locked into them nor them to you.

    As for the non-compete, great if they don't want one. More than likely if their lawyer is going to review the documents you'll have one. Then it's a negotiation of what you can get away with versus what they are trying to limit you on. If they're willing to let you continue to operate your business and you want to regrow your business you want as few limitations placed on you. Each limitation they place on you has a financial cost and needs to be considered. For instance, if they exclude you from a geographic area can you operate elsewhere? And if so, what's your cost going to be? If they say you can't do business with the customer's they're buying for 3 yrs, even if that customer is disatisified with them, you can't touch them. On both sides concessions will be made, just try to get the majority of them in your favor.

    If you're talking about some significant money, make sure your lawyer is capable of handling this type of work and negotiation. If not start networking and find yourself one. If as the seller you write the documents to sell the company you're in better control of your outcome, but you'll being paying larger fees to your attorney to redraft each objection that the buyer has. If they write the contract you can save money on attorney's fees but you may not have as much control. So if you're not talking about substantial money it might make sense to have them draft the paperwork.

    What is substantial, I guess that's up to you to decide. Your attorney fees could be $10,000 to $50,000 depending on how complicated everything gets. Maybe more. So if you're talking about selling for $100,000 it wouldn't make sense. If you're talking about $500,000 maybe you want to be in the driver seat. I don't know... that's something to figure out with your team of consultants.

    Speaking of consultants you may want to bring one in for this. Pay them $3,000 to $5,000 to evaluate the business and work with you on how to prepare the business for sale. You want to protect as much as you can while selling that which will give you the greatest return. That's what they'll be good at. If the return on the sale is there get them involved early on.

    As for the contracts - I would let them issue the contracts in their name after the sale transfer. I wouldn't put their name out there on contract without a signed deal assuming the check has cleared the bank. This is where you negotiate the consulting or building in an incentive for you after the sale to help secure the customers under their contracts. As well, if you're getting a percentage of the gross from the customers for three years it's to your advantage to help get the customer lined up with the buyer.

    It's good to step back and look at this to think it over. But don't wait too long or sleep in on it the opportunity. Start bringing your team of consultants together that you'll use. The questions they'll be asking you will point you in the right direction. If nothing else comes of this (i.e. you don't sell the business) you'll have had the experience of working with the consultants on your business and you'll have a much better idea of where you're operating your business well and how you can improve upon it. The exercise in and of it self will be worth the effort. You can then apply the same knowledge gained to your new start up remodel business. You'll be thinking more like a business man.

    College might cost $15,000 a year - you'll pay that easy for all the consulting. But you'll be getting the equivalent of a 4 yr degree by diving into this experience if you research the heck out of it and learn more about your business than you ever thought possible.

    Good luck... hope it helps.
  6. wyldman

    wyldman Member
    Messages: 3,265

    JD - thanks for the link,I will have to give them a good read over.

    Lawn Lad - excellent post,lots of good info.Were talking a fairly substantial amount here,large 6 figures plus annual commissions,so I will be researching it fully,and taking my time.They are not scheduled to return until mid August for our next meeting,and were looking at mid to end of September to close the deal.

    Thankfully,my lawyers are good friends,and most of the document review and advice costs me next to nothing.When it comes time to sign on the dotted line,then they will bill me.It shouldn't be anything outrageous,hopefully.

    I am looking at hiring,or contracting a private firm,to help in the pricing,and to offer a second opinion.That way nothing will get overlooked,hopefully.

    The biggest sticking point,is they want signed contracts BEFORE the deal is signed,and I just don't want to do that.Clients are very sensitive,and I feel this just might make them bail,and go elsewhere.Then the deal is off,and I'm out customers.We are trying to get the deal done,and have the sum held in trust,as contracts are signed and transfered.I would also like to have some sort of cooling off period in case I am unhappy with the proceedings.

    I would prefer not to be an employee.If we do the deal,I'd like to be able to walk away for a year or two,and just keep our small accounts.It was just an idea,to sweeten the deal.I like the consulting idea.It was their idea I be paid commissions on the contracts,but I'm afraid this might tie into some sort of non-compete issue,so I'm quite wary of it.The numbers they offered were quite impressive,so it may be an option.If they keep the contracts long term,the commission payouts could be quite substantial.Maybe even lucrative enough to not pursue those again in the future,and just collect the commissions.

    My biggest problem right now is time.I'd love to be totally immersed in all the legal and business stuff,but I have enough on my plate right now,and have no choice but to let others handle it.That is also why I'm looking at bring in an outsider,just so nothing gets missed,or overlooked.

    I don't want to get out of it completly,as I would like to have my boys,take over the business eventually,if they would like to.I just want them to have the option available,and not have to spend years building the business like I did.Hopefully I can build it back up enough before they are ready.If they don't decide to get into it,then hopefully some of the money earned from the sale of the business will help put them,and the girls,through university.

    Again,I appreciate all the info provided,and will keep you updated as the deal progresses.

    If anyone else has anything to add,please feel free.

    Thanks again.
    Last edited: Jul 10, 2003
  7. Rooster

    Rooster Member
    from Kansas
    Messages: 650

    I got the diagram Thanks.

    Now since your lawyer has looked everything over, I guess its time for them to SIGN the check!

  8. wyldman

    wyldman Member
    Messages: 3,265


    Any luck in diagnosing the mirrors ? I was hoping it was just a fuse.

    It will be some time before I proceed with this offer,as it may affect my business(es) for a long time to come.Not something I want to rush into.

    It would be nice to have that check in hand though,it would pay off both my mortgages,and buy me a whole bunch of new toys :eek:
  9. Lawn Lad

    Lawn Lad Senior Member
    Messages: 407

    Chris -

    With the sticking point of having signed contracts from your (as they are YOUR customers until you ink the deal) before they sign does put you in a precarious position.

    Why not stipulate in the contract some sort of consequential damages if anyone does jump ship. Obviously they want to make sure they have a good deal before they sign, but what happens if you send out contracts to your customers and then for some reason they pull out? What recourse do you have? If they are asking for that kind of commitment then it almost requires two deals. One contract that would stipulate damages that would be awarded to you if they pulled out mid process and then the final deal which would transition the accounts and equipment to them.

    I can't imagine giving my business in name to someone else without having money in the bank. That just sounds funny. I'm a neophyte to this type of work so maybe this is standard in some circles. You'll have to do your research to see how to handle this one.

    Best wishes....
  10. wyldman

    wyldman Member
    Messages: 3,265

    I will be setting up a conference call tommorow,to see if we can get past this signed contract deal.I need some sort of guarantee,so we'll see what we can work out.

    They are not taking my business name,only some equipment and contracts.I will update later.Thanks again,nice to have someone to hammer out the details with.
  11. Michael F

    Michael F Senior Member
    Messages: 203

    I'd try talking to Ed at grass roots consulting, he sold his bus to Landcare a few years back. I saw him in Buffalo, great guy very knowledgable. He can give you some perspective from what it was like from where your at now. Must of us, I don't think can.
    I would be hardpressed to have my clients renew with me under another companies name, not that they wouldn't if they were still dealing with same company (owners & employees) under different name. What's to stop them from billing & servicing "your clients" without paying you a dime, they now are the contracted company, . Who would sign contracts them or you? What if deal goes south, you don't have the contact in your businness name , they do, rough deal, sounds a littlle messed up
    Sounds like lots of money good luck.
  12. 4 Saisons

    4 Saisons Senior Member
    Messages: 260


    Create a new company, sign contract under this new company, then sell this company to them. That way if the deal does not happen, you still have all your contract .
  13. wyldman

    wyldman Member
    Messages: 3,265

    Denis - long time no see,hope all is going well.I had brought up using another one of my holding companies for the accounts,and then just sell the whole operation to them,but there were to many drawbacks.They would not discuss it any further.

    After a very long tedious conference call today,they have agreed to deposit the funds in trust as the transition takes place.It is expected that a few accounts will not want to renew,so they have been taken into account.It looks as if we may have this done by mid August.Some monies will be retained if the deal falls through.

    I hope to god this is the right thing to do,and it works out as planned.Enough for now,my heads still spinning...time to get some shut eye.
  14. Plow Babe

    Plow Babe Senior Member
    Messages: 218

    I hope this deal works out well for you.

    We were on the other side of a deal like this, but on a much smaller scale. A friend of ours had a plowing business, and then he moved away and sold the business to another guy. After one season, this guy decided that he wanted out. (The contracts were all one season at a time.) So what he did was renew the contracts under his business, then we subcontracted and did the actual work. In exchange for giving us all the customer contact information, he kept 30% of the money he received for the contracts that season, and paid us the rest. Then for the following season, I sent out a letter letting the customers know that he was no longer in the business, and that we had taken care of their plowing the year before, and enclosed our new contract. Since they were happy with our service, we had 100% renewal, and we continue to have these customers.

    For large commercial accounts like you are talking about, I can see why they want to have the contracts locked in, even though this will require some delicate diplomacy. But from the customer's perspective, they probably want to know who is responsible for servicing their account. Since you mentioned that this company is successful in other areas, maybe they could provide some references and customer testimonials from some of their existing customers, and that might help your customers feel more comfortable with the change.

    IMHO, I think a lot of people can relate to family issues, and if you let your customers know that the reason you are selling is to have time with your children at this point in their lives, then when you rebuild your business later, there should not be a loss of trust there. It shows that you are a real person and place high priority on family values.

    OBRYANMAINT PlowSite.com Veteran
    from ohio
    Messages: 534

    did this deal go through?
  16. hickslawns

    hickslawns Senior Member
    Messages: 627

    I don't think anyone envies your decision to make. Maybe the money helps, but as for me I am not in this strictly for the dollar. If you have (and it sounds like it) committed yourself to growing a business with pride to earn a living it would be very difficult to put a pricetag on it. I am no lawyer, but it sounds like you have taken a lot into consideration with good business sense. You don't claim to be a hardcore businessman, and most of us are not. However, as a hardcore worker, and business owner we are forced to become businessmen. I don't know if I could do it no matter how sweet the deal, but that is me. I hope to turn it over to my kids also down the road like you plan to. Something to keep in mind (I don't know how old your kids are) is there is no guarantee your kids will want to take it over. The other factor is this opportunity does not come along for too many people. Like I said, I don't envy your position. From the outside it looks like you have longterm financial stability if you continue running your operation. It also sounds like you may be facing a little burnout right now as we all do from time to time. THe other outside viewpoint shows the second option as having a good chunk of money with still the possible longterm financial stability but the risk of losing that financial stability. It sounds to me like you are level headed and well thought out, and you have placed yourself among good people (lawyers, consultants, etc.).
    Another possible option (as mentioned above I am no lawyer) could they run the sales through your business name the first year? THis would allow your customer's to see the work under the new owner and you would need to make the customers aware this was happening. Then the second or third year the billing goes through the new company. This would allow them to know they are assured they will retain the customers, and you would hold a little more leverage. I don't know if this is a realistic possibility, but just an idea.
    Best of luck! I don't preach to people, but I can tell you this. When faced with any business decision, I pray about it. I am not by anyway trying to force this on anyone, and I don't use this as a selling point to customers by any means, but it works for me. Knowing if I put it in the Lord's hands, lets me know however things work out, we will be taken care of. Like I said, I am not trying to preach, and not trying to force myself on anyone, but this always brings a peace mind to my wife and I knowing we will be taken care of. Good luck!
  17. The Boss

    The Boss 2000 Club Member
    Messages: 2,099

    Look at the date on this thread. None of the above members are here anymore. They've moved on.
  18. allabout

    allabout Member
    Messages: 50

    This post is from the year 2003