Purchasing Contracts - what is the standard rate

Discussion in 'Starting a Lawn Care Business' started by G.L. In Ont, Apr 9, 2006.

  1. G.L. In Ont

    G.L. In Ont LawnSite Member
    Posts: 87

    Hey folks - I have the opportunity to purchase $191,000 in commercial contracts (all signed and most still valid for 1-2 years longer) for $67,000.

    This works out to $0.35 for each $1.00. I did some searches here and found quite a range of answers to previous posts -- some say to pay 2 months of gross, some say 4 months, and some even said they're business would be worth twice what the gross was.

    Now in this situation, no equipment is involved and I would not be assuming the name of the business. So I am not purchasing his business, but only his contracts. He is a longstanding operator in the community and is well-know and well regarded.

    Any guidance please guys?
    Cheers, GL
  2. jcthorne

    jcthorne LawnSite Member
    Posts: 208

    I personally feel like that is to high. Chances are the company is selling off the accounts that are less profitable. You need to understand that as you get larger your overhead increases substantially also and paying 35% of gross would probably mean your going to lose money your first year.

    Personally I would never buy accounts from another company. If I wanted them I would just go out and take them. Believe in your ability and sales skills and go out and acquire the accounts on your own. 200k in business is not that hard to obtain......why pay for them.
  3. cwlawley

    cwlawley LawnSite Senior Member
    Posts: 470

    I'd take them in a heartbeat...but probably for around $40K which as jcthorne said, because they are their least profitable accounts.
  4. G.L. In Ont

    G.L. In Ont LawnSite Member
    Posts: 87

    I probably should have clarified: this guy is selling *all* of his interests in lawn maintenance to pursue his pool business on a more dedicated basis

    He has some exclusive distributor rights for certain pool products (robot cleaners for example) and from what he says there is lots of opportunity in the pool biz right now.

    So the 191,000 is his *entire* contract base - so it would be all his customers vs. just the 'bad' ones.

    He has advised that he has been taking around 40 points (40%) on the gross as a salary - so 40% of 191,000 is 76,400. His justification of the 35% payment on the total contract value is that if you ran the company with the same efficiencies he does, your 40% exceeds what you've paid.

    And his 40% was *without* his own labour -- so if I was active in the business (which I probably would be) then it's possible I could bump the 40% up a bit. But, since I don't have equipment yet I would have lease payments or loan payments which would (still need to do more calculations) offset the gain of my own labour.

    Any other thoughts anyone?
  5. edenex

    edenex LawnSite Member
    Posts: 4

    do you have any experience in the business?
  6. G.L. In Ont

    G.L. In Ont LawnSite Member
    Posts: 87

    Hands-on - as yet, no. I've bought into an Organic Lawn Care franchise this season and looking to pick up some cutting if the right opportunities come up.

    I'm taking it very slow, having begun my research 2+ years ago. I'm currently working in the IT industry but given all the outsourcing and re-organizations etc. I knew a little while back I wanted to make a carefully planned and well-researched career transition.

    Cheers, GL

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