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Subcontract Deal/Whats Fair?

JeffW0011

LawnSite Member
Location
Indy burbs
i'm in a situation with a guy were we have been negotiating some different possibilities involving a purchase or a subcontracting of his mowing and maintenance accounts with an option to buy them at the end of the season.

This guy has a lot of other things going on right now and really is wanting to sell his maintenance division. I think he is seriously over priced in what he wants for what he if offering. We are kicking around the idea of a subcontract type of relationship for about 50 mowing and maintenance accounts with a different agreement for any new business that might come in from his end. At the end of the season I would have an option to buy the maintenance division at a pre agreed upon price. if it turns out to really be what he says it is I will gladly pay him close to what he wants. It has benefits for both of us at it allows him to remove the headaches he doesn't want this year running the M & M side of things. It's good for me because I can determine if the numbers he is giving me are legit.

My question is what would be a fair percent for him to keep. If I am providing all the labor, equipment, fuel, billing, all other variable costs and essentially he is doing absolutely nothing except cashing the check I send him every month. There are a lot of ins and outs and legalities and terms etc. him and I are discussing in terms of how this arrangement would work....so any suggestions or thoughts here would be appreciated...but ultimately I want to know what you guys think is a fair split for his side of the business. I think about 10% to him...he claims to do about 100k a year from this side of his business and I am offering to service his clients in a professional manner with the same urgency I would my own. If his business really produces 100k I will pay him what he wants at the end of the season. If it turns out it doesn't work for me he takes his clients and we split any new ones that came in from his side and he is getting 10% for doing nothing.....I have doubts he is in a position to run the maintenance division this season and he has to make a choice soon.....do you think an arrangement were I kept 90 and wrote him a check every month for 10% is fair? I would probably give him a few grand upfront as well as good faith money in addition to the 10% of his total sales...any thoughts
 

shawn d

LawnSite Senior Member
That sounds like a fair deal with the 10% and if you bite off more than you can chew and want to unload any accounts let me know I see your truck around the area from time to time

Good looking rig btw :waving:
 

PTP

LawnSite Bronze Member
Location
Tulsa
If I were in his position, 20% of gross would be the minimum that I would take. That is the rock bottom number. Normally, I would get 30% but because he is trying to get rid of the accounts and you are doing the billing, I think that 20% would be fair.
 
OP
J

JeffW0011

LawnSite Member
Location
Indy burbs
That sounds like a fair deal with the 10% and if you bite off more than you can chew and want to unload any accounts let me know I see your truck around the area from time to time

Good looking rig btw :waving:
PM or give me a call or e-mail. We should sit down and have a beer. It is always nice to have a bigger network of guys in the business.

What side of town are you located on?

I could end up biting off more than I can chew. I am throwing out a ton of money advertising this spring. And I am in negotiation with the guy the original post was about as well as considering buying a smaller operation out right and if my percent of annual growth trend continues at the same pace it has the last few years.....I will have to add a crew or go the simpler route of subbing some stuff out or both, especially when weather and other factors are an issue.


Get in touch....we should talk before season starts..
 
OP
J

JeffW0011

LawnSite Member
Location
Indy burbs
does he keep 10% total? or 10% gross?
That is still being discussed. I guess kind of in the middle.. If I do a job for one of his clients and my product/material cost is $400.00.....no he does not get 10% of that amount...He would get 10% of whatever my markup might be on those materials as well as 10%. So essentially 10% of the total minus the cost of materials for any job. Direct materials is the only thing factored out before his 10%. All other expenses stay in and I pay.

He also does not offer a Fert/Weed Control Program and he is being offered a straight 10% (not adjusted for product cost) for any of his clients that sign up or transfer that service to us.
 

WHIPPLE5.7

LawnSite Senior Member
Location
Northwest
I'd be pretty careful messing around with all the subout stuff and buying accounts. If you are already advertising heavy why do you need his stuff too? Don't get too big at once, I've seen alot of guys come and go real fast playing that game. Every year guys show up around here with big time equipment and trucks and you see them all over. At first its intimidating because you see them with fancy new equipment then halfway thru the summer they are just a memory.
 
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