If you keep your feelers out there listening to what’s going on in your area, every once in a while you will hear of a lawn care company that wants to sell their customer base for what ever reason. It might sound like a sweet deal at first or maybe the lawn care business owner is asking too much for the contract. Before you go jumping in head first on such a deal, what are some of the things you should be considering? This is a topic that came up on the Gopher Lawn Care Business Forum.
A lawn care business owner wrote “I’m looking at purchasing a lawn care maintenance contract from a landscaper. It’s a commercial property that has a minimum income of $1000/month. The contract made $10,200 last year. He has it listed at $5,000 which seems quite expensive to me, but I have never purchased an existing contract before. What would you pay?
The lawn care contract is for 1 client. The job takes him 5-7 hours per week to complete and runs from April to October. The client supplies a 60″z mower and an atv with trailer for cleanup. I just provide all other tools and labor. One other thing is the landscaper is getting out of the business and moving out of town. I will be meeting with the landscaper and the client later this week.”
One lawn care business owner said “there are some varying views, but the consensus usually ends up being that a contract is worth about 1 month of it’s pay. So up to $1,000 in your case depending on a few variables give or take a hundred or two.”
“One month sounds fair to me, I was thinking 10-15% of contract value.”
I don’t think it matters what it made last year because these contracts are perishable. For all we know, the contract ended last year and the client might never sign up with that lawn care business owner again!
A second lawn care business owner shared “I think I would be real skeptical about paying much of anything until the lawn care client signs a contract with you and you have it in hand. At that point it would amount to a “finders fee” and not a “contract purchase”. I think this changes how much most people would value the transaction for. I agree with the others, a contract, as a contract, is perishable (in my opinion, especially when it is not a contract between you and the client) and is worth only about one month’s pay at the most.
I think I would tell the landscaper that if you and the client decide to sign a contract then you will pay X amount. If you decide to not sign it you will pay him nothing or only Y amount.
If you don’t handle it this way, you don’t know if 3 weeks down road the customer is gonna cut all ties with you. I would at the least meet with both of them and also have seller sign a no compete contract. Basically it is just a written agreement saying that he will not compete with you for business by continuing to offer these or similar services in your area.”
Ultimately the lawn care business owner who originally asked this question thought about it and said “thanks for all the input. I have learned a lot and I won’t pay anything until I meet with the client and have a contract signed.”
If you find yourself in such a situation, think these things through and cover your butt in case things go sour. Think of all the potential issues that could go wrong and resolve them before you exchange your hard earned money. In the end, you will be glad you did.