Buying A Business
Discussion
I am looking in to buying a business as a bolt on to my existing business.
One has come up which looks interesting, however, there is a but.
50% of the income comes from a council contract, which as 4 years left to run. This concerns me, but maybe it shouldn’t?
My concerns are too many eggs in one basket, and that if the contract was pulled, which I am sure it can be, or the council runs into financial difficulties, I would be left up the creek.
Am I right to be concerned?
One has come up which looks interesting, however, there is a but.
50% of the income comes from a council contract, which as 4 years left to run. This concerns me, but maybe it shouldn’t?
My concerns are too many eggs in one basket, and that if the contract was pulled, which I am sure it can be, or the council runs into financial difficulties, I would be left up the creek.
Am I right to be concerned?
cbmotorsport said:
How marketable or specialist are the services offered? You'd have 4 years to try to win new contracts, while it continued to wipe its eye.
That was my initial thinking, however the fear set in that suddenly 1/2 of the business could be wiped out in the blink of an eye.Edited by cbmotorsport on Friday 11th January 13:31
Specialist, well, not particularly, the lowest end of the business ladder some may say, cleaning, window cleaning, pressure washing etc.
DSLiverpool said:
Is this the first contract ie is it 4 years left but overall been granted for 15 years? does the contract have any history and if last won then what concessions were made.
I believe there is history there, how much I don't know, but I was informed it was a renewal. Currently 4 years left with option for a further 2 years.So 50% of revenue is contracted for 4 years (you don't mention break clauses but suggest a 2-year extension is possible), and the buyer is the government. You have 4 years to build upon that with almost zero risk of default. Not sure how much more certainty you want from a business that is both complimentary to yours and available for purchase.
Would you be less concerned if the business were a domestic window cleaning round with hundreds of customers, all of whom can simply decline to pay for the service next time you visit?
Perhaps you should buy Premium Bonds instead!
Would you be less concerned if the business were a domestic window cleaning round with hundreds of customers, all of whom can simply decline to pay for the service next time you visit?
Perhaps you should buy Premium Bonds instead!
sideways sid said:
So 50% of revenue is contracted for 4 years (you don't mention break clauses but suggest a 2-year extension is possible), and the buyer is the government. You have 4 years to build upon that with almost zero risk of default. Not sure how much more certainty you want from a business that is both complimentary to yours and available for purchase.
Would you be less concerned if the business were a domestic window cleaning round with hundreds of customers, all of whom can simply decline to pay for the service next time you visit?
Perhaps you should buy Premium Bonds instead!
My concern is that 50% off the business is with 1 customer.Would you be less concerned if the business were a domestic window cleaning round with hundreds of customers, all of whom can simply decline to pay for the service next time you visit?
Perhaps you should buy Premium Bonds instead!
Regarding domestics, you lose 1 customer, they are easy to replace, and increase on, of course it's relatively small incomes in comparison to the council contract, but lose the council contract, thats a big hit and not so easy replaced.
rufmeister said:
Regarding domestics, you lose 1 customer, they are easy to replace, and increase on, of course it's relatively small incomes in comparison to the council contract, but lose the council contract, thats a big hit and not so easy replaced.
My window cleaner seems to make all his money from contracts with new build developers: he gets to clean the whole estate.Anything like that locally you could potentially pitch for?
You should ask to see the contract with the Council.
As a general rule of thumb, the only thing that would fore-shorten a public sector contract is any deficiency on behalf of the service provider.
The other is of the service company is acquired by another.
If you can square these two factors then there's no reason to think that the contract will be lost.
As a general rule of thumb, the only thing that would fore-shorten a public sector contract is any deficiency on behalf of the service provider.
The other is of the service company is acquired by another.
If you can square these two factors then there's no reason to think that the contract will be lost.
Another thing to consider is 'TUPE' of the employees with the contract.
Not an expert but worked on contracts where this was an issue on changing the contractor, because the staff employed in the contract basically stay with the contract.
I think if an employee spends the majority of their time working on a specific contract, if that contract is then awarded to a new company then those employees go with the work.
So in this instance it might be good- because if you loose the contract you potentially loose the liability of the staff with it. but then it can also be a bad thing if you loose the contract and half the staff......
Not an expert but worked on contracts where this was an issue on changing the contractor, because the staff employed in the contract basically stay with the contract.
I think if an employee spends the majority of their time working on a specific contract, if that contract is then awarded to a new company then those employees go with the work.
So in this instance it might be good- because if you loose the contract you potentially loose the liability of the staff with it. but then it can also be a bad thing if you loose the contract and half the staff......
It’s not uncommon for small businesses to be up for sale as people like to have an exit plan.
I’m this case the seller has been running it for 25 years, is early 50’s, and is a new Grandad. He wants to spend time with his grandchild and develop his portfolio of property and start property development on some land he owns.
I’m this case the seller has been running it for 25 years, is early 50’s, and is a new Grandad. He wants to spend time with his grandchild and develop his portfolio of property and start property development on some land he owns.
rufmeister said:
It’s not uncommon for small businesses to be up for sale as people like to have an exit plan.
I’m this case the seller has been running it for 25 years, is early 50’s, and is a new Grandad. He wants to spend time with his grandchild and develop his portfolio of property and start property development on some land he owns.
Sounds plausible, but businesses in trouble or with trouble ahead always manage to muster up a plausible sounding reason for the sale as well, so you must perform due diligence and not just take their word for it otherwise you can often find yourself nursing burnt fingers.I’m this case the seller has been running it for 25 years, is early 50’s, and is a new Grandad. He wants to spend time with his grandchild and develop his portfolio of property and start property development on some land he owns.
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