I was just wondering how you put a price on contacts and acres if you are to purchase a custom operation. I'm able to put a price on trucks combines and carts but wondering how to go about putting a price on the contacts ?
In most cases if your buying the custom harvesters business assets (combines, trucks and trailers) the acres and contacts would go along with the purchase all inclusive. If your just buying the acres or contacts it ranges from $1 to $5 per acre. Hope this helps.
Sorta looking at buying another custom operation and what I came up with and had seen in an older movie was buying good will at a percentage of its value. So the guy you buyout would give you his contact list and if that customer used you again the new owner gives the seller of the business a percentage. In the movie it was a brewery being sold and the kickback was 10% maybe with bigger dollars being involved 5% would be more accurate. Remember you cant finance good will and so this is a way of not having the out of pocket expense and of ensuring the new owner gets a fair deal. That way if the old owner got out of the business on bad terms the value of the goodwill will reflect that. Does my rambling make sense ?
Canadian laws may me diff. Here you buy a company! The company is a going concern and it has goodwill built into it. You can right off the company and you get any bad or good debt that comes with it. The seller can sell as a turn key operation and can actually sell for less and still come out ahead because he sells as a going concern and gets cash value. If you are buying assets only then figure in some good will on paper based on acres promised and then simply add it to cost of machinery and then you can right the machinery off at higher value. Imo.
Sorry go cutn for the delay looking at buying one. Alfred theatre makes very good sense . I was wondering about that loyalty part because it would seem that most would get someone else if you got caught up in some part of your harvest .
I don't know how relevant this is to a harvesting operation, but most of the application businesses that have traded hands I know of went like this:
1st-appraisal value of all equipment involved in sale.
2nd-take 5 years of gross receipts.
3rd-throw out the highest and lowest years
4th-add together the three years remaining
5th-add that sum to the appraisal price, and that's the sale number
I'd view it like buying a lawn care business. You have asserts and glorified leads. Unless some have already contracted for next year or prepaid any they aren't worth much IMO. But may be tough to get going without them, put a price on your savings of struggles would be without them.
As far as a "good" time to get in is when everyone hates something. That being said commodities as a whole are hated with investors, but there is a saying that goes," never try catch a falling knife". I'd wait untill things start turning around. I heard of a few crews that got stiffed or renegotiated with after the crops where off, on account of low crop prices.
Buying good will is tough, there is a tremendous amount of loyalty out there, or there is as I see it--capturing the loyalty is what is hard. I feel like the most possible way to be successful in purchasing the goodwill is to buy the business and pay the seller to go on harvest with you your first year and assist with the transition.
Loyalty in harvesting is a joke to me, you know word is going to get out to other harvesters and the phone lines will be burning up. When McLaughlin quit the new had rented his customers land, way back in the winter guys were calling me but not the guy that bought his combines, he just expected to have the acres to cut, Jerry showed up at harvest to bag me to hire him, My wifes cousins crew is very capable and has become a close friend of mine, I never did like jerry and mark so you know.how that went
If you are thinking about purchasing a run with customers I am going to suggest you go and meet the customers in advance. This way you can feel them out as to what they are looking for and they can meet you and find out who you are, what you intend to bring for equipment, and to see if your personalities with work together. Another thing might be to look at the land you would be harvesting. Is it extremely rocky, deep valleys to cross, river bottom land that you have to cross 6 or 7 miles of pasture to get to with 3 gates to open and close along the way, etc etc. These can influence the price it is going to cost to harvest the job and your interest in the jobs as well.
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