Commercial Service Business Contracts

searcher profile

August 21, 2024

by a searcher from Gettysburg College in La Jolla Shores Beach, San Diego, CA 92037, USA

Buyers/Sellers of Commercial Service Businesses:

My commercial cleaning company holds numerous accounts through management companies (e.g. Greystar). We've encountered situations where some of these management companies will only work with you if you sign their contract. If you were considering purchasing a commercial cleaning company and discovered that 20% of it's business was in contracts dictated by management companies, how would this impact your decision?

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commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
When you buy any business you want to look at the standard contracts. If some of them are provided by third parties, then you need to take a particularly close look at those. Some have clauses that prevent assignment or require approval if assigned. Others might even require a notice upon a sale even though no approval is necessary. Depending on what you find in the contracts and how many there are you can do the following:
1) Require in the LOI that the contracts are assigned or the assignment is approved at or prior to closing.
2) Due a stock sale if that does not trigger anything in the contracts. However, you could incur other liabilities with a stock sale you would need to talk through with your attorney and accountant.

I hope this helps. Good luck.
commentor profile
Reply by a professional
from University of New Brunswick in Saint John, New Brunswick, Canada
Agree w/ Philip - what are the top 3 risks when it comes to these contracts. For me - I would be looking at payment terms, approval levels & process, and scope of services (in that order). I would also dig in to how the payment approval process works and how consistent it is.
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