Does a shredding company depend on a single recycler for its paper?
Ask who buys the shredded paper, in what share, and under what terms. If one recycler takes nearly all of it, review the agreement, how pricing is set, and whether there are backups. Reliance on one buyer is a risk if the terms are short, informal or easy to change.
Start with the sales records. Ask for a list of every recycler or buyer over the recent period, how much went to each, and what was paid or charged. If the bulk goes to one name, note it.
Then read the agreement, if there is one. How long does it run, how is the price decided, and can either side leave or change it on notice? Does it pass to a buyer? Informal arrangements can end quickly.
Ask what would happen if that recycler stopped taking the paper. Is another one nearby? Has the owner ever tried it, and how did it go? Transport costs and quality standards can make a switch harder than it sounds. Look at the effect on profit. Paper revenue or cost can move the margin, so ask how it is treated in the financial statements. Speak to the recycler, with the seller’s consent, to learn how the relationship works. Your lawyer should read any agreement before you rely on it. Compare what you learn to similar shops you have seen, and ask the seller why the arrangement was set up the way it was. Ask whether prices have ever dropped sharply, and how the owner coped when they did. The answer shows how exposed the business really is.
Key takeaways
- List every buyer of the paper and the share each takes.
- Read the agreement for term, pricing and transfer.
- Ask what the backup is if the recycler stops.
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Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
- 02Business Development Bank of CanadaGovernmentWhat are the steps to buying a business?
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