How do I check a janitorial supply distributor’s contract customers before buying?
Ask for a list of every contract customer with its start date, term, pricing basis and renewal history, then read a sample of the actual agreements. Check how much revenue sits with the largest few, whether contracts can be ended on short notice, and whether any need consent to move to a new owner.
Contract customers are what make a janitorial distributor steady, so test them first. Ask for the customer list showing the length of each relationship, what is bought, how pricing is set and when each agreement renews. Then request copies of a sample, including the largest ones.
Read for the practical terms. Can the customer leave with little notice? Is pricing fixed, or tied to supplier costs? Does the contract promise delivery times the business struggles to meet? Your lawyer should read these and flag anything about transfer to a new owner. Look at concentration. If a few accounts such as a school board, a property manager or a cleaning contractor carry much of the revenue, ask what happens if one tenders the work again. Ask about customers who buy on tender or quote each time, and how many of them are called contract customers in name only. The label means little unless something written keeps them coming back and holds the price steady.
Match the list against the books. Sales by customer should line up with invoices, and unpaid balances should be explained. Where you can, ask the seller to arrange introductions to a few customers after a confidentiality agreement is in place, so you can hear how they see the service.
Key takeaways
- Get a contract customer list with term, pricing basis and renewal history.
- Read sample agreements for notice, pricing and transfer terms.
- Reconcile sales by customer with the books and ask about concentration.
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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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