business proposition good or bad

I operate an excavation business and had never been asked this before and my consultants don't know what to tell me and said ask others that might know. I'll try to keep it short, people don't want to read long detailed posts I guess.

I'm currently happy with my size of operation, lifes good not great but I should expand some and have always done it slowly, most of my customers are finacially solid and long term repeat customers and I'm not going to give them up or put them second for anybody.

A younger guy who's been buying a lot of land and renting even more came to me and wanted me to his contracotor of choilce on all his farms owned and rented and do all his work, no big deal until he starting the list of what he wants done. Now this is unchartered waters for me anybody else who buys land only spends so much every year and does that for years, he wants all his projects done basically right away so he can benefit from them from day one and has talked his landlords into spending a certain percent of the rent on projects HE wants done and doesn't want to wait for someone to get there to do them or be on any contractors list and wait. He basically wants to direct traffic and dispatch where I'd go to what farm and when and in order to accomidate him and also keep my current customers I'd have to more than double my operation which could be done and maybe it's time but I"ve never expanded at that rate and it makes me nervous. The other problem is I wouldn't call him financially sound, he's highly leveraged, to the point of a banker somewhere is calling the shots and can shut him down tomorrow if need be, now's he's not the broke flunkie crowd but he's a long way from financialy secure and I've not done much for that group of people before.

My attorneys are talkng contracts and extensinve agreements and I'm sitting there thinking what if something better comes along and I'm locked into a nightmare or I don't like the deal after a little while. He's wanting a long term commitment say 5 years plus but contracts don't mean much if he goes broke and I'm left sitting with hundreds of thousands in equipment I don't need. I told all involved I don't want partners of any kind and everyone agrees thats not the case. The kinds of jobs he wants done fit into my operation but not the amount and timeframe and its hundreds of thousands of dollars per year on him alone. Has anyone heard of this being done before or had experience with anything like it. I could go on for days of the pro's and cons but what do you guys think.

You won't have to contemplate this for long cause he'll be out of business shortly guaranteed.

What I read between the lines, is that you're looking for somebody here to talk you into it, which means you're already thinking you're better off letting it pass.

I think that says a lot... :cool2

I have to agree with #2 and 3 it sounds like you don't "truely" want this complication in your life. You also have some doubts about the person your going to be working for. This is one of those cases you may have to go with your gut feeling?????

My experience with Big Talkers, promising big projects and big money for you are usually only there trying to make Your money Their money. I have seen this in the construction/development business as well. It's like musical chairs, it's all fun until the music stops but the stakes are a lot higher than just not having a seat.:cool2

Your gut is saying no and in economic times like these, it's not time to ignore it. But then again the guy may be legit and have a serious money investor that's not a bank. If you do plan on going forward, I would find out who and where the money is coming from.

Hi Randy,
Times are indeed changing in farm country. Many young bto's never farmed through the 80's. In my opionion we are in an equivalent of the early 70's and everything cycles. You are certainly right to be cautious.
I would approach this from a couple different business angles so as to not let an opportunity slip by but yet cover my a$$. Asking for money up front to do work on the land that he owns to help defray the cost of extra equipment and full payment after each different farm job may not be asking too much. Money down in essence before any work is done. A copy of his financial statement and cash flow analysis for each upcoming year (for what its worth) would not be too much to ask either but I doubt he would agree to that.
My other suggestion would be to ask permission to talk to the land owners or do business directly with them on any rented ground he may have you work on. The land owner is ultimately the one paying the bill.
Good luck,
Jeff

Another thought

After reading CM1995's post I would agree he may be full of hot air and completely incapable of all that he promises.
It may be all empty promises of large projects and lots of dollars in order to get to the top of the list to get just a couple projects done this fall. The weater has not cooperated much lately and many contractors in my area can't get all the work done due to the short falls and springs
Jeff

I worked along time for a small family business.
Had the same business model.
The owner had made a decent living taking care of a list of contractors.
Did not see many new regulars in my years.
> One took over for his father on the list but was small time.
> One took over for his father and was a major pain in the a**. He would buy the worst lots and want us to perform miracles and or he would schedule a footing first thing in the morning then not show up until noon. We dumped him.
One came out of nowhere like your new friend.
He had a lot of work but was just flakey and was hard to get paid from (Guess he was one of those financial jugglers).
We put up with him for a few years then he wanted the same deal.
Work for him exclusive. I think he figured if he could pull us out it would cripple his competition our customers.
We thought about it for a week and let him go also.
We figured the devil we knew was better than this new devil.

Me; i would put him on the list to work in priority and see how it goes.
If it really is the big deal you can put on equipment and help to handle him.
I would stay away from exclusive.

go big or go home is my motto, if you have work why would you turn it down, equipment is cheaper than its ever been and work is thinner as well.....dont look a gift horse in the mouth, now in order to cover your ass on this I would take an approach of,

" we estimate that 6 months worth of work is going to cost $XX so you need to put XX% of that money in an escrow acct with my attorneys acting as a trustee and i get paid outta the escrow acct"

it is not outta line at all to ask for that, I dont and never will ask for money upfront, IMO it show's unstability in a company to the point that a CO. cannot even afford the materials or fuel.

Or if you dont wanna jack with it, pass his info along to me and i'll send a crew up for 5yrs,....I'll even give you a cash kickback and let you put in some hours when youre slow!

Pj

What kind of vibe do you get from the guy? Does he know what hes doing and have a plan or is he just good at borrowing money? We worked with a few guys like that in the past, losts of times the work never materialized, a few times the work did but the money didn't.
One guy we worked with like this got us some good jobs, and when things were booming it was a good thing, but when it slowed down so did his ability to pay and pretty soon we got stuck holding the bag, along with everyone else he did business with. The key was we never let it get high enough that we couldn't absorb it if neccesary.
Have you looked into equipment lease to own options or anything?
Do you have a few good guys that work for you (and have worked for you for awhile) that you can depend on to run a job and not have to worry about safety, quality, and production?
If it were me I'd figure out how credible your customer is, then instead of going with a 5 year agreement start out with somthing like a 6 month renewable contract or somthing, if that makes sense. Then I'd pick the guy I'd have running crews and let him take care of your current customers that you know you can trust, and I'd work extesively with this new contract to make sure things go as planned. Spell out everything in the contract and when things change require your change orders, keep a good payment schedule, etc. basically make sure you have some good job controls built in. There is a certain ammount of risk involved but if you sit back and try to plan and anticipate it could be a good thing. If it isn't make sure you have an out in your contract, I have one right now that can be terminated by either party without cause and with no liquidated damages (State contract) as long as your work is good there isn't much they can say if you want out at any time. An agreement with your customer would just have to say that you will agree to do said work at an agreed price and time frame, just make it so its somthing your comfortable with.
Sit back and take a breath, its easy to get stressed out at the onset of stuff like that, give it some time ad then go with your gut feeling

I am leaning toward agreeing with Powerjoke. "No risk, no reward". There are ways of being safe about this before you ever get started. First i would demand to know where the money is coming from. Then assuming its a line of credit from the bank, i would either (as said above) start an escrow account or have the owner bring you to the bank and sign your company directly onto any kind of Note he is borrowing from. After that i would ask for a downpayment (any serious camper like this guy claims to be has to know you will need startup money) probably enough to cover a few months expenses.
I have been burnt before by private developers so now i dont care who it is, i get 20% when the equipment is delivered or i dont do the job!
Basically after that i would not ever let this guy get ahead of you on the payments have it worked out where you are getting downpayments for every project make sure they are large enough to stay ahead of your costs.
In that case you really cant lose, if he starts any kind of crap you can just move on and sell the surplus equipment and your still ahead.
Just my 3 cents!!

I'm currently happy with my size of operation, lifes good not great but I should expand some and have always done it slowly, most of my customers are finacially solid and long term repeat customers and I'm not going to give them up or put them second for anybody.

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You answered your own question above!


Try selling surplus equipment now it is rough.

The other problem is I wouldn't call him financially sound, he's highly leveraged, to the point of a banker somewhere is calling the shots and can shut him down tomorrow if need be,

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you really want to double your operations on a guy like above?

If you go exclusive for 5 years with 1 customer, who will you have as customers when that 1 customer doesn't have any more projects?

Another thing to consider is how this is going to affect your personal life?

I would sit down and work out what I can and can't do, then go back to the fella and say to him "look I can't work to your schedule but this is what I can do for you, I want to work on a project by project basis, instead of being contacted to you for 5 years".
You can always then negotiate to a point where neither of you are happy and that's the best place you are going to find. Along the lines of that you are contracted for a year with a schedule of urgent projects. You don't want to be in a position where there 20 projects going on and your running like a mad think trying to organize them all.
You lease the extra equipment needed, perhaps buying some which you will still need as replacements for aging machines in your current fleet.
Basically what i am trying to say is that this bloke wants you to stick your neck out so far but you have to say that you're only willing to go so far.
Obviously there is the risk that the bloke might tell you stick it and look for another contractor but you have to stick to your risk limitations.
Another question is does this person know anything about construction or is he the entrepreneur with grand visions? We saw a lot of them in the 80's and they all went boom, leaving a trail of destruction and bad debts behind them.

business proposition good or bad:

Hi Randy88,

Well, you certainly have started the makings of what could be an outstanding thread... not only helpful to you, but possibly, many others as well....

people don't want to read long detailed posts I guess.

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I this case, I would leave the "don't" out; from my stand point, I'd like to read more details... lots of them.

Without the details, often times a persons statments... or questions... lead to more questions, than answers, and you end up giving details anyway.

Just a couple "for instances"....

my consultants don't know what to tell me

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See, I'd like to know who they are.

most of my customers are finacially solid and long term repeat customers

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By "long term repeat", you would mean, looking down the road a fair distance, not what you've done for them in the past, right?
And, if so... you think they will offer enough business, so you can expand more or less like you would want?

A younger guy came to me and wanted me to (be) his contracotor of choilce on all his farms owned and rented and do all his work

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Did your reputation for good work, or ethics, or what... prompt this guy?

no big deal until he starting the list of what he wants done.

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Heck... it would be interesting to know about some of "what's on the list"... for me, anyway.

He basically wants to direct traffic and dispatch where I'd go to what farm and when

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How does that set with you?... a little like this? ↓

I don't want partners of any kind

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I"ve never expanded at that rate and it makes me nervous.

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Are you nervous about the "rate of expansion"... or getting that big?


LOL... as much time that it has taken me to type this up... every thing has probably been answered by now...


This could be the chance of a great business opportunity for you, or as you say....

I'm locked into a nightmare

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Keep the discussion going, every one... It sure interests me.



OCR

everyone has some good points in their advise. In the end, both choices could be the right decision. Its how you manage the decision from beginning to end. Does this guy pay his land rent anually? If that is the case, and he is deducting construction costs from land rent then there is no reason to be paid before you start.

Next question, will accepting his work & adding / changing equipment put you into financial hardship should he bail on you?

I don't think I'd go full bore with this guy until I'd work with him for a year or two, and he kept his bills paid. But I wouldn't turn him down either, I'd just tell him that if he wants me that bad, this is how we are doing it.

One thing to ask yourself is if the work that he wants done is enough to make you double your operation. Even if your a little skidsteer and one ton dump show, why doesn't he just buy some equipment and do it himself? Thats what I would do if I had enough work to keep someone else contracted long term.

I've been sitting out on my older equipment all day and answering the cell off and on and yea I think he's legit. The problem I'm seeing is the size and amount of equipment to handle both him and my current customers would be a sizable purchase and my attorneys gut feeling is about like mine, he put it as simple as could be "if you need contracts and payment schedules and bank agreements and all that maybe its getting out of control, do what you do for who you do and forget the rest". And in the end of his conversation he stated "if its not broke don't fix it". I've been on the phone and my banker did figure out who's behind the money and got some answers and he said its like this "today its full steam ahead tomorrow might be a differnent story, he might be sucessfull but the key word is might if you want my advise go with those that already are sucessfull and keep what you've got and move foreward slowly its worked so far why jeprodize anything.

I'm currently working for the guy who was my very first customer a lot of years ago actullay even before I was officailly in business, he's in his upper 80's and in his day was the largest operator around bar none but he's a square shooter and he asked me whats on your mind somethings up, so I ran it by him and he sat for a few moments and put it like this, do you know why I've hired you all these years, answer I gave was no not really, because of who you are, how you operate and the quality of work and the straight answers you give and the fact it works when your done, and you don't play favorites, you have a list and when people call is the order you do the work, the same reason why everyone else hires you, I've been the big boy on the block and demanded service and right now and I never hired anyone back that gave it to me because I was also the small guy once and dispised those that catered to the bto. You've never done it don't start now the little guys your currently doing business with that are financially sound will be the bto's of tomorrow with bigger jobs and your set for life you just can't see it today, let them take you to the top of your game because thats where your headed anyhow theres no express lane and never has been, your crippling your competition by being you and the competition can't figure out how they're getting beat and you can't see your winning thats why the new bto wants you so bad and is promising you the world because he wants on the top of your list and can't earn his way there so he's trying to buy his way there, tell him I said to kiss my ass and get in line and take a number just like everyone else and earn his way onto your list of clients by being a descent person to work for and paying his damb bill on time.

I called the guy back and told him that I'd do what I could when it worked in with all my other clients work and was not catering to anyone, investing in any additional equipment at this time, everyone was getting treated the same and if he wanted me to do work for him his name went on the list and went in order just like everyone else. My old timer was right because the next thing he said was I'd done my homework ahead of time and thats what I figured you'd say, we talked some more and he's going to try to find someone who will cater to him but if he's not sucessfull sounds like I'll get a call back for some work and we'll see how it goes from there. Thanks guys for the replies it ment a lot to hear from someone else what they would do, none on my competition will really talk to me and tell me anything so I didn't know if this was ever done before or not.

Someone asked who my panel of consultants were, my family, two attorneys I've done business with, three bankers, and about six older guys who I've done a lot of work for over the years and have helped me with a lot of things and I value their opinion like the guy I just wrote about, they tell it like they see it no matter who they offend. The rest were kinda wishy washy and didn't know and told me to go ask someone that has done things like this before and see how they would handle it again, so I asked you guys.

I guess the large operation and bigger machinery and higher dollar jobs made my head spin for a few days unitl the reality of the headaches it would cause kicked into play. I do the smaller jobs you name it we do it and thats what this guy wanted I think, most of the larger operators will do about one or two things and do them big but not the little jobs or a variety, say when its spring and tiling goes they put in 500,000 ft and nothing else and the boys building terraces or waterways do only that and loggers only log and you get the idea, well if you need 15,000 ft of tile in 12 differnet spots on the same farm using three differnt sizes and have to locate the old lines and hook on most aren't interested its not considered a large pattern tiling job or if you need to take trees out first so you can tile, nobody shows up or the jobs not big enough to get two differnet contractors there at once to get the job done and the combinaiton of different jobs is what he's having problems with, each of the contractors involved don't get enough off it to make it worth stopping their larger job to come and do, its just how life works and he's caught between a rock and a hard place so he went shopping for a smaller one stop shopping center so to speak and I'll do that but not to his scale and timeframe, The total dollars per year is substancial but when you break them down per farm per job its not large enough to get multiple contarctor there. Lets say its a 100,00, ft tile job for the year, that sounds pretty good until you find out its on 8 differnt farms on 12 different locations per farm using three sizes of tile and have to locate the old lines, now it got to be work and a pain in most tillers ass. Same goes for waterway work its 15,000 ft of waterways on 12 differnt farms and the longest is 500 ft but they all need tile first so it just became a nightmare to get the tiler to do his thing first so the dirt guy can do waterways.

One of my old timers told me to have him idle x number of acres so we could work all summer long just the size we are and he should have jumped at it because its the cheapest way to go for both of us but he wasn't gung ho on the idea, so why should I bend over backwards for him. I don't need larger equipment or more help I need a longer window to work and four months during the summer would cost him what in loss over the timeframe he owns the farm? I'd make enough other acres more productive to offset the idled acres at the end of the year he'd never notice it in his bottom line and in less than five years he'd have all his improvements done and benefit from there on out. He wants instant gratification with instant returns and is looking at total dollars per year not total dollars per job and one of my panel had to point that out because I was too sidetracked looking at the total dollars, I was busy adding them up to forget that I was adding them not looking at each specific job and what it entailed, my help also noticed that the amount of moving we'd have to do was incredible because his land was so spread out over such a large area the traveling would eat up so much time each spring and fall and when you sat down and figured it out they were right, he's spread out over a 50 mile stretch from end to end and to haul all my machines from one end to the other would take days and to go back again,half my time would be spend moving. The way we do it now we kinda go in order and sometimes across the fence and just drive the machines and when we are in an area we do those jobs all at once so we save a lot of time by not moving constantly.

The more people I talked to the more opinions I got and more I came to the conclusion I may end up dong some of his work but I don't think a lot of contractors will kill to get his work and have the opertunity to serve him. I don't think anything involving operating or maintaining or usefull productivity of this kind of equipment is his speciality, I don't think he has the skill to make it work and thats why he's not investing in it himself, reminded me a lot of these professional management services who are experts at telling someone else how but can't do it themselves when it comes to this kind of work, now I think he's an excellent farmer and businessman don't get me wrong from the looks of his crops he's way above average on the diverse soils he's farming from what I saw on the farms he showed me projects at. But I dont' think shaping waterways or putting in tile or taking down trees or landscaping for a new building is in his scope of operating and it didn't sound like he was pursueing that idea at all. He's trying to sell total dollars of work not individual kinds of work. Thanks for the imput and if things progress or change I'll keep you informed.

I also agree totall about the 80's bust here we come and a lot of these guys are gonna fall hard this time around as well and my panel of consultants told me that same thing over the last few days as I've been talking to them they all mentioned it strongly that it was coming and to prepare if its not here already. Sorry for babbling on so long.

As I get older, I pay a LOT more attention to old-timers. They seem to have a way of seeing the whole picture. Experience is a ruthless teacher.

I know if there was a business venture I wanted to pursue, there are 4-5 older farmers I would question extensively before I did anything big.

Deerehauler said:

As I get older, I pay a LOT more attention to old-timers. They seem to have a way of seeing the whole picture. Experience is a ruthless teacher.

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I agree, those old timers bought and paid for their experience, that they will give you for free, if you ask nicely or just listen.