Thoughts on Customer Renewals & Multi-Year Contracts

The entrepreneurial spirit within demands that we (as small business owners) continue growing our business’s in order fulfill the goals we set for ourselves when we started out.  These growth goals demand that we plan in some form in order to assist in achieving these goals.  When making the jump from operating a small ‘mom and pop’ operation to running a full blown business enterprise, projecting cash flows becomes an issue that requires attention.  One way to achieve these goals is to have reoccurring business each year.  Often, we run around each fall (or spring) making presentations to customers in an effort to renew them for each season.

All this effort at signing renewals could be put into soliciting new business if the customer base was such that you only had to “renew” a third of the customer base for each season.  To do this, consider signing customers to multi year contracts.  If presented properly, most customers will welcome the idea of keeping expenditures “firm” for two or three, or even five seasons.  Their expense budgets are then locked in for a long period of time, thus negating the need to plan for increased expenses for at least a portion of their exterior maintenance budget.  This also allows the savvy property manager to make themselves look good in the eyes of the owner of the property.

With multi-year contracts, the landscape maintenance/tree care/irrigation maintenance business owner can then accurately project revenues for longer periods of time.  The same holds true for snow and ice management portions of our business.  Even though weather is a major factor in revenue generation, being able to project “average” revenues makes the snow contactor look much better to the lending institutions we must all deal with.  Such long term projections allows a more accurate budgetary process, thus allowing the business owner the luxury of being able to plan for necessary purchases and other needed expenditures.  Expense forecasting can be key to achieving profitability in the long run, and having multi-year contracts in place will then assist in projecting profits for the upcoming year, or years. 

Hiring needs are more easily recognized if you can project what your business load will be “next year”.  If you know what your staffing needs will be, and if you can assure potential employees that they will, in fact, have a job next season – it makes it much easier to retain good workers.  These employees will learn what the customers want, and carry that information from year to year.  You should then enjoy increased productivity on customer sites since your employees already know the customers wants and needs, and will not require time to “learn” what the customers expectations might be.  Customers enjoy a satisfaction level that comes with being “comfortable” with the level of service that is achieved through repetition by those familiar with the property.

If you need to obtain business financing, have multi-year contracts will assist you in sustaining your credibility with your banker or leasing company.  Such foresight shows good business sense, and also shows the potential lender that you will have funds available to repay the loan.  One of the biggest questions asked (even if silently) is “how will you repay us?”  How you address this can make or break a loan application’s approval percentage.

By showing that you have multi-year contracts in place, you automatically indicate that you have cash flow in place to repay the loan.  And, it makes you look like a savvy businessperson instead of “someone who couldn’t find a real job”.

Everybody wins in this multi-year contract scenario.  The customer wins because your employees become familiar with the idiosyncrasies of the property and they come to know what is expected.  Your employees win because they realize that there will be work for them next year.  Your sales team wins as they no longer have to concentrate their early spring or fall sales efforts on renewals, and can solicit new business, and hopefully make a commission on the new account.  The company wins because cash flows and profit projections can be solidified.  You also appear (in the eyes of potential lenders) to be a better businessperson.

Another important reason for having a multi-year book of business is if you are considering selling the business at some point in the future.  Companies that have multi-year snow management contracts are much more attractive to potential buyers.  What you are selling is cash flows and profits.  Single year contracts carry very little value in the eyes of a potential buyer because of the effort required to renew then each season.  Multi-year contracts bring higher value to your business for all the reasons noted above.  This is one of the most important things potential buyers of your business look for when evaluating the potential for them in your customer mix.

Assuming that you have priced out the work properly, signing snow management customers (and landscape maintenance, irrigation maintenance and snowplowing customers) to multi-year contracts is smart business.

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