What are Snow Contracts (Seasonality)?
The Short Answer
Snow Contracts (Seasonality) explained simply
Snow contracts are agreements where a business provides snow removal services. These contracts are usually seasonal, meaning they only bring in money during the winter. This creates an uneven cash flow, with high income in winter and low income in other seasons. When valuing a business with snow contracts, we look at how much of the total revenue comes from these seasonal contracts. We also consider how reliable these contracts are year after year. This helps us understand the true, year-round earning power of the business.
Real-World Example
The Plowing Business Example
Imagine a landscaping business that also offers snow plowing. In winter, they have 20 snow contracts, each bringing in $5,000. This means $100,000 in revenue during the winter months. However, from spring to fall, these contracts generate no income. When valuing this business, we can’t just take the $100,000 and assume it’s a steady income. We need to factor in the other 9 months of the year where this specific revenue stream is $0. This seasonality affects the business’s overall cash flow and how a buyer might view its stability and future earnings.
Why this matters
Snow contracts matter because they create seasonality in a business’s income. This means cash flow is not steady throughout the year. For buyers, this affects how they see the business’s stability and future earnings. For sellers, it means you need to clearly show how you manage the off-season and what other income streams you have.
When selling a business with snow contracts, show how you keep busy in the off-season. Do you have other services? This helps buyers see a more stable, year-round business.
When selling a business with snow contracts, show how you keep busy in the off-season. Do you have other services? This helps buyers see a more stable, year-round business.
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