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What’s better, long-time customer or long term contract
October 18 2022
What’s better, long-time customer or long term contract
          Our initial contract is 3-years and renews month to month. Would you say a term contract more important than a long-time customer?
          I’d say that both issues are important.  Nothing beats a long term customer.  Since your contract renews month to month after the initial term, whatever that term may be – in your case three years – your contract with the customer is essentially terminable at will on 30 day notice.  While you operate your company you may not really care since the customer is long term and expected to stay with you.  However, when you decide to sell your accounts a potential buyer is not likely to have the same comfort level with this customer and all the other ones in similar contractual status.  You can expect a lower multiple or a longer guarantee period. 
          Potential buyers don’t typically look at and price each contract, but the multiple ultimately offered will blend the accounts so that if all are month to month as opposed to term contracts you can expect a different multiple.
          Of course the character of the account and the customer is an important consideration when valuing the account portfolio. 
          Bottom line, long term customers are the best, but it’s also a good idea to keep them in term contracts and you do that by getting new contracts signed as the older ones terminate.

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301