Purchase Contracts: Big Money or Big Mistake?

You've been approached by a vendor to sign an exclusive, long-term purchase contract. Upon execution, they'll cut you a big check. Cash money.

Before you sign, remember what mama always told you, there's no such thing as a free lunch.

Purchase agreements have done a whammy on the quick-lube industry. Just ask industry veteran Michael Baynes. He consults on the purchase, sale and valuation of quick lubes throughout North America. Many people around the industry wish they'd never signed one. The up-front money went quickly and then profit margins suffered for years on end.

Of course, it's possible to get a good deal, but the odds are against it. Before you sign one, have it reviewed by an attorney. Also, compare current prevailing prices, escalation clauses, pass-throughs, inflation adjustments, up-front fees, cancellation fees and penalties. And a pretty accurate crystal ball might help you see where future prices are going.