Begin With The End In Mind - Selling Your Business

Beyond the Mop

You've seen some success. You've probably received some inquiries on purchasing your cleaning business. What's next? Well, begin with the end in mind.
Habit Two from 7 Habits of Highly Effective People is "Begin With The End In Mind". My greatest mistake was not planning for the sale of the company when I purchased the company. I just bought it. Why would I want to sell it? But you need to plan for that to put the steps into place to when you do sell, it's sellable.
There are a few things you can do to increase the perceived value of your cleaning company:
1) Buyers want to see Monthly Recurring Revenue (MRR). They want to know that there will be consistent money next month and the month after and 3 years down the road too. If you have 1X contracts, that'll do a disservice to the buyer and could leave you less valuable.
2) Make sure none of your clients control more than 15% of revenue. If 1 client were at 50%, for example, that'll impact the buying decision of the buyer because if that one client leaves, then the business would be worth half as much.
3) The new buyer wants to know they can step into the business without needing to work in it. Buyers typically buy to have passive income as a business owner. They don't want to buy and have to scrub toilets each night.
4) Buyers want to see long-lasting client relationships. If all of your clients came on last month, then the odds of some of all fleeing are higher than ones that have been with the seller for a decade.
5) Buyers want to see systems and processes in place. They want to know that they can slide into their new role without reinventing the wheel. They want stability.
When preparing for a sale, make sure your numbers are clear and concise. Back them up with an internal audit. Begin to have convos with M&A experts. And lastly, hire a broker.
I definitely don't profess to know how to value companies. But if you're looking for numbers, there are a couple of different sources if you're not ready to hire a broker.
1) Look at comps. You can go to BizBuySell. It's definitely not reliable, so take it with a grain of salt.
2) I found one source on the web that says to take 45-50% of annual sales. Another said 2X of net profit. I can't see how these are too reliable when considering other factors and time.
3) CleanLink suggested creating an average business value of 70% of annual revenue, 80% of net sales, and 450% of net income (plus inventory), and then averaging the three together.
4) Another said consider using EBITDA (earnings before interest, tax, depreciation, and amortization), and using a multiple (enterprise value) of 1-6X of EBITDA to calculate a price. This latter method is more common in acquisitions. The 1-6X is a range based on factors listed above (e.g. size, client relationships, employee relationships, etc.).
In any case, it's a rough idea. Definitely talk to a professional for better guidance.
Hey, I appreciate each and every one of you. Thanks for listening.
Resources mentioned in this episode:
7 Habits of Highly Effective People by Dr. Stephen Covey
My Business on Purpose - business coaching
BizBuySell (again, not fully reliable)
CleanLink article on selling
Universal Janitorial Services, Inc - We've been serving the DC region through janitorial, porter, specialty floor work, and disinfecting for the last 44 years. In fact, our first client 44 years ago we still have today. Our clientele include schools, churches, banks, country clubs, Class A office buildings, government, medical, and so many more.