Begin With The End In Mind - Selling Your Business
04/20/22 • 21 min
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 school
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 school
Previous Episode
How to Turn Your Clients Into Superfans
Have you ever wished your clients would stick around for 1 year, 5 years, or even 10 years? What would it look like to have clients remain with you for 20 or even 40 years? In this episode, we talk about turning your clients into superfans.
A) Your goal should be to offer value so strong, it hurts your prospects or clients to turn you down. There are several things you can do:
- Refer business to them before they do business with you. When we do our walkthroughs, I'm trying to figure out how I can make them money (e.g. who can I refer to them for their business revenue) or what resources I can provide for them before they even do business with us.
- Open up your entire network. Maybe you see a need that you can fulfill. On the cleaning level, if I see they're purchasing toilet paper, paper towels, etc. from box stores I'll tell them they can probably save 50% by purchasing from a local supplier. Or as it applies to their business, I'll ask open-ended questions in our walkthrough and I'll dive into a pain point if revealed. If I can solve that pain point through my network, I'll make a referral.
- Offer a loss leader. We'll offer free services in exchange for a sign contract, like a free deep clean, specialty floor work, etc. Or if they have multiple locations, I'll offer to clean the first at a reduced price and then charge our rate for the remaining. Only do this if you can get a profit on the backend.
- Provide extra value that others don't provide. In this episode I talk about a school client with junk along their property. I paid 1-800-GOT-JUNK to come out and remove it for them, for free, in exchange for a signed contract. Pain point resolved and new client won.
- Do a strategic alliance. Sit down with a client or prospect you like, know, and trust, and exchange leads, resources, help, etc. It'll strengthen that bond.
B) Show up to their location and/or call and do a joint walkthrough. It's our goal to do a walkthrough frequently within each location.
C) Treat your client's staff well. Send gift baskets. Or even do something as simple as dropping off bags of candy.
D) Send a quick 1 minute video to update your service, to tell them you appreciate them, etc. I referenced Goat Milk Stuff and their video campaign when you order with them. Super personal and each video is tailored to the order. They use Bonjoro, but you could use something as simple as your phone and your email.
E) Offer to test new equipment or a new service on them, for free. We'll use our clients as a test run on new offerings, solicit their input, and use their testimonial on future projects.
F) Always reach out to your clients before they reach out to you.
G) Get you clients involved in a community project.
Resouces mentioned in this episode:
Superfans by Pat Flynn
My Clean Pivot - I offer tailored, trained coaching in a one-on-one setting through Zoom whereby we'll cover together topics important to you and your business. Let's face it: it's difficult to go at this alone. So if you feel frustrated or you're stuck on a plateau, let My Clean Pivot help get you over that hurdle. For more info, check out www.mycleanpivot.com.
This is episode 7 of 8 planned. If you have any questions you'd like to ask and have answered over the podcast, go to www.speakpipe.com/beyondthemop. If we have enough questions, we'll do a bonus episode at the end.
Beyond the Mop - Begin With The End In Mind - Selling Your Business
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Unknownbegin with the end in mind, hey, you probably seen some success. You've probably even received inquiries about acquisitions for your company. Well, what's next? In this episode, I'm going to talk about beginning with the end of mind, and also selling your cleaning business. But first, with every episode, I offer a guy to tip up, full cup of resource, something that really help your business gro
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