Episode 255 – Moving from Residential to Commercial Cleaning
Selling a Residential Cleaning Business
Today we’re talking with Avery Wayley with Simply Green Cleaning.
Avery asks an interesting question that honestly… has no right answer.
He is looking to build up a cleaning business that becomes a true sellable asset. Many people are under the impression that commercial cleaning businesses are the ones that get the higher valuation and easier to sell because of the contracts in place.
However, this is not always true.
After all, most commercial cleaning contracts are still monthly contracts. Also, commercial cleaning companies tends to have far fewer accounts than residential cleaning companies. If one of those key accounts suddenly decides to not use your services anymore… that can be a BIG impact to the bottom line of the business.
In a case like that, many potential buyers may want to discount your commercial cleaning business due to too few accounts holding power over too much of the net profit. Residential is far less affected by a few accounts quitting over night.
Resource Alert: Selling Your Cleaning Business https://oldsite.growmycleaningcompany.comselling-your-cleaning-business/
For Avery, he has been running a profitable residential cleaning business for three years. I asked a few questions to give a better idea of what his next step should be. In this situation, it is good to look at your surrounding community. Are you in a small town? Is that small town close enough to service other communities?
The bigger the community you can serve, the more likely you are going to be able to build an asset that someone wants to purchase. If you really want to sell your cleaning company, don’t change your niche suddenly from residential to commercial to do it. There are plenty of people out there who want to buy a profitable business that is ran well, regardless of its niche.
Double down. Grow the business you are currently working on.
Take 18 months to really prepare the business for the sale before you even shop for a buyer. For residential, you will want to try to have revenue in the $250k range before you’ll spike someone’s interest. This isn’t always the case, but it is a good rule of thumb to follow. It is hard to build a residential cleaning company into a multimillion dollar company. It’s not impossible, but difficult. Now, that doesn’t mean you can’t sell a smaller residential company that is profitable and use those profits to jumpstart your commercial cleaning company.
You first need to know what kind of sales price do you want for your business? Then act according. If an average business sells for 3x annual net profit, how big does your business need to be before you’re happy with your potential sales price?
Next, you want get a few things in order:
Make sure you’re making at least 15-25% net profit if it’s residential. Higher is better, but lower than 15% will garner little interest from savvy buyers.
Hire an accountant to make sure your books are clean. Buyers will be pouring over these books and any discrepancy may turn them off.
Document ALL of your processes. Your book of standard operating procedures should read like the Owner’s Manual of your business.
Document where ALL of your lead sources are coming from. Also make notes on how many bids you make and how many are successful for each lead source. This is super valuable to interested buyers.
The owner absolutely needs to stop cleaning. No buyer is interested in buying a job. They want to buy a leveraged profitable system. You need turn your business into that system.
Resource Alert: When to Hire an Accountant for Your Cleaning Business? https://oldsite.growmycleaningcompany.comwhen-to-hire-an-accountant-for-your-cleaning-company/
There is a lot more that goes into selling a residential cleaning business, but these are some basics. Really sit down with yourself before you start pushing for the sale. You need to ask what you want out of this, why you’re doing it, and what your plans with the capital you’ll earn will be.
Are you planning a long retirement? A vacation? To pay off a mortgage? Or are you going to use that capital to jumpstart a new business venture?
Be SUPER clear with yourself on these questions!
Alright, let’s dive into the lightning round!