How To - Selling Your Cleaning Business

Introduction - Selling Your Cleaning Business

When you’re looking to sell your cleaning company, you will want to consider many different factors. You may want to consider the general health of the industry, your companies' profitability, the value of your business, and your reasons for selling. If you have no idea what your company is worth, then you can speak with someone who specializes in business valuation.

In order to optimize the sale of your business, you should prepare in advance - ideally several years in advance. The quality of your business operations and financial reporting are very important as well as consistency and level of profits. Most business sales take between 6 and 12 months from the time you start advertising the business for sale until the transition to the new owner begins. Many businesses never sell.

If you want to close the deal without a renegotiation of the price, you will want to preview the due diligence and make sure you have a good attorney who is experienced in business transactions.

Why Are You Selling Your Cleaning Business?

Your reasons for selling your cleaning company can vary. You may be ready to retire, or you may want to pursue other opportunities. You may also be looking to sell because the industry is in a recession. Regardless of your reasons, it is important to know why you are selling your business before listing it for sale. If you are not ready to retire, make sure you are preparing yourself financially for the transition. A good or poor explanation of your reasons will have a positive or negative effect on the buyers' decision.

It is also important to plan for the future of your company. Are you looking to sell because your industry is currently in a recession? If so, then you will need to make sure that there is a plan for how to survive through the downturn, or else no one will want to buy your business.

Using a Business Broker

A business broker has the experience to help you to sell your business. Business Brokers understand the industry and have been trained to represent your company and get the best possible price. A good business broker can act on your behalf and can successfully guide and execute the sale of your business. If you don't have experience selling businesses a business broker can substantially increase the odds of a successful transaction on favorable terms. Here is a blog post about using a business broker.

When to Prepare for Selling Your Cleaning Company

Whether you are selling a commercial cleaning business, janitorial services business, or residential cleaning company, advance preparation is important. This is especially important if you are nearing retirement. Before you put your company on the market, you should also work on getting your financials in order. You should have great books that are up-to-date with all the latest information on your company's operations.

If you are unsure of what to do initially, talk with an expert who specializes in business valuation or selling companies. They will be able to provide guidance on how to prepare your company for sale.

In order to fully prepare a business for sale for the optimum price, it may take several years. When selling a franchise, you have an advantage since the franchise provides the operational, marketing, and business plans that ordinarily take many years for an independent business to develop.

How to Price Your Cleaning Business

You need to think about how you are going to price your company. You may want to consider the general health of the industry, your company's profitability, the value of your company, and your reasons for selling. If you have no idea what your company is worth, then you can speak with someone who specializes in business valuation.

More about pricing a business here.

Pricing Model

Most small business owners are primarily concerned with the level of profits that their business generates. For this reason, your profits are the most important element in the pricing of your business. Any valuation or estimate of the value of your business is an opinion. The selling price is a fact - you don't really know what your business is worth to a buyer until you try to sell. In most cases, for businesses with under $1 Million in profit, the valuation is a multiple of "sellers discretionary earnings" (SDE) between 1.5x and 2.5x.

For cleaning services businesses, including franchised cleaning businesses, with profits below $1 million, the median multiple of SDE has historically been 2.08x.

Here is an online calculator for valuing a business.

Owner Financing

If you can offer owner financing it makes it easier for a buyer to afford to buy your business. With owner financing, you loan the buyer money to purchase your business. When you extend financing to the buyer you will get less upfront but you will get monthly payments until the loan is paid off. You will want to require a substantial down payment from the buyer to ensure that he or she has "skin in the game" and will suffer a loss if they default on the loan. The downside of owner financing is that if the new owner can't make the payments, you may get the business back. Many buyers feel that it is a sign of confidence in the future of the business when an owner offers some financing. Currently, the most common terms are a rate of 5-6% and a 3-year payment term.

Preparing to Sell Your Business

Before you put your company on the market, you should also work on getting your financials in order. You should have great books that are up-to-date with all the latest information on your company's operations. This will make it easier for potential buyers to assess the profitability of your company. This will also help them assess the risks they may face in purchasing your company. It may even make it easier for them to come to an agreement about the worth of your company.

Take time to organize and review the financial reports of your company. If you want, you can hire an accountant or financial adviser for this task. While it is important to be organized, you also need to know what information is important in assessing your company's worth. For example, do you want potential buyers to see how many employees you have? Do you want them to see how many clients you have? Do you want them to see your annual revenue? These are all important questions

Let the Franchisor Know You Are Selling

Let the franchisor know that you are planning to sell out - Many franchisors have rules regarding a franchise for sale. They will have requirements that any buyers must meet, and the franchisor may be able to assist you in the sale. Letting them know up front may save you quite a bit of time and prevent headaches. It is important to know what the current net worth, experience, and citizenship requirements are so you do not waste time with unqualified buyers. These requirements may have changed since you purchased the franchise. Many franchisors also require that the signage and equipment be upgraded or brought up to the current brand standards before a franchise transfer is allowed.

Before the sale can take place the prospective new owner will need to receive the Franchise Disclosure Document and, in most cases, attend a discovery day and engage in in-depth conversations regarding their acceptance into the brand. Before the sale can actually close, the new owner may be required to attend training with the franchisor.

Advertising The Business For Sale

25 years ago businesses for sale were advertised in the newspaper. Today, the vast majority of businesses for sale are listed online. The largest online marketplace for selling a business is BizBuySell.com. There are a large number of other sites notably including BizNexus.com, and Businessesforsale.com. In addition to these, most business brokers have their own sites for the businesses that they sell such as Sunbelt Business Brokers, the firm I am affiliated with.

In addition to online advertising, most brokers maintain a mailing list of potential buyers who receive regular communications when a new business is listed for sale.

Maintain Confidentiality

Confidentiality is extremely for the success of most business sales. When your competitors know you are selling, your sales efforts may be hampered, if your customers or employees find out you are selling they will worry and may begin to investigate your competition. You should use non-disclosure or confidentiality agreements before you disclose any proprietary information, financials, or even the identity of the business. Using a business broker helps to maintain the necessary confidentiality.

Close The Deal

Due Diligence is a deal killer. That is unless you have done your pre-due diligence and know and disclose any important issues that might be discovered beforehand. The buyer's attorney and accountant will want to see all of your books and records, sales tax filings, income tax filings, POS records, and maybe bank account statements to prove that what you said during the sales process is true.

You need to be prepared to provide this (and more) information completely and quickly. If the income is incomplete or doesn't match the tax returns, you will need to explain why. If the differences are significant, the buyer may want to renegotiate the price.

Parties Involved

Typically, parties involved in a business transition are the owner, buyer, and business broker. In addition, most transactions involve the attorneys for both parties, the accountant, and a banker. Just as you would not have a plastic surgeon do brain surgery, you should not have a divorce attorney work on your business transaction. You should find an attorney that specializes in business transactions to help you with the sale of your business.

One essential party in most transactions is the landlord. In many sales, the negotiation for a new lease or a lease assignment can take on a life of its own. You should encourage the buyer to start lease negotiations as soon as possible after an LOI or offer is accepted.

The Transition

Transitioning a business is an extremely detail-oriented task. The new owner needs to obtain agreements with your vendors - or get their own for everything. Employees need to be terminated from your company and hired by your buyers' company. Utilities need to change the payor, and a new payroll company may need to sign up all of your old employees on the day after the sale so they can get paid.

For most deals, there will be a period of time when you will be expected to stick around and help a new owner learn the business. Knowing that they won't be left on their own right away will often convince a potential buyer to go through with the sale. Training by a franchisor doesn't substitute for on-the-job experience with your customers and employees.

Conclusion

Selling a business is hard and takes time. It also requires preparation by you and cooperation among your advisors. It is the way you monetize many years of work and sweat you put into growing the business so it is worth doing right. Most of the time you will not get a second chance to sell a business.