I have been coaching for a very long time and one of the most common questions I get is how much can I sell my cleaning service for? There are three main reasons people ask this question. The most common is burn out. The owner is done, tired, and just wants to move on and they want to know if there is anything they can sell and if so how much could they get. The second reason is people planning and wondering how to estimate the value of their company since it is probably one of their biggest assets and they need to know when they retire what could they reasonable expect from their company. The final reason is people retiring and looking to sell now but they are in no rush.
There are a lot of factors that go into valuing a company and at the end of the day it is worth what someone else is willing to pay for it. I have seen companies that sell for far more than seems reasonable and other companies sell for way too little. The main reason for this is there are not very many buyers and sellers for a cleaning company. If you are the only cleaning company for sale and two buyers are interested you are going to get a premium. If you are one of two companies for sale and there is only one buyer interested you are going to sell at a discount. The best advice I can give to anyone when it comes to selling their company is you do not want to be in a rush. You want to sell when you are not desperate and can spend some time until you are the only cleaning company on the market and right buyer or even better buyers come along.
But knowing that what can a cleaning company sell for? Well the next question is do you have a job or a company? If you are cleaning homes every day yourself and have a helper and even a few cleaners you really still just have a job. If the person buying your company does not want to clean there will be no income. In this case you really do not have a company to sell, you have a client list and that is all. Probably the only interested buyer is going to be another cleaning company who could add your clients to their existing customer list. The problem with selling to another cleaning company is at the end of the day you are selling clients to them and most cleaning companies have a number in mind that a client costs them to get. It is normally between $150 – $250. The cleaning company you are talking to knows if they spent $200 on Google Adwords they could get a new client on their own. So why would they pay more for your clients who may be under charged and not very happy to have to be cleaned by a new company. So they are going to take the count of the clients you have in regular service, in their service area, and multiply it by what it costs them to get a new client on their own. For most cleaners working on their own they probably have 20 – 25 clients which means their client list would maybe sell for $3,000 – $5,000. Not very exciting but better than selling for nothing.
Now if you have a company and not a job, meaning you do not clean in the field your employees do. Now you can sell your name, your systems, and your knowledge. When you sell to another cleaning company they normally do not want any of this. The first thing they are going to do is move things over to their name, systems, and processes. Where you tend to get the better value is selling to someone outside of the industry. Someone like me. I left corporate life and I wanted to own my own company. I had no desire to clean but I found a nice little company doing roughly $250,000 in revenue with a good reputation, some systems, and motivated employees. I was willing to pay to get the knowledge and systems of the previous owner. In these cases normally your company will sell for 2 to 3 times your owner’s discretionary cash flow. Owner’s discretionary cash flow is a fancy way to say how much money would the owner of the company take home if the business was run 100% clean meaning any personal expenses like your cell phone, car, meals, what ever else you run through the company that really benefits you. You also get to add back any interest expenses and the salary you pay yourself. I will write another article in a few weeks helping to define this even more. But you take this number, all the monetary value the owner gets from the company and you multiply it by 2 or 3. This is how you value the average cleaning company.
Now it is possible to get a premium for your company. I have seen home cleaning companies sell for 4, 5, and even more times cash flow. These companies are the ones that are growing. They have an office staff that can run the company without the direct involvement of the owner. Not only do they have systems but they are very well documents and the buyer is buying a company that could be replicated in other markets very easily. You can see why if someone is willing to pay 3 times cash flow for a company where they have to work in the business every day, they would be willing to pay even more for a company that runs without them.
So in summary. A company where the owner is still cleaning is going to worth the least amount of money, maybe a few hundred dollars per client. A company where the owner is working in the office full time but has some processes and people in place even if those processes are in the owners head will sell for 2 to 3 times cash flow. The top tier companies where the processes are well documented, they have good placement on Search engines and social media, and the owner is not involved in day to day operations, those businesses can sell for 4 and 5 times cash flow. In every case you need to give yourself time to find the right buyer. If you are in a rush you are not going to get as much as you could if you took your time. The best time to sell is when you do not need to and you can either sell for a nice chunk of change or just keep running the company and collecting the income.
Derek Christian is the leading expert on buying and selling home cleaning companies. Derek has personally bought fixed, and sold 5 cleaning companies in the last 15 years but has been involved in the purchase and sale of over 150 cleaning companies. Derek is currently the owner of Reliable Cleaning of Fort Collins, and a partner in Blue Skies Services Cincinnati, My Maid Service of Cincinnati, Blue Skies Services St. Louis, and Castle Keepers of Atlanta. You can arrange a free consultation with Derek using this link.