Raising the Sales Price of a Janitorial Services Firm
Getting the best price for your business all starts with preparing for the valuation.
As you’ve probably seen in recent headlines, the American economy finished up 2015 strong with 2.0% GDP in the 3rd quarter and over 2.65 million jobs added to our workforce. Economists are expecting 2016 to be a decent year for the economy. Residents of Charlotte can expect another year of growth and expansion. Good economic conditions coupled with steady financials, attractive lending requirements, and a robust buyer market give business owners who are looking to sell a very unique advantage. If you think you are still a ways away from selling your firm, this is great time for you to begin making some changes so that when you are ready, you are able to cash in all the years of hard work and get the best price possible for your business.
Over the years, we have sold over 500 businesses and several janitorial services firms. Janitorial services firms clean building interiors including carpet, windows, and upholstery for commercial and residential clients and is responsible for $40 billion dollars in revenue annually. There are over 900,000 janitorial services firms in the United States and firms see net profits around 5.9% on average. Due to our aging Baby Boomer population and the healthcare they are going to need in their older years, the janitorial industry is expected to grow 5% every year between 2008 and 2018. Janitorial services firms are attractive to buyers due to the ease of transition and ability to survive dips in the economy.
If you have been thinking of selling your janitorial services firm, the first step in planning is getting a business valuation. To get an idea of what factors are weighed the most heavily in a valuation, we have included some formulas that are used to calculate the value of janitorial services firms. Please keep in mind that only a professional can tell you the true value of your janitorial services firm and these numbers are merely a guide.
- 45-50% of annual sales + inventory
- 5x SDE (Seller’s Discretionary Earning) + inventory
- 1-4x one month’s billings; plus fixtures, equipment + inventory
Professional intermediaries use formulas like this to calculate the value of janitorial services firm although additional components, such as comparables or industry trends are also taken into consideration. By keeping these formulas in mind, you have the advantage of making some changes in your business so that when you are ready to sell, you are able to get the best price possible for your business. We have helped dozens of business owners build their business and increase their revenues prior to selling, and we hope these tips can help you do the same.
Depending on your customer concentration and service offerings, this tip may not apply to you. If you mostly specialize in cleaning commercial properties, we recommend looking into adding residential cleaning to your repertoire. Commercial cleaning usually accounts for around 60% of the market segmentation but needs to be completed after hours when the employees of the business are not there. During the day when you are unable to work on your commercial clients, there is a whole residential market waiting to be tapped. Janitorial services firms can potentially double their cash flow by just filling their off time with residential projects, which can be obtained through targeted marketing and annual service contracts. Buyers will notice the steady increase in cash flow and revenues and be more likely to invest in a business that is expanding into new markets and showing growth, which will happen by adding residential cleaning to your offerings.
The age of digital marketing has not reached this industry most marketing efforts are completed the old-fashioned way: word of mouth. Most janitorial services firms rely on customers to do their marketing for them but there are ways for you to be more proactive in cultivating new leads. Offering referral incentives to clients who refer you new business is one way to encourage customers to tell their friends and colleagues about you. We also recommend hanging signs in places frequented by office staff, such as food courts, office complex lobbies and professional organizations, such as your local chamber of commerce. While digital marketing is not huge in the janitorial services space, having an online presence to reinforce your word of mouth marketing will help immensely. Claim a Yelp and Angie’s List page for your business and ask clients to review you on these sites so other prospects can find you easily. If your firm size is in the mid to large range, you may even consider building a website or launching social media pages. Once you begin to get some ROI on your marketing, you can show potential buyers the increase in contracts and financials, demonstrating stability.
This is a great tip for any service business – sign your clients up for annual contracts that generate monthly revenue through payments. One of the biggest factors that buyers take into consideration when reviewing a potential business venture is an even cash flow. In cyclical service industries, such as landscaping or HVAC, buyers may think twice before investing in a company that struggles through the office season. In the janitorial services industry, seasonality is not something to worry about but showing buyers an even cash flow and secured future dollars will be a major selling point for your business. Annual contracts and monthly payments do great things for your cash flow but most importantly, they show buyers that your business is a stable investment.
A great way to build up your revenues and cash flow is to add new services to your offerings. Broaden your reach in commercial and residential markets with add-on services such as curtain/awning cleaning, duct cleaning, or blinds cleaning. Not only would adding even one of these services increase your sales, but it would give you an edge over other firms. Using your marketing tools, get the word out or use these new add-ons as an incentive tool for referrals. You may offer one of your residential clients 30% off a curtain cleaning if one of their friends signs a 6 month contract with you, for example. New services could help you establish your business as a one-stop shop for all internal cleaning needs, giving clients more of a reason to stay with your firm. Diversifying your services helps increase your sales numbers and give your firm an edge, making it easier to sell and building the financial value during the process.
Society is beginning to take more of an interest in preserving our planet and in doing so, many consumers are opting to use green products to lessen their environmental impact. Not only are green products better for our environment, but they are better for us and DIY cleaning solutions are trending right now. Janitorial firms can hop on this bandwagon and attract a new clientele by offering natural and/or green products. If your firm is working to secure more residential clients, offering natural products may a good way to get your foot in the door. Residential clients are more inclined to use natural products because the service is taking place in their home, and most people would not want harmful chemicals used in places where children or pets can easily ingest or inhale them. Offering natural alternatives to traditional cleaning supplies may not multiple your cash flow right away, but you will see a jump in your residential revenues over time. Buyers will also be more interested in a business that is actively working to go green and values the protection of our environment.
We hope that these tips have helped you in your search for how to build, grow and eventually sell your janitorial services firm. The current economic climate paired with steady financials gives you the opportunity to begin planning for your future and it is never too early to start thinking about an exit strategy. After selling several janitorial services firms in the Southeast, we know what it takes to sell a business in this sector and how to prepare it for sale. The first step for any business owner looking to explore options is getting a valuation, and we offer this service for no-cost and no-obligation. No matter where you are in the small business cycle, every entrepreneur needs to know the value of their company. Take the time to plan for your future and the future of your business today, you will thank yourself at closing.