April 20, 2022 • 21 mins
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 f
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Unknown (00:00):
To begin with the end in mind, hey,
(00:01):
you probably seen some success.
You've probably even receivedinquiries about acquisitions for
your company. Well, what's next?
In this episode, I'm going totalk about beginning with the
end of mind, and also sellingyour cleaning business. But
first, with every episode, Ioffer a guy to tip up, full cup
(00:23):
of resource, something thatreally help your business grow.
So let me ask you this are someof your processes multi step
where you're entering in orcompleting information over and
over and over and over and overagain? Almost redundantly? Do
you wish there's a way toresource that information to
automatically communicate andautomate your workflow with your
(00:46):
computer? Guys, go check outzapier.com. Zapier is a huge
time saver with absolutely nocoding involved. And as good as
I don't know anything aboutcode, maybe top secret code, but
I'll know how to program that.
With no coding involved, I couldget Zapier to be the go between
for different software. Andthey'll transfer that
(01:08):
information from one program toanother and beyond. The best way
I could describe Zapier is withexamples. So have you ever had
that sinking feeling that youdeleted an email by mistake and
had those attachments that youreally needed? Well worry about
that no more, because withZapier, it will automatically
take any attachment that youreceive through an email through
(01:32):
Gmail. And I'll take thoseattachments. And now you can
save it wherever you want, likeGoogle Drive, or Dropbox, or
even both at the same time.
Automatically, you don't have tomove anything or touch anything,
it just does it for you. Ormaybe you have a CRM like
HubSpot, and an email or likeMailChimp, now you could
automatically get those twoprograms to talk to each other
(01:55):
and swap leads if one has onelead but the other one doesn't.
Or use Zapier to automaticallypull data through your banks
credit cards to track expenseswith Google Sheet. So imagine,
well, heck, we just finished taxtime, imagine going through all
your statements and stuff likethat match and having an all
imported straight into GoogleSheet. And now you just filter
(02:17):
through and eliminate what youdon't need in there. It'll save
you tons of time. Or here'sanother example, each time you
go to make a new blog post, thatblog post is shared across
social media platforms. So youtype it once and now appears on
Facebook it appears on it ormaybe a link through Instagram
(02:37):
or a link through there orstraight on your website,
whatever. How cool is that. Andthen you can use Zapier to
automatically generate receiptsfor your clients within
QuickBooks Online. You know,maybe they want to receive a
copy of their invoice at themoment you charge them. So you
charge them through your web,the merchant program, and they
(02:59):
automatically get a receipt or acopy of an invoice through
QuickBooks so they can have fortheir records. Here's another
one. If you use panda doc forcreating proposals, we talked
about that before in creatingproposals, you could
automatically send a PDF versionof that proposal, straight to
Google Drive automatically justautomatically saves right over
(03:22):
there. Here's another one witheach Google My Business Review,
you get a text on your phone. Soimagine someone comes in say,
Hey, your company's the bestcompany I've ever did business
with for cleaning, it now popsup on your phone, you get
alerted to it right away. Andthat gives you a proactive
chance to reach out to thatcustomer and think him or her.
(03:44):
Or conversely, maybe it's a badreview. Maybe they're when your
competitors out there trashtalking. Yeah. So now you get an
alert right away. And you couldbe super responsive on it versus
waiting and seeing it anothertime. Well, here's here's a
couple more, you could, oh, wetalked about barking, you know
how I feel about bark. But youcan use bark to automatically
(04:06):
input your leads into the CRMthat you use. So we go the
purchase that lead that person'sinformation goes straight in to
your CRM, like HubSpot. And thenhere's the last one, it will
automatically send police crimenotices to your clients based on
their geographic area, as thosereports get published. So
(04:29):
imagine being a value add foryour clients and you let them
know, hey, there's crime in suchand such neighborhood or hey,
there's crime nearby you, youcould create print parameters on
your thing. And every time acrime report gets published,
that's within that geographicregion. You could send emails
automatically to the client andsay, Hey, I just got an alert.
(04:50):
Here's what it is, and thecomputer will do it for you. You
don't even have to say any ofthat. It'll just send it
straight to them. If that's whatyou want, man, there's so many
things you couldZapier with over 4000
application integrations. Thereare endless possibilities on
ways he used Zapier to automateyour cleaning business.
Definitely go check themout@zapier.com.
(05:14):
Well, back to beginning with theend in mind, if you ever heard
that before, it's actually Habitnumber two from a great book
called Seven Habits of HighlyEffective People, by Dr. Stephen
Covey. And if you look in there,you got to think, well, if I
want to begin with the end inmind, then I need to work
(05:35):
backwards and work those stepsin. So that way, when I do get
to that endpoint, one day, I'mready to go, I'm good to go. And
one of the biggest ones isselling your business. If you
wait to sell your business, whenyou want to sell your business,
meaning, you start it now andyou decide 10 years down the
road, oh, now I want to sell it,it's already too late for you,
(05:56):
you're too late to the game,there are steps you need to take
in between to get that businesssellable and ready. My biggest
mistake when I acquireduniversal janitorial services,
was not planning for an exit.
Before I began, I didn't dothat. I was thinking, Oh, I just
bought this company. It's mylittle baby, you know, yeah,
shirts, stinky diapers, orwhatever. And it's kind of
(06:16):
running around chasing thingsand pulling the hair off the
cat. But you know what,I didn't want to sell it because
it was mine. I wasn't eventhinking about selling it. And
that hurt me and that hurt thebusiness. Because now he could
have sold it for a whole lotmore than what I could sell it
for you right now at this point.
(06:38):
But if you don't plan, you'llnever know, if you're interested
in selling, there's a few thingsyou could do to increase that
value of your business. Beforeyou're considering to sell.
Here's one, buyers always wantto see monthly recurring
revenue, right? They don't wantto buy a business that stacked
(06:59):
with revenue from one client. Soif you have a million dollar
business, your business isn'tworth a million dollars if you
only have one client, and thatclient has 100% of that revenue,
right? Because no one's gonnawant to buy that business.
Because once they buy thebusiness that client quits or
whatever. Now they're totallyour business and you're broke,
(07:20):
right? So you need to plan aheadand figure out well, how many
clients would I want to have?
Where do I want them to be athow much revenue revenue do I
want them generating? How wouldour business look like in five
years, 10 years, 20 years downthe road when you are ready to
sell. Here's another one, makesure your clients don't control
more than 15% of your revenue,one 5%. So if you have a million
(07:43):
dollar business, make sure noneof your clients are bringing in
more than 100 $150,000 a year.
Or if your business is $10,000 amonth, make sure none of your
clients are bringing in, what$1,500 A month how that 10,000.
So always make sure your biggestclient isn't greater than 5015,
(08:06):
one 5%.
Here's a great example ofuniversal, I talked about this
already. By the way, check outwebsites about to go live 99
days to 33 k.com. I'll link inthe show notes when it's ready.
But within that website, I'mdetailing my loss of one of the
clients, one of universalsclients we just lost about
(08:34):
I like to say 30% of revenue,give or take maybe a little less
than that. And that one clientis bringing in $33,000 a month,
and we just lost it. Now, wedidn't lose it all once they're
giving us a large runway theywant to experiment do in house,
they're hiring everyone factorhiring all of our employees. And
(08:55):
I gave him my blessing on that.
And I hope they succeed withthat. But you know what they're
gonna realize after a while,hey, we got all these other
expenses. Now we got paid forunemployment. And these guys now
we have to offer all thesebenefits, like health insurance,
and all these other deals. Andwhat if employee gets sick? Or
what if five of the employeesget COVID? All at once? Now
what's going to happen? Sothey're gonna learn real quick
(09:16):
the value of a building servicecontractor like universal
janitorial services or like yourbusiness, but I'm conically in
that website, our loss and howwe're going to regain that.
Well, that client was 30%.
Imagine taking 30% of yourrevenue in a race and off the
map today. What would that do toyour business? How would that
(09:40):
impact you? How will it hurtyou? It will hurt you. I promise
it'll sting at the very least.
But how would that impact you?
So when someone's coming in,they're interested in buying
your business and they see 30%on there and they realize that
same client could flee once theypurchased the company. They'll
think otherwise they got thisbusinesses
worth as much as what I reallyhoped there was a couple of
(10:02):
times where we turned around, wetried to acquire other companies
we never successfully did. Butwe're looking at acquiring other
companies, I remember as one welooked at 50% of the revenue was
tied up with one client, andthey only had that one client
for a year. So imagine that theend of the year, a contract,
they said, up sign, RSE,goodbye, thing, you're out tons
(10:23):
of revenue. So there's dangersin doing that a business owner
wants to slide in and realize,hey, I have monthly recurring
revenue and solid. And if I loseone, great if I lose two, great,
but if I lose one, and it's 50%,I'm devastated. Right? They
don't want to do that. They alsowant, the new buyer also wants
to know that they can't stepinto the business without
(10:46):
working inside the business. Sopeople are buying businesses so
they could have another job.
They're buying businesses sothey can have passive income. So
when you're selling thebusiness, and you're doing all
the work, and you don't have theemployees filling in those
roles, that does harm to yourbusiness, it does harm to you,
unless you like doing that kindof work, not for me, but I'll do
(11:06):
if I have to do it. But the newowner, they want to know that
they can slide in and continuegrowing the business contain you
pulling in revenue withoutworking a single day. In terms
of the physical work, they don'tmind working on the back end to
build it up the growth andmarket and so forth. But they
(11:26):
don't want to be out theremopping and changing trash, if
you know what I mean.
So they just want passiveincome. They also want to see
long lasting clientrelationships, they generally
don't want to step into abusiness where there are brand
new clients, new clients equalsa higher chance of instability.
(11:52):
So they want to know that yourclient relationships are there
for a long time at Universal,our oldest client relationships
44 years old, our average clientrelationship is over a decade at
this point, now we're losingthis big client. So that might
change a little bit. But ouraverage relationship is over 10
years. So they want to step intoa business and realize, hey,
(12:14):
there's a history there. I gotdecades of revenue I could pull
in for next decade or even twoor three, if I cultivate this
right? It'd be a cash cow forsomeone, right? So they always
want to know is are they workinginside the business? Is the
owner working inside? What arethey doing? Or are they stepping
back relaxing, cayenne, giantjoin retirement, and they're
just looking to sell it forextra cash. And so they're
(12:37):
always comparing and contrastingthose things. Here's another
one, they want to see systemsand processes put in place.
Years ago, I hired a coach tohelp me with this. Shout out to
Scott BB with my business onpurpose, Scott helped me figure
out those tasks that suck thelife out of me can be done
(12:57):
better by others, and also whichtasks produced the greatest
return on investment. And thenwith these tasks, systems were
created. Now if I want to getnow if I got hit by a milk
truck, or beer truck tomorrow,everything's documented, and my
successor, I'll be up in heavenlooking down, hopefully, my
successor will be stepping in.
And they'll know exactly what todo and how to do it. Because
(13:19):
everything's documented inGoogle Docs. There's videos
attached to it. So they knowthey know exactly where to go
and what to do. They don't haveto reinvent the wheel. And so if
they just do everything we putin these processes, then the
business will continue on, we dothe same thing for all of our
employees within the company. Sothe employees know exactly day
(13:40):
one, what to do, how to do it.
And there's actually videotutorials on how to do said
work. And that includes not justadministration, but all the way
down to the cleaner.
There's a few things you need todo. If you're looking to sell,
you got to make sure yournumbers for your business are
(14:03):
clear. Right? If you're guessingon these numbers, if fear
haphazardly using QuickBooks,and maybe only including revenue
in there, you're not adding inyour bills and you're focused on
your bank's bill pay for thebill, the payables part. You
can't do it that way be you needto have everything clear and
(14:23):
then backed up by an accountantor at least certified by an
income. You need to also haveconversations with m&a experts
meaning mergers and acquisitionexperts. Well, where do you find
these folks? We find them onlineyou find brokers, my bank, one
of my bank branch managers Ishould say whenever I go to him,
(14:45):
he is an expert m&a guy. I couldask him hey, what other cleaning
companies are being sold in thearea and He'll feed me the
information. Right? He'll tellme what the the revenues going
for. Different companies arebeing sold in the
earning potential and so forth.
And you'll give me all the statsand figures. And they're
awesome. You could also hire anaccountant to help you do all
(15:06):
this. There are accountants outthere that specialize in mergers
and acquisition. And lastly, Ialways, always, always, always
recommend hiring a broker tohelp you broker deals with all
this. So for example, Imastermind with a buddy, he
owned a pest control company,the past were mosquitos actually
(15:28):
and he's down in Atlanta area.
And he goes to sell his businesshe tried to do and self and he
got a really respectable, nicenumber, I should say.
Or at least in his own head, Ithought was pretty good when I
first heard it. But then youknow it, he hired a broker, and
he came in double what he wasexpecting, which surprised me.
(15:51):
So that's phenomenal, phenomenalsuccess for him. So was hiring a
broker worth it? Yeah, they'regonna take a percentage, but he
made a heck of a lot more moneywith the broker they did. He
could have without? Well, thelast section I want to go to is
talking about general ideas onhow to value your business. I
want to say this perfectlyhonest, upfront, I know nothing
(16:14):
about this. All I did was Googleand I got some general ideas,
some general numbers, sameinformation you can easily find.
And so don't rely on me asgospel. I'm not m&a guy. Just
trust other people, right? Butthere's different ways you could
come up with a number you canlook at comps, right, figure out
(16:35):
what other companies are beingsold other cleaning companies
figure out, you know, roughlywhat their revenue is, and
earnings and so forth, and thencome up with a general idea of
what that sell price could be.
An example through that is awebsite called biz buy, sell,
you can go in there, it's notreliable, I've talked to a lot
of people have said the exactsame thing, where you could
(16:56):
actually go in there and kind ofget a general feel of what
cleaning companies or othercompanies are going for being
sold for and so forth.
I was unclean link. So ourindustry, one of our industry
newsletters or newspapers,right?
They suggested taking an averageof three different categories.
(17:17):
Number one, take an average of70% of your Avenue
annual revenue. So if somebodypercent of that, take an average
of 80% of your net sales, andthen take an average of 450% of
your net income plus inventoryadded on top of that. So like
(17:39):
computers, or desks, or maybeyou have a really expensive for
machine, vacuums don't countguys, those are cheap. But you
add all that up, average it andhe'll come up with a number that
could generally give you a goodidea of what your business is
going for. I saw on the web 40to 50% of annual sales plus
(18:01):
inventory, that doesn't seementirely reliable definitely
doesn't tell you the fullpicture.
I saw someone post, hey, taketwo times your net profit. Well,
that's not very good, especiallyif you're structured in
different ways. Like forexample, we're C Corp and my, my
pay is a I have to be anemployee. So my pay is not taken
(18:22):
out profits like an S corp orpass through entity would be.
Here's another one, take one tosix times earnings of a bita. So
this is Earnings BeforeInterest, tax depreciation and
amortization. So there's a wholeformula for that and that one to
six times earnings is based onenterprise value of that
(18:46):
industry. So for example, ifI don't know if if you were in
the buggy whip business, yourearnings ratio should be
terribly low because not toomany people are selling buggy
whips, right? Or records or whathave you. Right, there's really
no market for it. There's noreal demand for both cleaning
businesses a little bit better,right? Or maybe electronics or
(19:10):
data or what have you. Thoseearn a heck of a lot more and
you could come up with highervalues. So I hope this
information helps. I know it's alittle vague there. And last
part I really enjoyed puttingall this together. This is
episode eight of eight planepisode. So this is the final
one for the season. I might do asecond season. I am not sure
(19:32):
yet. But we'll see. But thankyou for listening all these
EYDAP says I appreciate each andevery one you guys rock. And if
I come up with some sort ofcontent or idea maybe I'll toss
in a bonus episode beyond this.
But if I did do a second seasonI do got a couple ideas. But in
the meantime, I'm actuallylaunching a new podcast coming
(19:55):
out this summer geared towardsour clients. It's
So I'm gonna dive in and dive indeep into the value of our
clients and what they do and howwe could help them through a
podcast format. So reallyexcited about some things we got
coming on with that. Finally, ifyou liked the show, I'd
(20:17):
appreciate a recommendation, areview or rating a share. You
could catch the show on all theplatforms out there, Apple
podcast, Spotify, Google, whereever you listen to this podcast
again, this podcast was broughtto you by Universal janitorial
services, and we're locatedright here in the heart of the
(20:38):
Washington DC area, servingschools, churches, banks, post
our country clubs, cardealerships, and so many more
office buildings, serving themwith janitorial porta, specialty
floor work, disinfecting, and somuch more. And we would love to
help you out if any of this fitsthe bill. We offer unique
(20:58):
solutions to your businessincluding a proprietary Quality
Control Program. We're not gonnalock you into a contract so you
have a 30 day escape anytime youwant. And on top of that, we
offer tremendous value becausewe're there to help your
business grow outside ofcleaning. We got a referral
network that we're alwaystrading and and looking to pair
(21:21):
with other people here in thecommunity. If rising tide lifts
all ships, right, so if you guysgrow, then we grow with you. So
I enjoyed this. Thanks again.
Over and out.
To begin with the end in mind, hey,
(00:01):
you probably seen some success.
You've probably even receivedinquiries about acquisitions for
your company. Well, what's next?
In this episode, I'm going totalk about beginning with the
end of mind, and also sellingyour cleaning business. But
first, with every episode, Ioffer a guy to tip up, full cup
(00:23):
of resource, something thatreally help your business grow.
So let me ask you this are someof your processes multi step
where you're entering in orcompleting information over and
over and over and over and overagain? Almost redundantly? Do
you wish there's a way toresource that information to
automatically communicate andautomate your workflow with your
(00:46):
computer? Guys, go check outzapier.com. Zapier is a huge
time saver with absolutely nocoding involved. And as good as
I don't know anything aboutcode, maybe top secret code, but
I'll know how to program that.
With no coding involved, I couldget Zapier to be the go between
for different software. Andthey'll transfer that
(01:08):
information from one program toanother and beyond. The best way
I could describe Zapier is withexamples. So have you ever had
that sinking feeling that youdeleted an email by mistake and
had those attachments that youreally needed? Well worry about
that no more, because withZapier, it will automatically
take any attachment that youreceive through an email through
(01:32):
Gmail. And I'll take thoseattachments. And now you can
save it wherever you want, likeGoogle Drive, or Dropbox, or
even both at the same time.
Automatically, you don't have tomove anything or touch anything,
it just does it for you. Ormaybe you have a CRM like
HubSpot, and an email or likeMailChimp, now you could
automatically get those twoprograms to talk to each other
(01:55):
and swap leads if one has onelead but the other one doesn't.
Or use Zapier to automaticallypull data through your banks
credit cards to track expenseswith Google Sheet. So imagine,
well, heck, we just finished taxtime, imagine going through all
your statements and stuff likethat match and having an all
imported straight into GoogleSheet. And now you just filter
(02:17):
through and eliminate what youdon't need in there. It'll save
you tons of time. Or here'sanother example, each time you
go to make a new blog post, thatblog post is shared across
social media platforms. So youtype it once and now appears on
Facebook it appears on it ormaybe a link through Instagram
(02:37):
or a link through there orstraight on your website,
whatever. How cool is that. Andthen you can use Zapier to
automatically generate receiptsfor your clients within
QuickBooks Online. You know,maybe they want to receive a
copy of their invoice at themoment you charge them. So you
charge them through your web,the merchant program, and they
(02:59):
automatically get a receipt or acopy of an invoice through
QuickBooks so they can have fortheir records. Here's another
one. If you use panda doc forcreating proposals, we talked
about that before in creatingproposals, you could
automatically send a PDF versionof that proposal, straight to
Google Drive automatically justautomatically saves right over
(03:22):
there. Here's another one witheach Google My Business Review,
you get a text on your phone. Soimagine someone comes in say,
Hey, your company's the bestcompany I've ever did business
with for cleaning, it now popsup on your phone, you get
alerted to it right away. Andthat gives you a proactive
chance to reach out to thatcustomer and think him or her.
(03:44):
Or conversely, maybe it's a badreview. Maybe they're when your
competitors out there trashtalking. Yeah. So now you get an
alert right away. And you couldbe super responsive on it versus
waiting and seeing it anothertime. Well, here's here's a
couple more, you could, oh, wetalked about barking, you know
how I feel about bark. But youcan use bark to automatically
(04:06):
input your leads into the CRMthat you use. So we go the
purchase that lead that person'sinformation goes straight in to
your CRM, like HubSpot. And thenhere's the last one, it will
automatically send police crimenotices to your clients based on
their geographic area, as thosereports get published. So
(04:29):
imagine being a value add foryour clients and you let them
know, hey, there's crime in suchand such neighborhood or hey,
there's crime nearby you, youcould create print parameters on
your thing. And every time acrime report gets published,
that's within that geographicregion. You could send emails
automatically to the client andsay, Hey, I just got an alert.
(04:50):
Here's what it is, and thecomputer will do it for you. You
don't even have to say any ofthat. It'll just send it
straight to them. If that's whatyou want, man, there's so many
things you couldZapier with over 4000
application integrations. Thereare endless possibilities on
ways he used Zapier to automateyour cleaning business.
Definitely go check themout@zapier.com.
(05:14):
Well, back to beginning with theend in mind, if you ever heard
that before, it's actually Habitnumber two from a great book
called Seven Habits of HighlyEffective People, by Dr. Stephen
Covey. And if you look in there,you got to think, well, if I
want to begin with the end inmind, then I need to work
(05:35):
backwards and work those stepsin. So that way, when I do get
to that endpoint, one day, I'mready to go, I'm good to go. And
one of the biggest ones isselling your business. If you
wait to sell your business, whenyou want to sell your business,
meaning, you start it now andyou decide 10 years down the
road, oh, now I want to sell it,it's already too late for you,
(05:56):
you're too late to the game,there are steps you need to take
in between to get that businesssellable and ready. My biggest
mistake when I acquireduniversal janitorial services,
was not planning for an exit.
Before I began, I didn't dothat. I was thinking, Oh, I just
bought this company. It's mylittle baby, you know, yeah,
shirts, stinky diapers, orwhatever. And it's kind of
(06:16):
running around chasing thingsand pulling the hair off the
cat. But you know what,I didn't want to sell it because
it was mine. I wasn't eventhinking about selling it. And
that hurt me and that hurt thebusiness. Because now he could
have sold it for a whole lotmore than what I could sell it
for you right now at this point.
(06:38):
But if you don't plan, you'llnever know, if you're interested
in selling, there's a few thingsyou could do to increase that
value of your business. Beforeyou're considering to sell.
Here's one, buyers always wantto see monthly recurring
revenue, right? They don't wantto buy a business that stacked
(06:59):
with revenue from one client. Soif you have a million dollar
business, your business isn'tworth a million dollars if you
only have one client, and thatclient has 100% of that revenue,
right? Because no one's gonnawant to buy that business.
Because once they buy thebusiness that client quits or
whatever. Now they're totallyour business and you're broke,
(07:20):
right? So you need to plan aheadand figure out well, how many
clients would I want to have?
Where do I want them to be athow much revenue revenue do I
want them generating? How wouldour business look like in five
years, 10 years, 20 years downthe road when you are ready to
sell. Here's another one, makesure your clients don't control
more than 15% of your revenue,one 5%. So if you have a million
(07:43):
dollar business, make sure noneof your clients are bringing in
more than 100 $150,000 a year.
Or if your business is $10,000 amonth, make sure none of your
clients are bringing in, what$1,500 A month how that 10,000.
So always make sure your biggestclient isn't greater than 5015,
(08:06):
one 5%.
Here's a great example ofuniversal, I talked about this
already. By the way, check outwebsites about to go live 99
days to 33 k.com. I'll link inthe show notes when it's ready.
But within that website, I'mdetailing my loss of one of the
clients, one of universalsclients we just lost about
(08:34):
I like to say 30% of revenue,give or take maybe a little less
than that. And that one clientis bringing in $33,000 a month,
and we just lost it. Now, wedidn't lose it all once they're
giving us a large runway theywant to experiment do in house,
they're hiring everyone factorhiring all of our employees. And
(08:55):
I gave him my blessing on that.
And I hope they succeed withthat. But you know what they're
gonna realize after a while,hey, we got all these other
expenses. Now we got paid forunemployment. And these guys now
we have to offer all thesebenefits, like health insurance,
and all these other deals. Andwhat if employee gets sick? Or
what if five of the employeesget COVID? All at once? Now
what's going to happen? Sothey're gonna learn real quick
(09:16):
the value of a building servicecontractor like universal
janitorial services or like yourbusiness, but I'm conically in
that website, our loss and howwe're going to regain that.
Well, that client was 30%.
Imagine taking 30% of yourrevenue in a race and off the
map today. What would that do toyour business? How would that
(09:40):
impact you? How will it hurtyou? It will hurt you. I promise
it'll sting at the very least.
But how would that impact you?
So when someone's coming in,they're interested in buying
your business and they see 30%on there and they realize that
same client could flee once theypurchased the company. They'll
think otherwise they got thisbusinesses
worth as much as what I reallyhoped there was a couple of
(10:02):
times where we turned around, wetried to acquire other companies
we never successfully did. Butwe're looking at acquiring other
companies, I remember as one welooked at 50% of the revenue was
tied up with one client, andthey only had that one client
for a year. So imagine that theend of the year, a contract,
they said, up sign, RSE,goodbye, thing, you're out tons
(10:23):
of revenue. So there's dangersin doing that a business owner
wants to slide in and realize,hey, I have monthly recurring
revenue and solid. And if I loseone, great if I lose two, great,
but if I lose one, and it's 50%,I'm devastated. Right? They
don't want to do that. They alsowant, the new buyer also wants
to know that they can't stepinto the business without
(10:46):
working inside the business. Sopeople are buying businesses so
they could have another job.
They're buying businesses sothey can have passive income. So
when you're selling thebusiness, and you're doing all
the work, and you don't have theemployees filling in those
roles, that does harm to yourbusiness, it does harm to you,
unless you like doing that kindof work, not for me, but I'll do
(11:06):
if I have to do it. But the newowner, they want to know that
they can slide in and continuegrowing the business contain you
pulling in revenue withoutworking a single day. In terms
of the physical work, they don'tmind working on the back end to
build it up the growth andmarket and so forth. But they
(11:26):
don't want to be out theremopping and changing trash, if
you know what I mean.
So they just want passiveincome. They also want to see
long lasting clientrelationships, they generally
don't want to step into abusiness where there are brand
new clients, new clients equalsa higher chance of instability.
(11:52):
So they want to know that yourclient relationships are there
for a long time at Universal,our oldest client relationships
44 years old, our average clientrelationship is over a decade at
this point, now we're losingthis big client. So that might
change a little bit. But ouraverage relationship is over 10
years. So they want to step intoa business and realize, hey,
(12:14):
there's a history there. I gotdecades of revenue I could pull
in for next decade or even twoor three, if I cultivate this
right? It'd be a cash cow forsomeone, right? So they always
want to know is are they workinginside the business? Is the
owner working inside? What arethey doing? Or are they stepping
back relaxing, cayenne, giantjoin retirement, and they're
just looking to sell it forextra cash. And so they're
(12:37):
always comparing and contrastingthose things. Here's another
one, they want to see systemsand processes put in place.
Years ago, I hired a coach tohelp me with this. Shout out to
Scott BB with my business onpurpose, Scott helped me figure
out those tasks that suck thelife out of me can be done
(12:57):
better by others, and also whichtasks produced the greatest
return on investment. And thenwith these tasks, systems were
created. Now if I want to getnow if I got hit by a milk
truck, or beer truck tomorrow,everything's documented, and my
successor, I'll be up in heavenlooking down, hopefully, my
successor will be stepping in.
And they'll know exactly what todo and how to do it. Because
(13:19):
everything's documented inGoogle Docs. There's videos
attached to it. So they knowthey know exactly where to go
and what to do. They don't haveto reinvent the wheel. And so if
they just do everything we putin these processes, then the
business will continue on, we dothe same thing for all of our
employees within the company. Sothe employees know exactly day
(13:40):
one, what to do, how to do it.
And there's actually videotutorials on how to do said
work. And that includes not justadministration, but all the way
down to the cleaner.
There's a few things you need todo. If you're looking to sell,
you got to make sure yournumbers for your business are
(14:03):
clear. Right? If you're guessingon these numbers, if fear
haphazardly using QuickBooks,and maybe only including revenue
in there, you're not adding inyour bills and you're focused on
your bank's bill pay for thebill, the payables part. You
can't do it that way be you needto have everything clear and
(14:23):
then backed up by an accountantor at least certified by an
income. You need to also haveconversations with m&a experts
meaning mergers and acquisitionexperts. Well, where do you find
these folks? We find them onlineyou find brokers, my bank, one
of my bank branch managers Ishould say whenever I go to him,
(14:45):
he is an expert m&a guy. I couldask him hey, what other cleaning
companies are being sold in thearea and He'll feed me the
information. Right? He'll tellme what the the revenues going
for. Different companies arebeing sold in the
earning potential and so forth.
And you'll give me all the statsand figures. And they're
awesome. You could also hire anaccountant to help you do all
(15:06):
this. There are accountants outthere that specialize in mergers
and acquisition. And lastly, Ialways, always, always, always
recommend hiring a broker tohelp you broker deals with all
this. So for example, Imastermind with a buddy, he
owned a pest control company,the past were mosquitos actually
(15:28):
and he's down in Atlanta area.
And he goes to sell his businesshe tried to do and self and he
got a really respectable, nicenumber, I should say.
Or at least in his own head, Ithought was pretty good when I
first heard it. But then youknow it, he hired a broker, and
he came in double what he wasexpecting, which surprised me.
(15:51):
So that's phenomenal, phenomenalsuccess for him. So was hiring a
broker worth it? Yeah, they'regonna take a percentage, but he
made a heck of a lot more moneywith the broker they did. He
could have without? Well, thelast section I want to go to is
talking about general ideas onhow to value your business. I
want to say this perfectlyhonest, upfront, I know nothing
(16:14):
about this. All I did was Googleand I got some general ideas,
some general numbers, sameinformation you can easily find.
And so don't rely on me asgospel. I'm not m&a guy. Just
trust other people, right? Butthere's different ways you could
come up with a number you canlook at comps, right, figure out
(16:35):
what other companies are beingsold other cleaning companies
figure out, you know, roughlywhat their revenue is, and
earnings and so forth, and thencome up with a general idea of
what that sell price could be.
An example through that is awebsite called biz buy, sell,
you can go in there, it's notreliable, I've talked to a lot
of people have said the exactsame thing, where you could
(16:56):
actually go in there and kind ofget a general feel of what
cleaning companies or othercompanies are going for being
sold for and so forth.
I was unclean link. So ourindustry, one of our industry
newsletters or newspapers,right?
They suggested taking an averageof three different categories.
(17:17):
Number one, take an average of70% of your Avenue
annual revenue. So if somebodypercent of that, take an average
of 80% of your net sales, andthen take an average of 450% of
your net income plus inventoryadded on top of that. So like
(17:39):
computers, or desks, or maybeyou have a really expensive for
machine, vacuums don't countguys, those are cheap. But you
add all that up, average it andhe'll come up with a number that
could generally give you a goodidea of what your business is
going for. I saw on the web 40to 50% of annual sales plus
(18:01):
inventory, that doesn't seementirely reliable definitely
doesn't tell you the fullpicture.
I saw someone post, hey, taketwo times your net profit. Well,
that's not very good, especiallyif you're structured in
different ways. Like forexample, we're C Corp and my, my
pay is a I have to be anemployee. So my pay is not taken
(18:22):
out profits like an S corp orpass through entity would be.
Here's another one, take one tosix times earnings of a bita. So
this is Earnings BeforeInterest, tax depreciation and
amortization. So there's a wholeformula for that and that one to
six times earnings is based onenterprise value of that
(18:46):
industry. So for example, ifI don't know if if you were in
the buggy whip business, yourearnings ratio should be
terribly low because not toomany people are selling buggy
whips, right? Or records or whathave you. Right, there's really
no market for it. There's noreal demand for both cleaning
businesses a little bit better,right? Or maybe electronics or
(19:10):
data or what have you. Thoseearn a heck of a lot more and
you could come up with highervalues. So I hope this
information helps. I know it's alittle vague there. And last
part I really enjoyed puttingall this together. This is
episode eight of eight planepisode. So this is the final
one for the season. I might do asecond season. I am not sure
(19:32):
yet. But we'll see. But thankyou for listening all these
EYDAP says I appreciate each andevery one you guys rock. And if
I come up with some sort ofcontent or idea maybe I'll toss
in a bonus episode beyond this.
But if I did do a second seasonI do got a couple ideas. But in
the meantime, I'm actuallylaunching a new podcast coming
(19:55):
out this summer geared towardsour clients. It's
So I'm gonna dive in and dive indeep into the value of our
clients and what they do and howwe could help them through a
podcast format. So reallyexcited about some things we got
coming on with that. Finally, ifyou liked the show, I'd
(20:17):
appreciate a recommendation, areview or rating a share. You
could catch the show on all theplatforms out there, Apple
podcast, Spotify, Google, whereever you listen to this podcast
again, this podcast was broughtto you by Universal janitorial
services, and we're locatedright here in the heart of the
(20:38):
Washington DC area, servingschools, churches, banks, post
our country clubs, cardealerships, and so many more
office buildings, serving themwith janitorial porta, specialty
floor work, disinfecting, and somuch more. And we would love to
help you out if any of this fitsthe bill. We offer unique
(20:58):
solutions to your businessincluding a proprietary Quality
Control Program. We're not gonnalock you into a contract so you
have a 30 day escape anytime youwant. And on top of that, we
offer tremendous value becausewe're there to help your
business grow outside ofcleaning. We got a referral
network that we're alwaystrading and and looking to pair
(21:21):
with other people here in thecommunity. If rising tide lifts
all ships, right, so if you guysgrow, then we grow with you. So
I enjoyed this. Thanks again.
Over and out.
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