Creating business value
The professional cleaning industry, populated as it is with many small business owners and a few industry giants, has shown remarkable growth in the past few years.
Each owner understands that he/she must contend with intense competition and high staff turnover in order to grow the business.
When it comes time to sell, what will make the difference between achieving a ho-hum price for all your effort and getting the best price?
There are four key factors that determine a great professional cleaning business:
- Is the business profitable?
- Can the owner easily take a month’s vacation?
- Is the business predictable?
- Can the business be financed?
There are nine ways to improve the value of your business so you are in the best position possible when the time is right to sell:
- Know your key numbers and track them. Successful business people have shorthand business management systems that allow them to track their business in real time. Small business owners may have an old, green covered accounting book where they post these critical numbers. Larger business owners have summary reports, straight from the computer or compiled by trusted staff, to track the most critical details.
- Implement and record essential business systems. A business is nothing more than a series of systems that produce a service or product in return for money. Are your systems defined? Are tasks performed in a consistent way so that the work and people are interchangeable?
- Build a sales and marketing process. Sales and marketing is the most important system in your business. In many, it is also the weakest. A professional cleaning company depends heavily on customer relationships. An owner with a few solid relationships can build a fairly large business. This works well — until it is time to sell. Prospective buyers may negatively view the possibility of a large section of business exiting with a few major relationships built by the owner. This, in turn, reduces the value of the business.
- Improve profitability up to the time you want to sell. To get the best price for your business at the time of sale, you need to earn it now. Buyers are skeptical. They want to pay for what you have already achieved, not for the “opportunity.” The opportuni ty is why they are buying a business instead of simply taking a job.
- Clean up your balance sheet. Most of the time, price is determined from the income statement and operating results, yet few people understand how a balance sheet can make or break a sale. The balance sheet contains the assets and liabilities. Unnecessary assets usually do not increase the value of a business, so it’s best to liquidate excess equipment. For instance, if you bought four vans for transporting staff and you never used more than three, sell the one that is not necessary. You will not get the value of the van through the business sale, so remove it from the equipment list and sell it outside the business sale.
- Freshen up your facilities. Are your employees professional looking? Is their equipment in good shape? When a client walks into your office for the first time, what do they see? Look at the entire operation through the eyes of someone who walks in for the first time. Is the office clean and organized? Are the colors and carpets still in style? Are there coffee stains on the carpet and gray wear marks on the walls?
- Maintain employee morale. Your people are your most important asset. If they are enthusiastic and motivated, they are worth more than if they are lethargic and depressed.
- Tie up loose ends. Every business has multiple legal relationships that allow it to operate. The most important of these are connected to important agreements such as leases, franchise agreements, bank notes, insurance policies, etc. Do your best to make sure that each of these agreements is current and that the provisions are reasonable.
- Work with professionals. Quality specialists such as a valuation expert, transactional attorney, an experienced business CPA, and a quality business broker or intermediary will help you implement these techniques in the best manner for your specific business. Typical commercial and residential cleaning businesses sell for anywhere from one to six times their owner’s discretionary earnings, with most falling into the two to three times owner’s discretionary earnings range.
The multiplier is selected based on the desirability of the business, the likelihood of a smooth transition and, frankly, the overall market.
In the end, the prevailing market of buyers and sellers at the time of the sale will determine your final price.
And a good business that is well-promoted will always sell for more than a poorly marketed marginal business in any market.
What about you?
Stop for a few minutes today and look at how you are running and developing your business.
Make sure that, as you grow, you hire the right help and then delegate to them the quality standards and parameters that will allow the business to succeed with or without you.
If these systems are not in place, take time either to fix the system or fix the people.
This will create long-term business value. It also allows you to take a day off or maybe even a vacation. It also helps set the stage when it comes time to retire and sell your business.
The key thing to learn from this is that business value is about more than just profitability. It is also about transferability and reduction of risk.
These factors are satisfied when you develop effective systems appropriate for your firm.
Keep this in mind as you grow your business.
Greg Caruso is an experienced intermediary who specializes in assisting retiring business owners. He helps them prepare and implement exit strategies that create the most value from their businesses, while taking into account the new owners’ needs and requirements. He is also a principal of Harvest Associates, a Maryland attorney, real estate broker, and a non-practicing CPA. He can be reached at (877) 838-4966 or by e-mail at firstname.lastname@example.org.