How I Sold My Cleaning Business I
This podcast episode releases on the 3-year anniversary of the day I sold my first solo cleaning business. Over these 3 years, so many cleaning company owners have asked me how I did it. So many people told me that you can't sell a solo cleaning business because I just owned a job and a job has no value. I didn't believe them. I'm not going to start this story where it really started for me and that's where God put a dream and vision in my heart to leave Upstate New York and go home to the Philly Area. I want to confine this story to the "How", so you can see the practical steps I took.
I had many initial conversations with friends like Billy Altman and John VanderMuelen, who have sold small businesses. I learned a lot and even gained valuable insight into proper expectations. It's hard to get full price. Don't be afraid to do owner-finance and take payments. Use legal documents and document every step of the process. The decision to sell was made in November 2017 and I had to leave NY by late June 2018. That gave me 7-8 months to get it done. I first shopped it around to some cleaning companies after getting a rough valuation of $50,000. One company rejected it after seeing my numbers and signing a non-disclosure agreement. They could get the same number of clients I was selling for less in marketing. One ignored me and one just declined. I sensed early on that another business would not buy mine as it was viewed as a cleaning job. I had to be more creative and package the offer differently. I had to sell a dream and offer it to people looking for what the dream provided. I knew that I had a great dream to offer. I had optimized a cleaning company from 5 days to 2 days per week cleaning and still making $55,000 per year in profit. If all my clients would transition to the new person, I knew this was a great deal for somebody. I just had to find that somebody. I called a few people I thought might be a fit. I could tell they were not the right fit. I considered making a list and what I would say to each person in a script starting with every person in my phone contact list. As I was doing this strategic thinking, I scheduled myself to go to a cleaning conference. I've been to many conferences, but this was my first ever cleaning conference. It was called Speed Cleaning, hosted by industry leader Debbie Sardone.
At this time, I was also working on the value of my company. I'll share my valuation process in detail since I get asked this a lot! I first started by building the price from my numbers up. Then I found comparables on BizBuySell.com. I did a lot of research and found a good article detailing nine factors to the value of your company from Inc.com. The 9 factors are as follows: Recent Performance, Ease of Transition, Financial Records, Clientele, Products, Recurring Revenue, Staffing, Location, Brand or Reputation. I fully updated my numbers and removed all owner perks or (SDI: Seller's Discretionary Income). These are expenses that we as owners are legally allowed to take as tax deductions, but are not considered legitimate expenses of the business for sale purposes. The only expenses that should be included are operating, marketing, and financial. Items like the owner's cell phone, home internet, business trips taken by the owner, etc are perks. I then figured out how much time I worked in my business and replaced myself with an employee to do what I did, I assigned a reasonable salary to that position. I then took the total profit without perks (or SDI) and subtracted the salary and payroll expenses. This represented the profit of the company to an investor for one year. This investor would hire someone and run the business. This is how you properly evaluate the company's profit for selling. Then I looked at the nine factors and with no bias and graded myself two different ways against all nine. Finally, I took the weighted average of these nine factors to generated the profit multiplier of 3.03. I multiplied my annual profit without perks ($26,228) and multiplied by 3.03 for a business valuation of $79,500.
Now that I built the price was the ground up from solid financial records, I needed to compare my valuation to actual businesses that sold, similar to pulling real estate comps. I found 17 businesses on BizBuySell.com and backed out all of the numbers that I needed. This was not easy, but I'm an engineer and could figure it out. Some of these comps were already sold and some were for sale, so I took that into account. I narrowed it down to the 7 businesses most closely comparable to mine. Then I compared them to my business and made better than or worse than determinations. This part was not as scientific as I would have liked. But I did have a complete picture of each business for sale (or had already sold) and I put myself in the seat of the buyer who could choose between the 8 available businesses (including my own). Here are my notes:
From this comps list, I determined that I was NOT as good as the companies selling for $90k and $95k. I was clearly better than the solo companies priced at $45k and $41k. I was very comparable in many ways to the small 3-person teams selling at $75k. My takeaway from this week-long analysis gave me a comparables business valuation for my company between $70k - $80k. My personal profit multiplier valuation generated $79,500, which was on the higher end of my comp range. Thus, I went with the $79,500. I assumed I would negotiate and possibly walk away with $30k to $50k and I'd be happy as gravy.
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The Smart Cleaning School Podcast helps cleaning business owners from start-up to the struggling solo to the striving seven-figure get SMARTER in their businesses, reshape their mindset, increase productivity, clear the overwhelm, and get clarity through SMART goal-setting & personal accountability. Ken Carfagno is a lifetime learner and teacher. His mission is to help visionaries make the impact they were meant to make.