By Sam from Business For Sale
When most people think of cleaning, they probably think of cleaning their home as this is most familiar.
However, nearly anything that exists, can be cleaned.?
According to Ibis World, there are 41,819 commercial cleaning companies in Australia and together they do 11 billion in total revenue.
Whilst the pandemic squeezed profit margins as hotels and commercial offices were shut down, there is beginning to be a return to steady growth seen over the last 20 years.
So much so, that revenue is forecast to grow to $13.1 billion through the end of 2027-28.
So cleaning businesses span a broad spectrum of niches from residential to crime scenes, from air con to dogs to wheelie bin washes.
What are the advantages of buying a business in the cleaning industry?
Starting a cleaning business does not often require a large capital investment so the barriers to entry can be quite low.?
This means that the cleaning industry can be quite competitive however there are some great advantages that make cleaning businesses very attractive businesses to buy:
- Opportunity for Specialisation: As the industry is vast, business owners can carve out niches like green cleaning, medical facility cleaning, or crime scene cleanup, which may offer higher profit margins or less competition.
- Recurring Revenue: The holy grail. Many cleaning services operate on contracts or standing appointments. Whether it's a residential client who needs bi-weekly cleaning or a commercial contract that requires daily or weekly service, recurring revenue provides stability and predictability for business owners.
- High-Profit Margins: When managed efficiently, the cleaning business can have favourable profit margins. Overheads, such as cleaning supplies, can be low compared to the service fees charged, especially when buying in bulk or leveraging economies of scale as your business grows.
- Scalability: The business model can be scaled from a solo operation to a vast enterprise, depending on the entrepreneur's ambition. Expansion can be pursued in terms of services offered, geographic regions covered, or niches catered to.
- Diverse Clientele: The industry caters to various clients, from residential homeowners to large corporations, schools, hospitals, and other institutions. This diversity can make the business resistant to fluctuations in any single sector.
- Consistent Demand: Cleanliness and hygiene are perpetual needs. Even during economic downturns, certain segments of the cleaning industry (like commercial cleaning) may continue to see demand.
- Flexibility: Especially for smaller operations or residential cleaning services, there's a degree of flexibility in setting schedules or choosing clients, making it suitable for those seeking a work-life balance.
- Resilience to Technological Disruption: While many industries are threatened by technological advances, the hands-on nature of cleaning services means they remain relatively resistant to such disruptions.
- Franchise Opportunities: For those not wanting to start from scratch, the cleaning industry has numerous franchise opportunities. These can offer brand recognition, operational support, training, and marketing advantages.
- Environmental and Health Impact: With a growing emphasis on green cleaning and sustainability, there's an opportunity to make a positive environmental impact. Businesses can also contribute to the health and well-being of clients by reducing allergens, bacteria, and other hazards.
- Community Engagement: Cleaning businesses often serve local communities. Owners can establish strong local networks, participate in community events, and become recognized members of their local business ecosystems.
- Growth Opportunities: As there are lots of owner-operated businesses, there is a lot of opportunity to use acquisition as a growth channel to expand your revenue and staff. Plus demand for household cleaning is forecast to increase as dual-income families become more and more common.
- Cash Flow: Depending on the terms set with clients, cleaning businesses often benefit from quick payments, aiding in steady cash flow.
All of these benefits can lead to high competition in the cleaning industry. This competition can force prices down, meaning that some cleaning businesses have very low margins.
Wondering what the gross margins might look like in reality? This podcast episode shares the story of George Vallone that bought a cleaning business doing $1m in the States.
Other episodes that might be useful to learn about the cleaning business are:
What multiples do cleaning businesses typically go for?
Once you have your profit figure, the average multiples we have seen are: So, you're curious about how much a cleaning business is worth, right? It's a bit like a puzzle, but don't worry, I'll break it down for you!
You can think of a cleaning business's value as a big multiplication game. We often take 2 to 3 times the owner's take-home pay to figure it out. But hold on, it's not that simple! It can change a lot based on all kinds of stuff. Here at Business For Sale, we look at over 150 factors to get you an accurate business valuation.
But hey, if you're just looking for a quick idea of what a cleaning business might be worth, you can use these handy rules:
- Under $500K in sales? Multiply by 1.5 to 2 times.
- $500K to $1M in sales? Multiply by 2 to 2.5 times.
- $1M to $5M in sales? Multiply by 2.5 to 3.5 times.
- Over $5M in sales? Multiply by 3.5 to 5 times or even more.
Now, you might be wondering what can make a cleaning business worth more or less. Here's some insider info:
- Commercial Jobs: These are like gold! They usually keep coming, giving buyers confidence. Plus, they often last a long time, like a steady paycheck for years.
- Contracts: Got some paper that says your clients will stick around? Awesome! That's like a promise for the future. Just make sure those contracts can move to the new owner.
- Owner's Role: If you're more hands-off and the business runs itself, that's a big plus. More buyers might want it, and that could mean a better price.
- Family in the Business: It's great working with family, but buyers might get nervous if too many relatives are part of the crew. They might worry folks will leave when you do.
- Legal Employees: Having staff with proper paperwork who've been around a while can push up the price. The cleaning business is sometimes known for shady dealings with workers, so keeping things on the up-and-up can really pay off.
So you found a cleaning business that you like the look of. What questions should you ask?
Some of these will be up to you to answer and some of these you will have to ask the seller or broker for more information to help answer.
- Can I see the last three years of financial statements, including profit and loss, balance sheet, and cash flow statements?
- What is the company's current debt load, and what are the terms?
- Are there any outstanding financial or tax liabilities?
- What are the major expenses for the business?
- What is the business's gross and net profit margin?
2. Operational Questions:
- What cleaning techniques and equipment do you use? Are they up-to-date and well-maintained?
- What are the company's operational processes and workflows?
- What software or tools do you use for scheduling, billing, and client management?
- How do you source and manage inventory and cleaning supplies?
3. Client-Related Questions:
- Can I have a breakdown of the client base (residential vs. commercial, frequency of service)?
- Are there any long-term contracts in place? Can I review them?
- What is the client retention rate? Why do clients typically leave?
- How do you acquire new clients, and what's the average cost of acquisition?
- Is there any client concentration (i.e., a significant portion of revenue coming from one or a few clients)?
4. Employee-Related Questions:
- Can I see an organisational chart and job descriptions for all positions?
- Are there any key employees that the business relies heavily upon?
- What is the employee turnover rate?
- Are there any ongoing training programs in place?
- Are there any employment contracts, non-compete agreements, or confidentiality agreements in place?
5. Legal and Compliance Questions:
- Are there any pending or potential legal actions against the business?
- What licenses and permits does the business hold, and are they transferable?
- Are there any intellectual property, trademarks, or patents held by the business?
- Does the business have any ongoing or historical environmental or regulatory compliance issues?
6. Market and Competition:
- Who are the primary competitors, and what sets this business apart from them?
- What is the business's market share in the region?
- Are there any emerging market trends that could impact the business?
7. Assets and Liabilities:
- Can I see a detailed list of all assets that come with the sale?
- What are the terms and conditions of the current lease if there's a physical location?
- Are there any liens on the business assets?
- Why are you selling the business now?
- If the business is so profitable, why aren't you keeping or expanding it?
- Are you (the seller) willing to provide training or support post-sale? If so, for how long and on what terms?
- Would key employees be staying post-sale?
- Are there any ongoing or planned marketing campaigns, promotions, or changes that I should be aware of?
- Are there any warranties or guarantees provided with the business?
- What challenges do you currently face?in the business, and how are you addressing them?
- How is customer satisfaction measured, and what feedback mechanisms are in place?
Now that you are armed with the knowledge you need to evaluate some businesses for sale.
