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Make Money Cleaning Offices. Should You Buy an Existing Business?
August 14, 2012
In a previous post I reviewed ‘different’ ways to get into the commercial cleaning business. Here’s some more information:
Alternatives to starting a business from scratch:
Besides starting your own business from scratch, there are three other ways of getting started in the contract cleaning business if you want to make money cleaning offices:
Buy an existing janitorial business.
Purchase janitorial accounts or operate on a subcontract basis.
Invest in a franchise.
Should you buy an existing janitorial business if you want to make money cleaning offices?
Some people would rather buy an existing business instead of starting their own. When you buy a cleaning business you usually don’t get much in the way of physical assets – some cleaning equipment supplies, inventory, etc. What you are really paying for are customer accounts and goodwill.
Customer accounts - this is where the true value of any janitorial service exists. This is your income source if you want to make money cleaning offices. When you pay for a janitorial service you must make sure you’re getting good customers with solid contracts. Never, repeat never, purchase a cleaning business without personally inspecting the accounts and speaking with the customers.
Have a clear understanding of your responsibilities and the assurance of the customers that you will be retained as the new cleaning service contractor. While it is true that most janitorial contracts are set up to run a year at a time, they often include a 30 day written notice of cancellation. You do not want to pay top dollar for accounts that are about to be canceled!
Goodwill – this is the value of the company’s name and reputation. It is the accumulated results of jobs well done, word-of-mouth and advertising during the lifetime of the business. It includes the results of a company’s contacts with its public, its suppliers, and other businesses. It is an ‘intangible’ asset. It is not a physical entity, you cannot pick it up; but is extremely valuable. It is an asset that has much to do with the company’s ability to grow and to acquire new customers. If you are able to buy a company with excellent goodwill and a strong reputation, you are at an advantage.
Beware, many businesses are being sold off with little more than ‘badwill’. The owner is burned out, contracts are being canceled, employees are disgruntled and revenues are going down. You’ll never make money cleaning offices that way!
An important element in buying a business is to have an agreement ‘not to compete’ written into the sales contract. Its purpose is to prevent the previous owner from starting up a new business in direct competition with you.
When you purchase an existing business, be aware that the initial sales price is often way too high. Just as in the case of purchasing a car, the seller’s idea is to start high and be willing to lower the price. In most cases the seller of a contract will have to accept payments; rarely does a startup purchaser have access to the full purchase price. As a result, most business purchase agreements involve a down payment with the remainder of the money being financed over a number of months or even years. In this way the purchaser is able to pay for the business from the revenue that it generates.
Key questions you must ask before buying an established janitorial business if you want to make money cleaning offices:
Where are the accounts located?
What is the monthly gross billing?
What are the monthly expenses, and what is the monthly net income?
What equipment and supplies are needed to service these accounts?
How big are the accounts, and how many hours nightly does it take to clean them?
How long has the seller had these accounts?
How quickly do the customers pay their bills?
Will the seller be willing to work alongside you for a few weeks or months after you get established?
If you decide to spend several thousand dollars in purchasing an established contract cleaning service, get legal advice, preferably from an attorney with experience in small business sales and purchasing.
In upcoming posts, we’ll look an buying accounts and franchising as a way to make money cleaning offices.