Don't Buy a Commercial Cleaning Business Until You Read This
Whether you're looking to enter the contract cleaning business or want to grow your current commercial cleaning company, buying an existing firm could fast track your efforts. Before making an offer, however, there are many things to consider.
There are many advantages to purchasing a company: It will likely come with employees who know what they're doing, equipment to do the work, and customers who've already signed contracts. Sounds great, of course, but there are also some common problems that could get in the way of success.
To avoid the possible pitfalls of buying a commercial cleaning business, conduct careful research before signing the dotted line. This goes beyond relying on the current owners' answers. They have a vested interest in making their company sound as great as they can. Instead, start by researching publicly available information (Google will be your best friend in this process).
If you feel reasonably confident about a company you want to buy, have your lawyer draft a confidentiality agreement for you and the prospective company. This will help them feel comfortable opening their books to you for a comprehensive appraisal of a business, known as due diligence.
During this time, ask yourself questions about people, services, and property. If you don't like the answers you hear in any of these areas, it may be wise to cut and run.
What to Consider Before Buying a Cleaning Company
1. People
When one company purchases another, it's often most interested in one asset—the customer base. Acquiring a new list of paying customers could be the cash injection you hope, or it could be more burden than boost.
When you examine the company's records, ask yourself these questions about its clientele:
- Is the company's target market growing, stable, or shrinking?
- How much market share does the business command? How does that compare to the competition?
- Are the customers similar or complementary to your current clientele? Do they fill a gap in your current coverage?
- Does the business rely too heavily on a few key customers? What would happen if those customers left?
- How long have the customers been with the company?
- What is the customer churn rate?
Another important human consideration in the purchase process is the company's workforce. If they are part of the sale, you'll want to think about how you will ensure a smooth transition.
- Will the current owner or managers stay on in some capacity to help?
- How do their wages compare to industry averages or your own current wages? What about benefits?
- What is the employee turnover rate?
- Who are the key employees? What are their duties and positions?
- Who are the less-than-stellar employees? Will you also inherit them?
- Is the company culture a good fit?
It's rare to NOT include employees with the sale, but if it doesn't, you'll need to map out a plan for how you'll manage the workload. How many new employees will you need and how quickly? How will you train them?
Finally, two more people to consider during the purchase process are your accountant and attorney. Consulting these two professionals early and often is critical because they can save you from costly mistakes. They stand by your side in any business negotiation and will have your back if things go sideways.
They can also help you answer important financial and legal questions like:
- What do the company's tax returns reveal?
- Are the company's revenues rising or declining? If declining, what is needed to improve them?
- Does the company have debt or liens against it?
- Does the company have enough working capital?
- What is the status or outcome of any lawsuits the company is or has been involved in?
- How strong are the company's contracts?
- What zoning or industry regulations affect the business? How could changes to those affect the company?
If you're new to the cleaning services business, ask around for referrals to find an accountant and attorney who are familiar with the nuances of the janitorial industry.
2. Services
Examine the services the company offers. What does it do well? What doesn't it do well (based on customer complaints)? Also, if you already own a business and this company's services don't either align with what you currently offer or fill a gap in your offerings, there's no reason to make the purchase.
You'll also want to consider sales and marketing of those services. Ask yourself questions like:
- Which of the sales channels the company uses are most and least effective? How do they align with your ideas about selling?
- Which of the marketing methods it uses are most and least effective? How well does this fit into your vision for marketing?
- Are sales consistent or do they have seasonal ups and downs?
- What is the sales history in recent years? What are sales projections for the next few years?
- How do their prices compare to competitors and/or your current pricing?
3. Property
The final piece of the purchase puzzle is the company's assets, including a wide range of physical and intellectual properties. What you'll be inheriting could be incredibly useful or potentially problematic, so watch for red flags. During the due diligence process, ask yourself relevant questions about assets, including:
- Does the company own or lease its location/s? Can you assume the mortgage or lease agreement? How long are you locked into the lease and what are the terms?
- Does the company own or lease its equipment? Can you take over or break the lease and what are the terms? What is the age and condition of the equipment? What is its value?
- If merging the new company with an existing one, could you sell off or otherwise streamline buildings, vehicles, or equipment to save money?
- How much inventory will you inherit? Do you want to continue using the cleaning products and working with the existing suppliers?
- Does the company have any licenses, permits and/or certifications that will transfer or need to be replaced?
- What insurance policies are in place? Can you take them over? If you have current policies, will they cover the new business or what will it cost to upgrade?
Buying a commercial cleaning company can be a smart investment
It can make for an easier entrance into the industry or boost revenues for an existing business. Before signing a purchase agreement, however, you want to feel confident you've covered all the bases. Answering all of the questions above can make the difference between a sale that pays dividends and one that bankrupts you.
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