Episode 123: Acquiring a Cleaning Business: Everything You Need to Know

Episode 123: Acquiring a Cleaning Business: Everything You Need to Know

Brandon Schoen:
You're thinking about buying a company, the word of the day is due diligence. And so you want to get deep in those financials and the customer list complaints, workers' comp claims, see what all the holes are, you know, and like at the same time, if any of you listening are considering selling your cleaning company, you should fully expect people to be doing this to you.

Like they're gonna look deep and you just, that's if you wanna get paid, that's what you gotta go through because obviously we're building an asset here. So instead of selling for a 0.5 or a one x multiplier, 'cause you're just barely winging it and it's just been minimum value. If you build, if you take the time to do the hard work to build the foundation right when you sell it,

it's gonna be worth a lot more value. And if you don't do it well and if you skip around the the edges and take shortcuts, it's gonna be worth a lot less. That's why it's worth going the extra mile to do it. Grow your cleaning business. Make more money. Have more time. This is the Profit Cleaners podcast with your host Brandon Condre.

And Brandon Shane. Hey everybody. Welcome to another episode of the Profit Cleaners. You are joined by Brandon Condre. Brandon Shane in the house. And guys, welcome to another show. We're so excited to be here with you and it's the only place where you can learn from the top 1%. I'm telling you that we're here with you guys, we're building the business and we're excited for another show to be with you guys sharing new knowledge,

sharing what we've been learning. As we always say, a rising tide raises all ships. So hopefully guys, you guys get a lot of value outta this. We've got an exciting show for you today and we're actually gonna do something a little bit different on this show. We're gonna dive into some of your questions we've been getting from the group. So as you guys probably already know,

we have a great Facebook group. Check it out on the website, you can get to it there. But we have great questions in there all the time. So we wanted to answer one of your frequently asked questions. If you guys like this kind of format, we'll do more of these. But let's jump into it. Brandon, we've got a question from Tim Ellisor and the question is,

what's the best way to start a cleaning business from scratch or buy an existing cleaning business? And this one comes up a lot, so let's dive into it. Does it, I dunno if I've heard this a lot. Does it come up a lot? Well, it comes up a lot on the strategy calls that we do with and I, I've seen that come up a few times in just emails and stuff like that.

So because you know, there's always that question, you know, 'cause people do find businesses for sale, but a lot of people don't know how to go about doing that. And then we've definitely looked at it before. I think we've talked about it in the podcast, different companies wanting us to buy them or just us wanting to grow. And so I think it's a really good question.

I think we should tackle it and kind of look at both sides of it and just, it is a good question. Yeah. So let's talk about it. I think the way we're gonna do this is we're gonna give you, I don't know, kinda like a pros and a cons. And I think you'll see where we clearly land on one side,

but all right, so let's go with the pros. We'll start with the pros. Good news first. So I have a friend that I made through A BNI group when Sandia, Green Clean was brand new. And he specializes in mergers and acquisitions for small businesses, not like a Wall Street dude, local stuff. And he hits me up once a year and always says the same line to me over and over and over again.

The fastest way to grow is through acquisition. And that sounds so nice. So like if it does work out, yeah man, you could acquire a cleaning company and then buy another one the town over and then buy another one the town over and then man you're in like three cities like right away. 'cause you had this money to throw around to buy these businesses.

So yeah man, it's doable. Like you can absolutely buy an existing business. I And what, like what do you think those advantages are? Like let's just go over those real quick. Why? Why would you even consider that? Speed. Speed. Yeah, so like someone else got a building, got some cars, hired some people, got some cleaning tool,

built a customer list, did the marketing, got a phone number set up, got the website set up, all that nitty gritty groundwork that a lot of people really do not like is done, that's done for you. You're buying someone else's brand, you know what I mean? Like that's already ready to go. So there's some advantages there. I think the chief advantage of speed,

so like Andrew said, the fastest way to grow is through acquisition. So the other kind of concept there is like business in a box, like it's done, all the stuff's done, you can just buy it. Yeah. And you see this like all the time with, you mentioned bigger, you know, this isn't Wall Street, this is more local business we're talking about.

But you see it all the time. Facebook buys Instagram or Amazon buys Whole Foods. And so it's like why do these companies do this in the first place? And it seems like usually there's some correlation or cross pollination of the audiences, right? So they're trying to expand their audiences. There's a similar audience over here. They just, they buy it and now they own it and expand their platform and and take over the world even more,

you know, is kind of what it seems like. But yeah, I mean I think it's a lot different obviously in the local, the local sense 'cause you're not, but it's also, there's a lot of similarities too. I may have already run out of all the pros. Do you have anything else that you think could be a good idea about buying an existing business?

Let's see here. Yes, speed. Possibly getting new insight into the market. Maybe they're doing some strategies differently. Maybe they have like a really neat way of marketing that you hadn't uncovered yet or that would add to something that you're not doing that would add to what you're doing. And that's like a competitive advantage. And I think when I see big companies do that,

that's what it seems like a lot. They buy a store or another company and now they have a greater competitive advantage over the other people and they just, you know, have more market share and so they, the dominant authority in the market is what it makes them more so, yeah. So the downside, I'm gonna shift to the downsides. I'm just gonna do,

yeah, here's the downsides. I think this is really the downsides with a cleaning company specifically not buying any small business, local small business. There's lots of cool stuff that you can do with buying local small businesses. Like if you think of someone purchasing a restaurant from someone who's retiring and you keep the name recognition and the staff and the kitchen, the menu,

like you keep all that stuff and people go to you. But with a service company, what you end up buying in the end is essentially a list of customers. And you do get some assets with a service company. You get like a car or two or however many cars they have, the brooms and the mops and all that stuff. You may or may not get a building with it,

but typically I think you would just get a lease like you're inheriting someone's rent. Do you know what I mean? Here's the downside with the service company, especially as it pertains to residential cleaning. We do not require contracts of our customers. And I think by and large, most residential cleaning companies do not require contracts. Commercial, totally different beast, but residential,

we're not gonna make you sign a thing that says if you cancel, we're taking 5,000 bucks outta your bank account or whatever. Because of that, that's the risk when you buy someone else's cleaning business, you're gonna buy a list of customers, they're gonna send out a letter, Hey San Diego Green Clean now owns this company. And a bunch of those people,

there's nothing tying them to you. So depending on how much you paid for that, they might just bail. They might just up and like, nah, I don't like San Diego Green clean, I really liked so and so and so I'm gonna leave. So it really all comes down to how much did you pay for it. We've been hit up twice to buy cleaning businesses where someone approached us,

they were local businesses. The first one I remember, it was like a housekeeper, one housekeeper. She was selling her business 'cause she was going back to school. She talked to a lawyer who did a business valuation for her that came up with 90,000 bucks. Do you want to buy my business for 90,000 bucks? And I talked to her, I'm like,

cool, what do we get? She's like, well I have this many customers and that's it. So we were gonna pay $90,000 for what I think if I recall correctly was maybe like a hundred customers. So we're paying a thousand bucks per customer, we're gonna raise the prices way over what a housekeeper charges and then all those customers are gonna leave. And so I told her that I,

I had this exact conversation with her on the phone. I'm like, so you're gonna charge us a thousand bucks for a name and a number and there's no guarantee they're gonna stay with us 'cause there's no contracts. Whereas right now our cost to get a new customer on Google is like 60 bucks. So like sorry, that's not a good deal for us and we charge a lot more than you do.

And so that was the first one. The next one was a business that had been around since the seventies and he wanted, he wanted exactly what they were doing in revenue, which was like, I don't know, it was almost $700,000. So he wanted us to pay 700,000 bucks, way bigger price tag, a lot more customers. But exact same problem.

We were paying for a customer list, we're gonna have some transition where we send out a letter and here it is and we were gonna keep the pricing the same if we managed to go through with it on that one. But in that scenario, I think the downside there is that man, that guy had been running that business for almost 50 years and you're gonna come into a place that's got 50 years of systems and employees that have been there for 15,

20 years and you're gonna be like, cool, I'm the new guy. We don't do anything the way you guys do it. Like I don't, we shouldn't have to compromise the San Diego green clean systems just 'cause we bought this, we want to assimilate you. This is a merger man. Like, no, no, not a merger, an acquisition that's different.

We are buying you outright and you are gonna become San Diego Green clean. How many of those employees do you think would stick around? How many of them, how many customers do you think would stick around? And then you're left holding a $700,000 bag, cool, we paid a shit load of money for this and they're gone. All the customers left.

Yeah. And now on one side of it, I would say it seems like a pretty good, if you're able to acquire another business with recurring customers like that for maybe like a one x valuation, which is kind of what that sounds like. A one x of trailing 12 months, you know, net revenues, whatever it might be. There's different ways to evaluate businesses,

but you know, we've had students that we've consulted too that have done this and sometimes you can get incredible deals and even if you have some attrition and lose some customers still could work out for you. But I'm thinking while you're talking Brandon, like if we were to do this all over again, and I think when we talked about doing this, if we were gonna move forward with those businesses acquiring that you would have something in place where you kind of mitigate that risk,

right? Where you have something in place where you have a lot less of those customers or employees leaving. If that was the case and we could talk about what that might look like, you know, you definitely have to think through this. If you are gonna acquire a business, what are those things that you wanna have in place so you avoid having major fallout of the customer base or you know,

what are those things that could go wrong? So maybe we should just talk about that for a sec. Like what would we do avoid that? Yeah, so there's, there's a couple ideas. Like right off the bat, right, maybe there's a transition period where the former owner and the new owner work side by side for some period of time, like a year,

like especially in the case where that business has been around for 50 years. So work with us for a year, we're gonna make these videos, maybe we're gonna put out an ad, you know, so that customers that are very familiar with you and used to you, the owner picking up the phone, we need to transition them to being like a customer service rep is gonna pick up the phone,

the billing's all online, it's like super tech forward. So you would have some clause in there where you gotta work this out with us, you know, or you don't get paid to see how it works out. The other side of it too is like, well like if a certain percentage of the customer base or the employees leave, then we pay you way less or we back outta the deal completely.

This is one of my favorite things about businesses. Like there's no hard and fast rules. Like you can set up that contract when you purchase that company any way you want, but you need to think about these things and not be paying almost a million dollars for a list of customers without some kind of safety net in there. Like that's gonna make me the buyer.

Like really nervous if you're like, nah, I don't wanna do any of that, I just want my 700 K and I'm out. I don't think that's, that's not good for anybody. That's good for the guy who's selling if he could talk someone into doing it, but I feel like it's just not gonna work out. That's actually pretty typical. I remember back in the day,

you know, being in Amazon businesses and stuff, we, I would talk to guys all the time that had sold big really big businesses, you know, multimillion dollar businesses that exactly the case. So a lot of times they would keep the previous owner on the board of advisors or some capacity in the business so that even if they were 5% or you know,

getting a small percentage just for kind of advising, that can be kind of a safeguard too because then you know that person's always available to answer questions if things go wrong. Or kind of almost like a vesting schedule of like, hey as long as all the sales keep going and you can help us keep moving it forward. Like you'll continue to get a piece of this or some type of vested interest.

So that might be something to consider if you are, like Brandon said, have some clause on there that says, hey, if you don't help us keep these customers on or these employees really kind of make them a little bit bit more responsible so they can't just, you know, head out the back door and and piece out, you know? Yeah.

And then the whole out, I mean I do need to save from, we're coming at this from the position of a cleaning company, buying another cleaning company. So growing by acquisition and that I think is where a lot of my problems run up in is because we're gonna have to change systems. If you are, like Tim asked an individual buying a cleaning company,

I do think that there's a bigger upside there because you can keep all the systems exactly the same. We're gonna, ownership is gonna change hands behind the scene and maybe the customers don't even know, like in our case we would have to tell 'em because a different kind of car is gonna show up to clean your house, different people. But if you were just buying someone outright and you just kept it exactly the same,

we're gonna keep it all the same, nothing's gonna change. There's no reason that any of those customers or employees should leave unless your management style is drastically different. And then once you get in there, you start learning people, you learn the biz, maybe you've got that year overlap, six month overlap with the former owner and then you can start changing things slowly.

Like I think the problem with a company buying another company and then trying to shift everything over is that I do think people just don't like that drastic amount of change. And so I think a lot of those customers would leave. But I do think there is a way to do it, like from Tim's standpoint of just one person buying a cleaning company that's for sale that might be better because you can just run it as it was before.

Someone's gonna teach you the ropes and then as soon as you're ready, like cool, well now I'm gonna use my entrepreneur brain and find the tweaks and systems and stuff. Like, I do think the degree, like the chance of success in that scenario is much, much higher than me being very upset about a company buying another company. So maybe, maybe I'm,

if I try to see it through Tim's eyes, I do think that it's a little bit more achievable depending on the price. It always comes back to the price because there is no guarantee that, let's say you came in and you bought it and it turns out that previous owner had kept, hadn, hadn't done a price increase for like years, they're way below market value.

And so you're gonna raise prices to market value. I see a bunch of people leaving under that scenario too, because the price increase would be huge. But this should all be, you should know all this stuff before you're signing paperwork because you're doing due diligence. That's a, that's a really big word that you guys, that's a phrase that you guys need to know if you're thinking about buying a company,

the word of the day is due diligence. And so you wanna get deep in those financials and the customer list complaints, workers' comp claims, run a background check on that company. That's, that's a weird way to say that, but like there's definitely a way to hire some kind of, I think it's typically a law firm that would do an investigation like this,

but look and see if they've been sued, look how many workers' comp claims they've had, like see what all the holes are, you know? And like at the same time, if any of you listening are considering selling your cleaning company, you should fully expect people to be doing this to you. Like they're gonna look deep and you just, that's if you wanna get paid,

that's what you gotta go through. Wanna know why most cleaning business owners fail or get stuck systems. When you don't have the right systems in place for hiring, training, marketing, all of the day-to-day essentials, then your business gets jammed. And without the right systems, it's impossible to keep moving forward. If you're ready to add smart proven systems to your cleaning business so that you can join the top 1% of cleaning business owners,

head over to our free Facebook group now and watch the masterclass pinned to the top of the group. Just search top 1% cleaning business owner club, find our faces and watch the free class to learn exactly how we took our business from zero to seven figures in just three years. Yeah, and I think just along those lines, let's talk about that too because obviously we're building an asset here.

If you're building a business of any type, especially if you've got recurring income, that's gonna make it so much more valuable. But also, this is why we do what we do guys, this is why we build systems, this is why we talk about building that structure in your business because that structure brings a lot more value to your business. So instead of selling for a 0.5

or a one x multiplier, 'cause you're just barely winging it kind of thing. And it's just been minimum value if you build, if you take the time to do the hard work to build the foundation, right? Think about like building a house. If you build a great house and it's got great infrastructure and great materials and everything's working well, when you sell it,

it's gonna be worth a lot more value. And if you don't do it well and if you skip around the the edges and take shortcuts and use not good stuff, like not good materials, it's gonna be worth a lot less. So it's the same with the business and I think that's why it's worth going the extra mile to do it. It's not only gonna make your life easier while you're running the business,

but when you go to sell that and you have documented those systems and it's to the point where anybody could come in and run that business and it runs without you, that's where really where you get into a great valuation and it could be really a great asset to sell or transition into something else, whatever part of your life you're in. But yeah, that's why we do this.

And I think, you know, I've had experience selling other businesses, but I think again, the more experience I have and the more I've seen this happen, it really makes a huge difference when you build it the right way, you put the time in and you know, you make an attractive asset for someone else, not just for your own business,

but eventually someone else to come along. And you know, like Tim's asking here, you know, he, I think when I was talking to Tim about this, he said he was in the middle of selling another business and he wanted to get into a new business. So in a lot of ways I think, you know, some of the startup stuff is real.

Like you said Brandon, it's really hard for people to, to get through the nitty gritty, the startup phase, even just getting those first customers can be super hard because people don't know how to do it and it's just, it's stop gap for a lot of people. So I think, you know, even if you were able to purchase a small business and just get your feet wet,

get hit the ground running with, with a handful of customers, I mean you might be able to find a small business like that that just wants to out once out and you could hit the ground running very quickly with 30, 40, 50 customers, maybe a hundred customers. I mean that would be phenomenal. And then that would actually help with a lot of the issues people encounter in the beginning,

which is, how do I find my first customers? They're like, you know, they hired cleaners, they have systems in place, but now they can't find customers. So, you know, if that's where you're, that might be a good spot for you, you know, that is a good point. Like I'm like remembering back to the early days of San Diego green cleaning,

how it was a struggle to get the first like 10 or 20 people on board. So from Tim's standpoint, buying something that's set up like that as an individual where you're gonna run it with the same brand, you're not gonna change anything. I do think it's totally doable, but just be careful of what you're buying. Make sure that you're protecting yourself some way in case everyone bails.

I do think buying it as a one person instead of a business trying to flip over another business to their systems much easier, that has a higher degree of success. And we did have a podcast episode earlier this year with that young guy in New York who did that, I can't remember his name right now, but that you could listen to that episode. So he didn't change anything,

he just, I mean he did change stuff, but he didn't, it wasn't him acquiring it and changing the name and doing all these things. He was just working it his way. And I think he's had good success. So I do think if you're starting off instead of doing like grinding it to get it up and running, this might be totally,

you know, doable, but I just keep coming back to the cash. Do you know what I mean? So what does it cost per customer? Is that worth it to you versus doing it on your own? You know, like you'll get to revenue faster hypothetically, but you also inherit someone else's set of problems. You know, like there's gonna be a company culture that you had zero influence,

you know, in that you're buying and now you're gonna have to change, you know, how many, what percentage of that business's revenue is based off of one-time cleans versus recurring revenue and is that how you wanna do it? Do you want more recurring? You're gonna have to tool everything up anyway, so how are you gonna do that? You know what I mean?

So like, this just requires a, a degree of thought that you really need to think about. Totally doable. It's just, I think it's, I wouldn't recommend a company acquiring a company like that that I think is the problem. And if you were gonna go forward with it and we think definitely have some type of put it back on the, the seller,

you know, like you shouldn't be taking all the risks. So there should be something in place where, you know, they're definitely on the line as well. Like if it totally blows up, they're not gonna get paid. And also there's an incentive for them to maybe go outta their way to like introduce you to each of the customers if they had a personal relationship with all the customers and the employees,

like really spend that time in that transition to, you know, bring them along, have 'em introduce you, have 'em oversee things for a while. And usually there's always a transition period when you sell any business at least a month or six months or something like that where you know, there original sellers available for questions and things like that. But you know,

I think in a lot of ways there's a lot of pros and there's a lot of cons, but I think it's, it's ultimately where your situation's at and where you wanna move forward with your business. And the guy you were mentioning earlier, Brandon was Adriano, I think he's on, I want, maybe he's a New Yorker, he's on the east coast for sure.

But it did that exact thing and I thought he got a really good deal where he did like a seller finance deal. It was like over several payments so he didn't have to pay all at once. So that mitigated his risk if you do it that way. And you know, that way he did say some people fell off. So, you know,

that does happen. But he had enough of the recurring customers overall that it made it worth it for him. He got a, a great valuation, I mean paid, paid a great rate for it. I know that Adriano did it, but that's not the one I'm thinking of. This was this think else super young guy. Remember we did a,

we did a podcast episode with him Sure. And he bought one and it was like his mom's friend and the the couch flipper. Yeah, yeah, the couch flipper. That's right. I remember. Yeah. And I think he also had very good success. So I'm not saying it's impossible, I'm just saying really, really think through it before you sign paperwork and like Brandon's saying,

make sure that you can spread the payments out based on future performance metrics. Something along those lines. And we did try to do that with the guy who wanted the 700 K, but from his standpoint, he was like, well I don't have any influence over like, how you run it. So like you could run it into the ground. I'm like,

and you know, I don't have any influence on how you did it before and they're not gonna like me, so like this isn't gonna work. I, so we, we didn't, we didn't do that, you know, like we didn't buy it that way. But yeah, so that, that I think is the key man. And I think,

you know, if you're, I think we would still absolutely entertain looking at other businesses like that in the future, but we would just consider all these things that we're talking to you guys about and we kind of, I think steered more of the way of just, let's just do it ourselves. Because like Brandon said, instead of paying a thousand dollars per recurring customer,

let's just go get 'em ourselves for 20 or $60 a lead or whatever it's gonna convert to on, on different platforms that we're using for marketing. But, and over time that word of mouth and that kind of thing that happens. So for us it was, let's just do it ourselves. We will, we'll save that money, we will invest it and it'll come back to us in other ways 'cause that's more of our skillset.

But if that's not your skillset and you're hesitant about the marketing or how you're gonna acquire customers, like we said, it's, it's a great way especially to get started, you know, hit the ground running, you've got customers and if you do it right, I think you really can steer it in such a way that if you're improving things, you're making the environment better,

better systems. Like there's gonna be a way for people to see the growth in the company and they might even get a lot more excited to stay on with you. And so, you know, if you do it the right way, it could be a, a hit. If you do it the wrong way, it could be a total failure too.

And that's, that's why so many businesses fail is, you know, people don't think about all these things, but that's why we're talking about it on the podcast today. So I think it's a great question. So yeah, we'll keep you guys updated. I mean, I think in the future, we'll even, I mean, it's not a bad idea.

We're actually thinking, Brandon, we should just tell people we're thinking about evaluating our business and just seeing what is it valued, what's it worth? And are there things that we can do better if we ever do wanna sell it? And what would those things be that buyers would intend to look at or wanna see better? Or what are we doing well?

And so you always want to kinda like gauge yourself, you know, like when you're in business, like how are we doing? What can we do better? And that's one way to do it. Have someone, an outside perspective, look at a, a consultant or someone that's gonna, like a business broker take a look at it. So we'll share more with that as we go along.

And probably sometime this year or next we'll have that happen and we'll share in a whole episode with you guys on how that looks and those things you might wanna look for when you're selling your business or acquiring a business for that matter. So I think that would be a fun one. But anyway, yeah, I think that was a, a great episode.

Hopefully you guys got some value from that. Which by the way, if you are getting value from these shows, if you like this format of answering these questions, like we'll do more of these, like I said, but help us out guys, we're not asking, we're not running a bunch of ads and things like that on these shows 'cause we wanna deliver a great content,

great value, great experience. So please help us out, share the show, leave a review if you guys are getting value like the podcast and, and leave a review and, and let us know how it's changing your life, changing your business. That is our goal here is to help uplevel your business, help you guys out. And ultimately, as it says on our website,

we want to help at least a hundred people to achieve, you know, a seven figure cleaning business. So if you're out there in the world and you're like, I wanna do that, and that's one of your big goals and keep coming along for the ride, we're gonna keep talking about topics like this and sharing what we're doing in our business so you guys can be one of those people alongside us.

And yeah, if you haven't checked out the masterclass yet, Profit Cleaners dot com slash masterclass, you guys can check out how we did it and kind of like a case study of how we grew this entire business and we're excited to keep going guys. So any other final thoughts, Brandon? Keep it clean. Thanks for joining us today. To get more info,

including show notes, updates, trainings, and super cool free stuff, head over to Profit Cleaners dot com and remember, keep it clean.