[dianegreenwood]

Hi all

I've been trying to find some info related to valuing a cleaning a business and it seems to be an area with no definitive answer, particularly in relation to the domestic market (i.e. lack of cast iron contracts, etc).

So... I've put together a model for my future business based on projected turnover after 3 years of trading and would appreciate feedback on the fairness of this valuation model for a domestic cleaning business.

Obviously, I know I've got a hell of a lot of work to do to get there, but I like to have a big fat hairy goal so I can work out all the steps I need to take to get there    i.e. if you don't have a map you'll get lost!

1) Turnover - £288,000
2) 20 staff all working 20 hours per week on domestic regular contracts (48 weeks per year)
3) Net Profit @ 27% = £77,760 (£6480 per month)

Proposal is Annual Net Profit paid as lump sum = £77,760
Then £2160 per month for 36 months = 33% of Monthly Net Profit
Total cost of business = £155,520 (Net Profit x 2)

Is that a reasonable way to value the business or am I way off?  Too little, too much?  Feedback appreciated!

Cheers

Diane

www.freshlymaid.co.uk

[The Great One]

Hi

For me, far, far too much

If I buy your business, it is no longer yours, why then should you entitled to any future profits?

As you said they are not contracts, what guarantee is there they will continue to use the same person and  will the staff want to work for the new owner?

Also you want the total 1st years profit as payment, so the person buying earns absolutely nothing for the 1st year, how do they survive with mortgage, gas, electric and food + day to day living?

Sorry, but |I feel that no one would buy any business under these conditions.

Regards

Martin

[garyj]

Its worse than that Martin, it is 1 years profits upfront AND then £2160 per month so first year is  a total of £103,680. You then get the pleasure of paying an extra £2160 for a further 2 years. Its Cloud Cuckoo Land.

[Colin Stokes]

In my experience and opinion;

2 x net profit per annum (averaged of three years) is all a business of this type is worth given you are mainly buying goodwill.

[julie ellis]

Its worse than that Martin, it is 1 years profits upfront AND then £2160 per month so first year is  a total of £103,680. You then get the pleasure of paying an extra £2160 for a further 2 years. Its Cloud Cuckoo Land.

SURPRISE..SURPRISE..THATS REALLY HELPFUL INFO ISNT IT DIANE

[julie ellis]

Diane,

 I dont think there are any hard and fast rules on business valuation in the domestic market...pitch your asking price at the figure you want and if no takers reduce it...you will find a level eventually..then thats what its worth.

.Why not start by asking for a valuation from a business agent they are usually free try to find one who has previously sold a similar business to your own..also get a copy of daltons weekly from your newsagent or go online to them and have a look if there are similar businesses to yours for sale.

Hope this helps

Julie

[dianegreenwood]

Hi guys

Thanks for the constructive feedback and tips.

Couple of points to note:

1) the principle of paying a monthly fee is simply vendor financing (i.e. I give them 3 years interest free loan on 50% of the value of the business), its not me taking a share of the profits every month.

2) the business will be fully systemised and working without the business owner (me!) with a general manager in place so anyone buying will be an investor who won't necessarily want to run it themselves.

3) general advice seems to be that 2 x annual net profit is a fair price, but obviously from others feedback this may not be the case?

Thanks for tips and advice all, any more thoughts welcome even if they're from really short mice

Cheers

Diane

www.freshlymaid.co.uk

[steve_doyle]

"2) the business will be fully systemised and working without the business owner (me!) with a general manager in place so anyone buying will be an investor who won't necessarily want to run it themselves."

If this is the case, I would question why anyone would sell it, might set alarm bells going.

From your initial post it looks like your looking for a valuation at the time of selling 2-3 years down the line when you have built it up to the level your quoting. If this is the case then i see no problem in asking for 2 years profit as a price but you may need to accept 25% less. just my gut feeling.

[julie ellis]

  short mice....whatever could you mean diane.....have you seen its latest name

[The Great One]

Hi all

I've been trying to find some info related to valuing a cleaning a business and it seems to be an area with no definitive answer, particularly in relation to the domestic market (i.e. lack of cast iron contracts, etc).

So... I've put together a model for my future business based on projected turnover after 3 years of trading and would appreciate feedback on the fairness of this valuation model for a domestic cleaning business.

Obviously, I know I've got a hell of a lot of work to do to get there, but I like to have a big fat hairy goal so I can work out all the steps I need to take to get there    i.e. if you don't have a map you'll get lost!

1) Turnover - £288,000
2) 20 staff all working 20 hours per week on domestic regular contracts (48 weeks per year)
3) Net Profit @ 27% = £77,760 (£6480 per month)

Proposal is Annual Net Profit paid as lump sum = £77,760
Then £2160 per month for 36 months = 33% of Monthly Net Profit
Total cost of business = £155,520 (Net Profit x 2)

Is that a reasonable way to value the business or am I way off?  Too little, too much?  Feedback appreciated!

Cheers

Diane

www.freshlymaid.co.uk

You said 33% of the profit for 3 years, what if the person was to grow the business 2 or 3 fold, do you still want a share of their profit which you had no input in getting, or set at the selling time amount?

You have made no mention in your original post about any loan, just sell the business + 3 years future profits.

Regards

Martin

[dianegreenwood]

You said 33% of the profit for 3 years, what if the person was to grow the business 2 or 3 fold, do you still want a share of their profit which you had no input in getting, or set at the selling time amount?

Hi Martin

Sorry I wasn't clear.  The amount payable over 3 years would remain at the selling amount.  I was trying to illustrate what the instalments were in relation to the monthly net profit, not that I would want a 3rd of the profits.

From the feedback I'm still thinking that 2 x Net Profit could be a realistic price?

Many thanks

Diane

www.freshlymaid.co.uk

[julie ellis]

  Diane,,,,what would happen to your instalment plan if for example
  the new owners got into difficulties after say 12 months and couldnt afford
  the repayments ?

 For comparison, If this was a commercial office cleaning business without
 contracted clients........I would doubt very much that it would be worth
 £155k (50 to 70 k plus assets would probably be more realistic in commercial)
 this is only my opinion however.

  Regards
  Julie