[absolutecleaning]

I know that there are a lot of factors to consider here but what sort of figure would you say was a fair price for the following domestic cleaning business :

Annual turnover £50,700 (65 hours/wk at £15/hr).  Employee costs of approximately £30,000 (inc holiday and ers ni).  Staff are provided with a vehicle to share and fuel is paid for (approx. £15/wk).

Included in the price we will pay is car (value approx £2k) and website.

The price being asked seems fair to me just wondered what you thought?

Cheers

Simon

[derek leeds]

in my view the main factors to consider are 1/how many contracts are you buying 2/ length of contracts 3/ net profit on contracts for the next twelve month.......... all the so called added ingrediants eg staff, car, mean nothing and have no value to you.

[absolutecleaning]

None of the clients are actually on contract which is obviously not good.  However, I know the vendor personally and I know that about 4 months ago the price was increased from £12.50/hr to £15.00/hr and think that this shows they are happy with the service being provided.

With regard to car etc I sort of see what you are saying but at the same time I a; would need to provide a vehicle for staff to use so this saves having to find/buy one and b; the staff have been there for a while and the clients are clearly happy with them.  This, I think, is very important.

Thanks for the input

Simon

[derek leeds]

Hi simon.... the problem then is your only buying the past vendors good will which means nothing the day it becomes your business. Think worst case senario= if you lose the work youve got a car you dont want and staff problems(lay-offs....redundences etc )which you have bought...... derek

[dianegreenwood]

Hi Simon

I am just transferring my domestic business into a limited company and the goodwill has been valued at the forecast net profit for the year, so that would be its value if I were to sell.

Cheers

Diane

www.freshlymaid.co.uk

[vacman]

In my own experience, domestic customers will always want to find their own cleaner. It is a totally different kettle of fish to the commercial side who are paying for a job to be done and who are more than likley expecting staff to come and go as it is.

Domestic is different and i'm not disputing that the clients are happy with the service they are getting at present, but the point is, you can only promise to mirror that service on paper; if the client doesnt like you or your cleaners and doesnt want them in the house, you've had it. My own business is 90% domestic and i'd never 'buy' customers or goodwill from anyone.

[vacman]

Sorry, just read it again, i see you'll be taking over the staff who are in situ. I suppose that puts a slightly different spin on it, but even so, i wouldnt be tempted myself.

[absolutecleaning]

Thanks for the replies - net profit works out at around £18k and the guy wants £15k.  Based on what you have been told Diane that would be about right but I am still a bit bothered about the fact that the goodwil is all thats there.


As I said the fact that these customers have all stayed even though prices have just gone up by 20% is a very good sign.

We would be borrowing some of the lump sum and this would be paid back over 2 years - I'm just wondering how much money (advertising etc) and time it would take to build up this sort of business at that sort of hourly rate (vendor is only converting 1 in 10 enquiries at £15/hr).

I think we'll take him p on his offer of checking through accounting system and bank records and go from there.

Cheers

Simon

[Fox]

Hi Simon

Net profit being 18k and an asking price of 15k is very fair, however there are factors to consider, how long has this business been going?  What has the profit/turnover been in previous years (you are looking for a steady customer base).  Customers do not have contracts, what you are buying is purely goodwill, there is always a risk with that.  The t/o at present isn't far from the VAT threshold, from your post I gather you would like to grow the business, does the £15 already include the VAT if not you need to think seriously about whether the customers would accept the vat increase (which incidently increases back to 17.5 Jan 1st) or would you absorb this.  You are already rightly thinking about marking and sales costs, leaflets and paper ads won't cost a great deal, I would budget £500 for first lot but think about the time it will cost you in design etc.  Also is the person who owns it now taking a wage which is accounted for within the business or is the profit their income?  That may make a huge difference to your decision.

Just a few points off the top of my head but I hope they help.

Fox

[dianegreenwood]

Hi Simon

I agree with Fox that the asking price is fair but if his sales conversion rate is only 10% then that is very poor.  I convert 90% of my appointments at the same hourly rate so something is amiss!

I don't measure lead to client but as I turn most leads into appointments even a pessimistic estimate would be 60% of enquiries.

And re VAT we are facing the same problem, however when I set my pricing I assumed we would register at the flat rate which should be between 9 and 11% depending on how good your accountant is and there is enough profit in £15 per hour to absorb this.  And as we have commercial clients as well we would charge them the vat on top to try and recoup some of the money.

If it counts for anything, personally I wouldn't pay £15k for a business that is effectively at the level I was at after my first year, I'd start from scratch with a couple of thousand pounds and start the business debt free.

Hope that helps

Diane

[dianegreenwood]

But don't quote me when I'm selling my business in 5 years time 

[dhnjj]

Hi

Did you ask why they are selling and was it a credible reason?

Regards

[absolutecleaning]

Thanks again for replies (won't quote you on that Diane )

The business is quite young - he started it about 2 years ago but I am thinking that the fact these clients have just taken a fairly big hike in price as some sort indication of commitment from them.

Sorry, I didnt put myself across regarding growth of business.   We already have some domestics which I would move into this business and ensure turnover was kept below the VAT threshold.  I do not think many would pay VAT on top and I wouldnt be interested in absorbing it.#

What I meant with regard to marketing etc was that I am busy trying to develop the carpet cleaning side of the business. If I can buy this business (if it all seems ok when my accountant does due dilligence), pay off the loan within 2 years whilst taking a small draw from it and then be in a decent profit after that I wouldn't consider this too time consuming.

Drawings wise that would come from the net profit already mentioned.

The reason for the sale is that the vendor and another person I know (there are about 7 of us from the same loose circle of mates with cleaning businesses!) have started what looks to be a very lucrative commercial company cleanign voids for housing associations and he needs some cash to inject into that.  I thought that sounded credible - what do you think?

Cheers

Simon

[Fox]

Simon

As you are already running some domestic cleaning you will know the hassle it can be, bearing this in mind and the fact that your pay would come from the profit which is approx 18k do you really feel this is worth it?  This is your decision and your decision alone, but again with the fact that you already do domestic could you not use the money you would pay for this business to grow yours?  Of course if you decide to buy with the instant turnover added to your business you would make a slightly larger profit than they do now as your overheads would be absorbed with your other works but 50k t/o really is not that much.

Sounds like he has a genuine a reason to sell but is your openess to buy genuine, or is it sat on the back of the friendship you have and the fact that buying would solve the problem of pushing the business to grow yourself.

Fox