A business valuation involves assessing your net revenue, assets, and liabilities.
Knowing the accurate value of your cleaning business helps you prepare for a sale and confidently negotiate with potential buyers.
Discover the fair value of your cleaning business with our simple market valuation formula.
How to determine the selling price of your cleaning business
No business is exactly alike. Various factors, like your industry and client base, affect the total worth of your business.
While there is no definitive market valuation formula to determine the price of your cleaning business, following these steps will help you get a rough idea.
1. Evaluate your tangible assets.
Include all tangible assets, such as your work vehicles and equipment.
$60,000 vehicles + $30,000 cleaning equipment and supplies = $90,000 tangible assets
2. Determine the value of intangible assets.
Intangible assets, such as a solid customer base and trademark, will affect the overall worth of your cleaning business.
$90,000 tangible assets + $100,000 intangible assets = $190,000 total assets
3. Calculate your company’s liabilities.
Deduct any loans from your total business assets to get your “net assets”.
$190,000 total assets – $30,000 loans = $160,000 net assets
4. Multiply net income by the average valuation multiple
First, calculate your net income by deducting all operating expenses (including the cleaning business owner’s salary) from your gross revenue (sales).
$600,000 gross revenue – $400,000 operating expenses = $200,000 net income
Now you need to multiply your net income by the average valuation multiple. A valuation multiple is a financial measurement tool analysts, business owners, and investors use to evaluate how much a company is worth.
It varies depending on business size, financial performance, location, and demand. But the usual valuation multiple for companies in the cleaning industry ranges from one to three times their annual net profit.
Commercial cleaning businesses bigger than $10 million can have up to 8x multiples.
$200,000 net income x 2 (a two-year valuation multiple) = $400,000.
5. Add the value of your net assets to your valuation.
In step three, we arrived at a $160,000 net assets value. Now add the $400,000 from the two-year income multiple.
This market valuation formula gives us a final result of $560,000 as the estimated value of a cleaning business based on the calculated discretionary cash flow and valuation multiple.
Things to prepare before selling your cleaning business
Have the following information ready to get a clear and accurate business valuation:
- Accounting ledgers
- Employee records
- Overhead expenses
- All existing and pending contracts
- A complete list of all physical assets, including cleaning and office equipment, cleaning supplies, and company vehicles
- An evaluation of intangible assets, like trademarks and brand recognition
When talking to a potential buyer, let them know where the business stands and where it is going.
You can tell them how your net income continually increased year after year. Or maybe your cash flow fluctuated because of changing market demand.
Be transparent when discussing the value of your business.
It helps to explain how your cleaning business can become more profitable in the coming years to inspire confidence.
Do industry trends and competition affect the value of my cleaning business?
Your competition, reputation, and industry trends are vital factors that can impact the value of your cleaning business. For example, you may have a well-established and reputable business. The cleaning industry may be heading toward continuous growth and high demand, translating to lower risk and increased business value.
How do I maximize the value of my cleaning business before selling it?
Maximize the value of your cleaning business by maintaining streamlined operations with quality equipment, well-trained employees, and a profitable business model. Your goal is to pass along a trusted and established company with no cash flow or operational issues.
How do I ensure a successful sale?
Have perfect books to ensure a successful sale and get top dollar for your cleaning company. Messy spreadsheets and incomplete records put buyers off. Your financial documents should be well-organized and easy to understand.
Our formula helps you identify a fair and competitive price when selling your cleaning business.
Remember that numerous factors affect your cleaning business value, which constantly changes as your company grows.
Your online marketing efforts matter too, especially having a high-ranking website, active social media profiles, and a robust overall online presence. So it’s important to think about these marketing plans even when you first start your cleaning business.
It helps to consult an experienced business broker or valuation expert who knows the cleaning industry for a more accurate business valuation.