Valuation Multiples for a Cleaning Company
Businesses in the cleaning industry provide cleaning services for buildings, houses, aircraft, and other transportation equipment. In recent years, the cleaning industry has seen healthy growth, generating over $90 billion dollars in revenue. This is a result of various factors such as increasing corporate profit as well as an increased disposition to maintain clean work and living spaces. Moving forward, we can expect industry growth to continue. These conditions are ideal if you are looking to buy, grow, or sell a cleaning company. However, the cleaning industry is extremely fragmented and competitive. To build a successful cleaning company, it is important to understand how to value a cleaning company. This includes learning about valuation multiples for a cleaning company.
Valuing a Cleaning Company
By learning the principles of valuing a cleaning company, you can understand how to maximize the value of a cleaning company. This is crucial whether you are buying or selling a cleaning company. To learn how to value a cleaning company, it is best to receive a business valuation. If you are buying a cleaning company, receiving a business valuation may help you determine a fair purchase price. Additionally, you may learn about effective negotiation strategies for buying a cleaning company. If you are selling a cleaning business, a business valuation can help you decide on a reasonable listing price.
As part of the valuation process, a business appraiser may use various valuation methods. A common method is the market approach which relies on valuation multiples for a cleaning company. In this article, we highlight valuation multiples for cleaning companies. The information we provide in this article is only a guide. For specific information, receive a business valuation. In addition, see our article on Valuing a Cleaning Service Company.
As a professional business appraiser, Peak Business Valuation is happy to provide you with a business valuation. Peak works with cleaning companies on a regular basis. If you have any questions about valuing a cleaning company, reach out to us! Start now by scheduling a free consultation with Peak Business Valuation today!
Valuation Multiples for a Cleaning Company
The following diagram displays average valuation multiples for a cleaning company. Please note, these values are only averages. As such, they may not be applicable to your cleaning company. To understand which valuation multiples apply to your business, receive a business valuation. Peak Business Valuation can help you whether you are buying, growing, or selling a cleaning company. Schedule a free consultation with Peak Business Valuation, business appraiser, today!
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
What is a Valuation Multiple?
Valuation multiples are similar to ratios which compare two factors. When valuing a cleaning company, business appraisers compare the value of a business to a financial metric. For instance, a common valuation multiple in business valuation is the SDE multiple. The SDE multiple compares the seller’s discretionary earnings of a cleaning company to its implied value. Valuation analysts consider the multiples of similar cleaning companies that recently sold. Then, they apply an appropriate multiple to your business to determine a range of value.
For example, a cleaning company has $285,000 in seller’s discretionary earnings. If it receives a 2.52x SDE multiple, the cleaning company is worth about $718,200 ($285,000 times 2.52x). Contrarily, if the company receives a 3.00x multiple, the implied value of the cleaning company would be about $855,000. ($285,000 times 3.00x).
Peak Business Valuation is a professional business appraiser. We frequently work with individuals looking to buy, expand, or sell cleaning companies. Often, this involves utilizing valuation multiples to determine the value of a cleaning company. The following paragraphs share a range of valuation multiples that cleaning companies often transact at. Keep in mind, the range of value may vary since each cleaning company is different. Below, we highlight SDE, EBITDA, and REV multiples for a cleaning company.
SDE Multiples for Cleaning Companies
Average SDE Multiple range: 2.47x – 3.03x
Generally, cleaning companies transact between a 2.47x – 3.03x SDE multiple range. To estimate the value of a cleaning company, apply the SDE multiple to the seller’s discretionary earnings of the company. See the following calculation.
SDE X Multiple = Value of the Business
For example, a cleaning company has $395,000 in seller’s discretionary earnings and transacts at a 2.72x multiple. Here, the cleaning company is worth approximately $1,074,400.
$395,000 X 2.72x = $1,074,400
The SDE multiple is common when valuing a cleaning company. When using the SDE multiple, valuation experts add back any expenses the new owner may not incur. Some common add-backs include personal expenses, non-recurring or non-related business expenditures, and a fair owner’s compensation. By considering these metrics, business appraisers can determine the cash flow potential of a cleaning company. They can then calculate the fair market value of a cleaning company.
EBITDA Multiples for a Cleaning Company
Average EBITDA Multiple range: 3.41x – 4.11x
According to our data, cleaning companies transact at an average EBITDA multiple range of 3.41x – 4.11x. Apply this multiple to a cleaning company’s EBITDA to derive an implied value of the company. The equation is as follows.
EBITDA X Multiple = Value of the Business
For instance, a cleaning company has an EBITDA of $325,000 and transacts at an EBITDA multiple of 3.79x. In this case, the cleaning company is worth approximately $1,231,750.
$325,000 X 3.79x = $1,231,750
EBITDA multiples measure a cleaning company’s return on investment (ROI). Business appraisers may use the EBITA multiple because it helps normalize differences. This allows experts to compare your business to similar cleaning companies. Normalized ratios also provide a more accurate projection of the future earnings an investor may expect from a cleaning company.
REV Multiples for Cleaning Companies
Average REV Multiple range: 0.57x – 1.01x
Cleaning companies sell an average of 0.57x – 1.01x of revenue. Business appraisers can calculate the implied value of a cleaning company by multiplying its revenue by the REV multiple. See the calculation below.
Revenue X Multiple = Value of the Business
For example, a cleaning company generates $1,800,000 in revenue and transacts at a 0.78x multiple. In this example, the cleaning company is worth about $1,404,000.
$1,800,000 X 0.78x = $1,404,000
The REV multiple measures the total amount of revenue a cleaning company generates. Business appraisers analyze REV multiples of similar cleaning companies that have recently sold. This allows them to determine suitable REV multiples for your cleaning company. Please note that the REV multiple is less common when valuing a cleaning business. Business appraisers tend to value cleaning companies using cash flow multiples – SDE and EBITDA.
When determining the value of a cleaning company, business appraisers often work with valuation multiples for a cleaning company. To know which valuation multiples for cleaning companies are applicable to your cleaning business receive a business valuation. During a business valuation, an expert can identify the strengths and weaknesses of a cleaning company. In addition, they will determine the fair market value of a cleaning company. This information can help you succeed whether you are buying, expanding, or selling a cleaning business.
Peak Business Valuation, business appraiser, works with many cleaning companies throughout the country. We are happy to help you find success in the cleaning industry! Peak can provide you with a business valuation for a cleaning company. We can also answer any questions you may have about valuing a cleaning company. Get started today by scheduling a free consultation with Peak Business Valuation below!