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EXIT STRATEGIES

Business for Sale: Carpet-and-Upholstery-Cleaning Franchises
 

Looking for a niche where you can really clean up? Consider this 10-year-old carpet-and upholstery-cleaning business. Profile includes price, how the business was valued, growth prospects, and pros and cons.
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The Business: Looking for a deal that you can really clean up on? Consider this 10-year-old carpet-and-upholstery-cleaning operation, whose assets include the franchise rights to scrub up in three contiguous neighborhoods that constitute roughly half of Los Angeles County. The deal also includes about $50,000 worth of turbo dryers, power carpet stretchers, pump-up sprayers -- you get the idea. Glitzy, it's not. But there's plenty of gold to be vacuumed out of this blue-collar business, in part because the company's franchisor doesn't take a cut of annual revenues. (The trade-off: franchise operators need to purchase their cleaning chemicals from "Big Daddy.") The owner runs this as a smallish home-based business with help from his wife and two other employees. If you're not willing to get down and dirty, plan to boost your staff of "technicians" quickly.

Price: $290,000. (Expect to also pay the franchisor a 7% transfer fee.)

Outlook: This company has excellent growth prospects, in large part because the owner has left some profitable avenues unexplored. He's basically shied away from all commercial customers, as well as residential customers located farther than a 20-minute drive from his home. A new owner could shine up sales results by turning this into a 24-hour-a-day operation and aggressively marketing service contracts to large corporate clients. With most of the competition coming from other mom-and-pops, a new buyer could achieve greater economies of scale and marketing muscle by combining this company with larger janitorial or property-management operations.

Price Rationale: A new buyer would need to have his or her head full of suds to pay this company's asking price. That's because it's practically unheard-of for a company to sell for even one times annual revenues, let alone a multiple of 1.25 for a business whose owner could wind up with dishpan hands. Unfortunately, coming up with a precise valuation isn't simple, since this cleaning niche is too small to generate many comparisons in the industry. It might make sense to measure this deal against the going rate for dry-cleaning operations, which currently is about 2.3 times to 2.5 times recast earnings. Based on this company's projected results for 1999, that would suggest a range from $184,000 to $200,000. Value it like a janitorial service and you'd probably pay less: current sales patterns suggest 55% of gross revenues, or about $130,000. Whichever formula you rely on, don't let yourself get taken to the cleaners.

Pros: If you can knock down the price, the deal is irresistible. Low overhead, high profit margins, and -- if you take a shine to them -- all those dirty carpets.

Cons: If you've never even tried cleaning your own rugs, wallowing in someone else's mess might just send you into a furious lather.

FINANCIALS
Gross Revenues Recast Earnings*
1997 $235,000 $76,000
1998 $225,000 $89,000
1999** $235,000 $80,000

*Before interest, taxes, depreciation, and owner's compensation
**Projected.

Inc. has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to James Randolph of Metropolitan Service Group by fax (310-314-3563) or on-line (at www.metroservicegroup.com).

Last updated: Jan 1, 2000




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