The janitorial industry is a very hot industry for investments. In addition to the typical industry forces, outside investors including private equity funds are becoming increasingly interested in buying janitorial businesses. There are four types of buyers that complete the majority of transactions each year. In this tip, I will examine the first type: Individuals.

When individuals buy janitorial businesses, they are effectively buying themselves a job. The majority seeks either a small business with a retiring owner, whose role in daily operations they can quickly replace, or a growing company offering a partnership opportunity.

The primary motivating factors for individual owners are autonomy and financial gain. They are driven by the ideal of being their own boss and preserving the independent business. Further, ownership tends to yield a pay increase, along with the opportunity to generate a gain when they eventually sell the company.

Financing drives their valuation decisions, as very few individuals have enough cash in the bank to pay for a janitorial business on their own (and any that do tend to prefer to finance it, anyway). Lenders will value businesses primarily based on cash flow, although performance and local market demographics can influence their decision.

The seller is usually able to exit the business relatively quickly upon selling to an individual, as the new owner typically possesses the necessary capabilities to replace the seller. They may require transitional support, primarily focused on transitioning customer relationships and keeping employees engaged and committed to the new ownership. Exceptions include internal successions, when the buyer is an employee of the business who is not actively engaged with customers and the seller plays a critical role in sales and customer relationship management. In such a case, replacement of the owner’s production requires greater planning and new and former owners are more likely to work side by side for a period of time after closing.

Peter Holton is the Managing Director for Caber Hill Advisors and has been in the service industry for nearly 20 years and is well known and respected throughout facility maintenance industry. He manages the firm's practice facility maintenance sectors. Peter offers valuations, exit planning, consulting and buying or selling business. He has performed numerous speaking engagements for organizations such as ISSA and BSCAI. He can be reached at peter@caberhill.com or by visiting www.caberhill.com.