I want to merge my friend's carpet cleaning part of his business into mine

BIG WOOD

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That might sound harsh from the way I worded that, but it isn't. I'll break it down.

His business compared to mine is 10 times bigger in the cleaning industry, not just carpet cleaning. In fact, his carpet cleaning is very tiny, compared to the janitorial and pressure washing side. But it seems like it's his biggest headache, because he can't find good help. This has been going on now for several years. How do I know???

About once a month, I get calls from him to come clean some carpet for him at one of his customer's facilities because his employee didn't show up, he just fired his employee, or one of his employees damaged some upholstery, etc.

So you ask, "why doesn't he just go out and do it himself?". He told me that he's physically not capable of doing it anymore.

Why do I want to merge the two together? My first reason is, major boost in Gross, and helping him at the same time.
If it weren't for this guy, I never would've gotten in this business. I worked for him in high school. I hated it then, because of how he ran it. He didn't have the tools or procedure like it should've been to make the job enjoyable. He sold me my first truck mount and helped me get on my feet, and he lets me borrow his neglected truck mount, lol, any time I might have a problem with mine. (when my amtex went down the umpteenth time, he alway was there to let me borrow his), even though I did the same when his 427 had big problems


So my question to you is, how can I approach him on this? What kind of offer should I give him?

I was thinking, to bring it up this way: "What was your net in this part of your business (12-19%)? Are you tired of the headaches yet? What do you think I take over this part and give you just that percentage of the job?"

Is that a good offer? If so, how long should that offer go? How would you approach someone in this manner
 
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BIG WOOD

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Please don't think I"m trying to stab my friend in the back on this. If that thought has crossed your mind, let me say that he tried to sell me that part of his business back in '07. I was dead as a door nail in this business, and I tried to buy it with zero assets used as collateral. When I look back at that day I applied for that $50k/loan, I feel like an idiot. I'm so glad the bank turned me down on that loan, because that was right before the fall of '08, and his 427 was about to crash on him

All he had to offer to make his business look like it was worth $50/k was
-a list of customers on paper
-a trailer with a boxxer 427 and some equipment in it.
-all his commercial buildings with carpet where he has contracts currently to do janitorial.


I don't plan to offer him a big check to purchase that part of his business. I just plan to offer a percentage of each job. That's why I was wondering how to approach him on it, and what would be a reasonable percentage to offer?
 
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Onfire_02_01

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If you wanted buy his portion I would offer a % of the $ for a certain number of years. Say 20% for 5 years.
Alternatively you could set a price for what his income is for 1 year and pay him that amount.
You could also look at subcontracting with him. It sounds like he doesn't have a large job base outside of his janitorial accounts so you could offer to do his carpet jobs for 75%, that way he doesn't have the worry about the carpet cleaning but he can still offer the service to his customers and make a small profit on the side.
 

steve_64

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Just offer a flat rate per referral. A percentage would work but what about upsells?

Sounds like a good pairing if you can decide on a fair rate for both of you.
 
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Onfire_02_01

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I know you have been having some problems over the last couple years and I am looking to grow my business, would you like to do a deal?
 
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steve_64

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You can wait for him to call looking for help or give him a call and let him know what you have been thinking about. See if he is still interested then let him talk and go from there.

I wouldn't do a percentage myself. Maybe $20 per job for him to answer the phone and pass it to you reimburse monthly. Keep it simple.
 
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BIG WOOD

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You can wait for him to call looking for help or give him a call and let him know what you have been thinking about. See if he is still interested then let him talk and go from there.

I wouldn't do a percentage myself. Maybe $20 per job for him to answer the phone and pass it to you reimburse monthly. Keep it simple.
That seems like a good deal. He certainly deserves a decent referral, but I need to profit as well. I'd hate to do this and end up going $$$$negative
 

steve_64

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I don't know the average per job. It's also up to you to upsell for more profit

What's your cost for a new acquisition? Go from there or his job average. It should be an easy deal since you are already in the door.
 

Bob Pruitt

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I think you are better off just making 2017 the year you do more than push a wand.
Go market yourself...make it your focus and work your cleaning jobs into the marketing day.
Buying someone else's customers rarely works out even when you are in a van instead of a pick up truck.
Seriously Matt you can grow your own business as big as you decide to... else I agree with Jimmy and others about sub-contracting his accounts.
If he wants 20 or 30 percent... add that percent to your regular rate.
 

BIG WOOD

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Just be straightforward, I want to grow my business in 2017. Would you be interested in selling off or setting up a commission structure on your carpet cleaning jobs.
I like the idea of setting up a commission structure. No offense to anyone else who wants to sell their business, but, if all you have is a list of customers and maybe some equipment, I don't see the benefit of just writing a fat check to buy a list on a piece of paper. It seems more valuable to me to pay commission off the jobs. I know he'd rather just get a big check, but I don't see it happening that way.
 

BIG WOOD

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Just be straightforward, I want to grow my business in 2017. Would you be interested in selling off or setting up a commission structure on your carpet cleaning jobs.
Can you give me an example of how the commission structure would be set out?
 

Desk Jockey

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You process the work, you use your chems and equipment. He has no skin in the game. His only risk is you "steal" his customers.

Look at what profit margin he is making now and work out what is reasonable as just a lead generator fo you.
 
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BIG WOOD

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You process the work, you use your chems and equipment. He has no skin in the game. His only risk is you "steal" his customers.

Look at what profit margin he is making now and work out what is reasonable as just a lead generator fo you.
It won't be on purpose, but I'm certain that some of his customers will just call me directly the second time around after a year or two of the merge, which, in turn, I'll probably forget that they're his original customers and won't give him that commission

On the other hand, his big commercial accounts will always go through him which will always be a guarantee percent of the job going his way
 
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Bob Pruitt

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It won't be on purpose, but I'm certain that some of his customers will just call me directly the second time around after a year or two of the merge, which, in turn, I'll probably forget that they're his original customers and won't give him that commission
If you add his commission to your price this isn't an issue since you earned your rate and they paid his commission. Will fall apart if he notices you have worked for his Client and he was not paid = bad blood and not worth it IMO. Bad news travels fast...
Make the same deal with the House Cleaning Companies...they will refer you for the 20 to 30 percent and the referrals and fabric protector or tile cleaning all works the same- Your price plus their commission - They will be your best Salespeople!
 
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BIG WOOD

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If you add his commission to your price this isn't an issue since you earned your rate and they paid his commission. Will fall apart if he notices you have worked for his Client and he was not paid = bad blood and not worth it IMO. Bad news travels fast...
Make the same deal with the House Cleaning Companies...they will refer you for the 20 to 30 percent and the referrals and fabric protector or tile cleaning all works the same- Your price plus their commission - They will be your best Salespeople!
How should I keep it honest without letting someone fall through the cracks? Does service monster have a place for me to leave a note on the client's file so I won't overlook it?
 

Bob Pruitt

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How should I keep it honest without letting someone fall through the cracks? Does service monster have a place for me to leave a note on the client's file so I won't overlook it?
IDK since I don't use SM or anything at the moment but I just added a note on the paper invoice and on our schedule... Would think SM would have a place to make notes about your job. They will call you directly- if you do outstanding work your new Customer will refer their friends and that is your Customer. Just what I did and worked very well for me...a Van driver... Good luck Matt!
 
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TomKing

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1. Have him provide documentation of sales for the last 3 years.

2. What was his profit from carpet cleaning services for the last 3 years?

3. That profit is what you will buy the business with.

4. Don't buy old crappy equipment. Used carpet cleaning equipment is worth about 30 cents on the dollar in a asset only purchase.

5. Make your purchase a asset only purchase. You do not want any liability that can be transferred to you.

6. I would want the transaction over in 2-3 years. I would set up annual payments and make him finance the loan 0% interest.

Lots of people want to talk about % or lump sum purchase. Most carpet cleaning operations are not worth much.

Do not look at gross when buying a business look at net profits.

I would also want to have a clear list of clients serviced in the last 3 years.

Is his client list growing or shrinking?

Lots of owners want to sell you a list that is 20 years of clients the truth is only the last 3 years are worth buying.

If this is part of a larger business is there a direct phone line for carpet cleaning services? If not you probably will get very few of his clients unless they are still willing to take contact information and then transfer to you quickly as in the next 5 minutes so you can book them.

I would take the simple route. Sub to him under a guaranteed contract for a lower rate. Let his profit be on his side of the transaction.
Make him mark the work up. You get your cash and move on.

Good luck!
 

BIG WOOD

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Matt
1. Have him provide documentation of sales for the last 3 years.

2. What was his profit from carpet cleaning services for the last 3 years?

3. That profit is what you will buy the business with.

4. Don't buy old crappy equipment. Used carpet cleaning equipment is worth about 30 cents on the dollar in a asset only purchase.

5. Make your purchase a asset only purchase. You do not want any liability that can be transferred to you.

6. I would want the transaction over in 2-3 years. I would set up annual payments and make him finance the loan 0% interest.

Lots of people want to talk about % or lump sum purchase. Most carpet cleaning operations are not worth much.

Do not look at gross when buying a business look at net profits.

I would also want to have a clear list of clients serviced in the last 3 years.

Is his client list growing or shrinking?

Lots of owners want to sell you a list that is 20 years of clients the truth is only the last 3 years are worth buying.

If this is part of a larger business is there a direct phone line for carpet cleaning services? If not you probably will get very few of his clients unless they are still willing to take contact information and then transfer to you quickly as in the next 5 minutes so you can book them.

I would take the simple route. Sub to him under a guaranteed contract for a lower rate. Let his profit be on his side of the transaction.
Make him mark the work up. You get your cash and move on.

Good luck!

Tom, thanks a bunch for giving your input on my question. To reply to your 6 points
1. I've already told him I wanted to see his list of clients and whether it was commercial or Residential

2. I asked him to look at his numbers and find out what his profit was.

3. I told him that I would pay him a commission equal to his net %

4. I don't plan on buying any of his equipment

5. I'm not to sure what an asset only purchase is...Can you break that down a little bit. I'm in the Northeast Georgia mountains over here. LOL

6. I was thinking about making it stretch to 3years. I never considered making one big purchase at the end of the year. I was just gonna pay him monthly on all the jobs he subs out to me. Why do you think yearly is better than monthly?

I'm not sure yet whether his client list is growing or shrinking. His main business is based on Commercial Janitorial accounts. He told me last year was the first year he Grossed $1m. I think he has dozens of commercial contracts where all the carpet cleaning would be subbed out to me. That was my main goal, to pay him his net percentage on that. If I"m wrong on that, and he doesn't clean carpet there much, then the numbers will change.

I like the fact that you think he should still be in to dealing with his customers he subs out to me and letting him do the markup. But can you explain a little more what you mean by "sub to him under a guaranteed contract for a lower rate?"

Once again, thanks for your input. I have no clue what I"m doing. Let's hope I'm making the right decision if he wants to go through this
 

BIG WOOD

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How should I keep it honest without letting someone fall through the cracks? Does service monster have a place for me to leave a note on the client's file so I won't overlook it?
Service Monster Called me today on this very subject. They must've saw this conversation and they went out of there way to give me a call and help me with this, if this ever comes up.

I don't see Microsoft going out of there way to call their customers and answer their questions . Service Monster is the only way to go in the software for our business guys. Don't hesitate to sign on if you haven't already.
 

TomKing

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Tom, thanks a bunch for giving your input on my question. To reply to your 6 points
1. I've already told him I wanted to see his list of clients and whether it was commercial or Residential

2. I asked him to look at his numbers and find out what his profit was.

3. I told him that I would pay him a commission equal to his net %

4. I don't plan on buying any of his equipment

5. I'm not to sure what an asset only purchase is...Can you break that down a little bit. I'm in the Northeast Georgia mountains over here. LOL

6. I was thinking about making it stretch to 3years. I never considered making one big purchase at the end of the year. I was just gonna pay him monthly on all the jobs he subs out to me. Why do you think yearly is better than monthly?

I'm not sure yet whether his client list is growing or shrinking. His main business is based on Commercial Janitorial accounts. He told me last year was the first year he Grossed $1m. I think he has dozens of commercial contracts where all the carpet cleaning would be subbed out to me. That was my main goal, to pay him his net percentage on that. If I"m wrong on that, and he doesn't clean carpet there much, then the numbers will change.

I like the fact that you think he should still be in to dealing with his customers he subs out to me and letting him do the markup. But can you explain a little more what you mean by "sub to him under a guaranteed contract for a lower rate?"

Once again, thanks for your input. I have no clue what I"m doing. Let's hope I'm making the right decision if he wants to go through this

Asset only purchase is when you are buying only the assets.
These can be any or all of the following: business name, equipment, customer lists, web domains, phone lines and even buildings.
You are not purchasing his corporation or legal entity. If you do this then you could be liable for anything he has ever done under that legal entity.

For example when I purchased my Flooring store a few years back I did a asset only purchase. This means legally I am not responsible for product or installs sold prior to the sale date. Now we both know good business leads me to try to handle these situations but it gives me an out in the event I have a customer that is just unreasonable.

Paying a % of the sale. Why would you want to do this? Make it simple. If he is budgeting carpet cleaning for a Janitorial account at say $1000. Charge him $850 he then bills the client or pays you out of his monthly fees.

Guaranteed contract. I would come to a written agreement if you are going to work off of his numbers and give him a percent but you get all of the work. I would also ask for a calendar of when these cleanings are written into the contract. I would also agree upon in writing payment terms. Most Janitorial is set up on monthly billing and the client has 14 days to pay. Some will take terms to 30 days. You may need to be willing to work on a 45 day from service for payment. I would agree upon if payment is not received within the terms bill is 100% of budgeted cleaning. I would also want to look over the scope of the work to be done in the contract. I would not ask for the contract that might kill the deal. Just list of dates, scope and what is being billed. You might be able to help him create more value and bill the client differently or offer more services when the contract renews next year. I also sold carpet, chairs and mats owned by the client as a bundle in the contract. the reason to do this is CC is one of the first things a client wants to take out of the contract to control costs. You may also need to be willing to do some emergency stain clean up from Janitors who drag garbage bags through the facility leaving a long stain or trail on the carpet.

We teach our Commercial carpet cleaning clients to have written in their contracts that when the janitorial company does this they pay us for the 911 trip and we make it hurt. This stops that crap quickly.

Now some guys are reading this and jumping out of their skin that you are not telling him how it is going to be or what your rates are.
So here is my response to that thought process. If your friend is really doing 1 million. Carpet cleaning could make up $100 - $150 k of that work if he is bidding correctly.
If you are wanting to get a second truck going doing this night work this could be a catalyst to expanding. What a blessing to have this sort of base. On just $100k you can easily cover 2 techs to do the work a truck payment and expenses. You now have capacity to go and sell other accounts or add this to the commercial work you may already be doing. This is how you get a commercial truck doing $250 to $300 k
Commercial work is not priced by the sf when you think of profit to yourself. You may bid it to the client like that but that means nothing when it comes to making a profit. Production rates are the key. How much can be done in an evening and what does it cost to do that? The difference in those two numbers is what you take home.

We did this when we started 9 years ago. We started with about 12 Janitorial accounts and bought 2 small 1 truck CC companies over time to fill out a commercial route. We still run one commercial truck every week Monday to Thursday. We still have many of those CC accounts also.

Ask your self what do you want your future to be? This could be a great opportunity for your self and your family.

The key to making this deal work is finding your friends pain points and solving them for him.

I always tell our guys that when we do a great job at our commercial work they should never think of us.

Hope this helps.
 

BIG WOOD

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Asset only purchase is when you are buying only the assets.
These can be any or all of the following: business name, equipment, customer lists, web domains, phone lines and even buildings.
You are not purchasing his corporation or legal entity. If you do this then you could be liable for anything he has ever done under that legal entity.

For example when I purchased my Flooring store a few years back I did a asset only purchase. This means legally I am not responsible for product or installs sold prior to the sale date. Now we both know good business leads me to try to handle these situations but it gives me an out in the event I have a customer that is just unreasonable.

Paying a % of the sale. Why would you want to do this? Make it simple. If he is budgeting carpet cleaning for a Janitorial account at say $1000. Charge him $850 he then bills the client or pays you out of his monthly fees.

Guaranteed contract. I would come to a written agreement if you are going to work off of his numbers and give him a percent but you get all of the work. I would also ask for a calendar of when these cleanings are written into the contract. I would also agree upon in writing payment terms. Most Janitorial is set up on monthly billing and the client has 14 days to pay. Some will take terms to 30 days. You may need to be willing to work on a 45 day from service for payment. I would agree upon if payment is not received within the terms bill is 100% of budgeted cleaning. I would also want to look over the scope of the work to be done in the contract. I would not ask for the contract that might kill the deal. Just list of dates, scope and what is being billed. You might be able to help him create more value and bill the client differently or offer more services when the contract renews next year. I also sold carpet, chairs and mats owned by the client as a bundle in the contract. the reason to do this is CC is one of the first things a client wants to take out of the contract to control costs. You may also need to be willing to do some emergency stain clean up from Janitors who drag garbage bags through the facility leaving a long stain or trail on the carpet.

We teach our Commercial carpet cleaning clients to have written in their contracts that when the janitorial company does this they pay us for the 911 trip and we make it hurt. This stops that crap quickly.

Now some guys are reading this and jumping out of their skin that you are not telling him how it is going to be or what your rates are.
So here is my response to that thought process. If your friend is really doing 1 million. Carpet cleaning could make up $100 - $150 k of that work if he is bidding correctly.
If you are wanting to get a second truck going doing this night work this could be a catalyst to expanding. What a blessing to have this sort of base. On just $100k you can easily cover 2 techs to do the work a truck payment and expenses. You now have capacity to go and sell other accounts or add this to the commercial work you may already be doing. This is how you get a commercial truck doing $250 to $300 k
Commercial work is not priced by the sf when you think of profit to yourself. You may bid it to the client like that but that means nothing when it comes to making a profit. Production rates are the key. How much can be done in an evening and what does it cost to do that? The difference in those two numbers is what you take home.

We did this when we started 9 years ago. We started with about 12 Janitorial accounts and bought 2 small 1 truck CC companies over time to fill out a commercial route. We still run one commercial truck every week Monday to Thursday. We still have many of those CC accounts also.

Ask your self what do you want your future to be? This could be a great opportunity for your self and your family.

The key to making this deal work is finding your friends pain points and solving them for him.

I always tell our guys that when we do a great job at our commercial work they should never think of us.

Hope this helps.
Thank you so much for taking the time to answer my questions. I know I'm not the only one who's gonna benefit from your explanation and experience, and I hope this helps someone else reading this. I'll keep this thread updated in what happens
 
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