How do I spot a janitorial contract that only survives because of a below-market bid?

Start with the site. Ask the seller for the hours worked each week, the wages paid, the supplies used and the travel involved, and compare them with the monthly fee. If the owner personally does part of the work for nothing, put a wage on those hours, because a new owner will have to pay someone.

Then look at the contract itself. Read how it renews, whether it must be re-bid, and how the price can change. A contract that was won in a competitive process may be bid again, and the same low price may be needed to keep it. Ask for the original bid documents if there are any.

Compare the account with the others. Does it take far more labour than its revenue suggests? Is it carried by the stronger accounts? A cleaning firm can have a long list of clients and still lose money on several. Talk with the seller about what happened at the last renewal and what the client said. Ask your accountant to calculate the margin for each account separately, and consider that when you set your terms.

Key takeaways

• Compare weekly labour hours and supplies to the monthly fee, adding a fair wage for the owner’s work.
• Check renewal terms and whether the contract goes back to tender.
• Work out the margin account by account, not only for the whole firm.