Buying or selling a cleaning contract book

People advertise a "cleaning business for sale" as if the buyer were purchasing vans, a phone number and a Facebook page. The vans are depreciating plant. The phone number is a habit. The thing that might be worth money is the contract book: named clients, written terms, remaining duration, and a roster that can still be staffed on Monday.

Plenty of books are not worth money. They are a pile of month-to-month arrangements, a few underpriced halls, and a working owner who is the relationship. The buyer who pays a multiple of last year's invoices for that has bought a job, and possibly a Fair Work problem.

This is a briefing for both sides of the table, not a valuation. Get a lawyer who has seen a service-contract sale, and an accountant who can read WIP and leave, before you exchange.

What you are actually buying

A contract is a promise a client can often leave. Many commercial cleaning agreements are terminable for convenience on 30 days' notice, or they expire in months, or they are a purchase order that has rolled on without anyone signing the last extension. A "three-year book" that is 80 per cent rolling month-to-month is a book of relationships. Relationships are not assigned by a business-sale contract.

List every site with: client legal name, ABN, start date, end date, termination rights, assignment clause, monthly charge, specification in force (not the one from the tender three years ago), hours actually worked, and whether the invoice is current. Then rebuild the labour cost at today's Cleaning Services Award, with the penalties those hours attract, and the on-costs in how to price a square-metre job. The difference is the only margin that matters.

Concentration is a risk line. One shopping centre, one hospital, or one council that is half the revenue is not a diversified book. It is a single tender calendar. Sector mix matters in the other direction too: a food plant sanitation crew is not interchangeable with a strata foyer run, and a buyer who plans to "absorb" both with one supervisor is rewriting the labour model.

Plant and chemicals are secondary. Take a register, check what is owned, leased or still on a supplier's book, and do not pay goodwill for a scrubber-dryer that has done its last belt. Intellectual property, if any, is the site files, the inspection method, and the roster. If those live in the seller's head, you are buying a handover week and a hope.

Due diligence that is not a vibe

Read the contracts. All of them, including the email variations that changed the hours. Look for assignment and novation rules, change-of-control triggers, key-person clauses, audit rights, abatement regimes, and any security or retention still held — the cash problems in retentions and 30-day terms travel with the invoice.

Ask for aged debtors and a list of disputes. A book that invoices promptly and collects slowly is a working-capital trap. A book with a live underpayment complaint, a WHS notice, or a client who is already deducting for quality is not "a negotiation point". It is a price reduction or a walk-away.

Visit sites without the seller's commentary as the only tour. Speak to the building manager if the seller will allow it — and be suspicious if they will not. Look at cupboards, machine condition, and whether the specification on the wall matches the work on the floor. A shiny tender folder and a filthy slop hopper are the same story: the book was sold as a document.

Read the roster against the Award. Broken shifts, unpaid travel between sites, casuals on regular hours, and "everyone is on a flat rate" are liabilities. They do not stay with the seller just because the sale agreement says "no employment claims". If you keep the people and the work, you may keep the problem. The same honesty required in subcontracting versus employing applies to a sale: an ABN cleaner who is really a job is a claim you may buy.

Insurance history, workers compensation claims, and any labour-hire licence (Victoria, Queensland, South Australia, ACT) belong in the pack. So do police-check and screening registers if the book includes schools, aged care or NDIS sites. An expired clearance is a site you cannot legally staff on day one.

Assignment is not automatic

Most well-drawn cleaning contracts say the contractor cannot assign without the client's written consent, sometimes "not to be unreasonably withheld", sometimes with no such courtesy. Some treat a sale of the company as a change of control that itself needs consent. Some are silent, which is not permission.

A share sale can keep the same contracting entity in place and still trigger a change-of-control clause. An asset sale — the usual "book and vans" deal — almost always needs a novation or a new contract. The client who liked the seller is not obliged to like you.

Build consent into the timetable. A completion that happens on Friday with letters to clients on Monday is how you discover, on Tuesday, that the largest site has called a retender. Consider a split completion: economic interest transfers when consents land, or a price adjustment if a named client refuses.

Where the client is a head contractor or a facilities-management company, you may also need the building owner's blessing. A hotel brand standard, a university security office, or a public-hospital procurement rule can sit above the piece of paper the seller signed.

Do not rely on a seller warranty that "clients are happy to stay". Warranties are for litigation. You want consents, or a price that assumes you will rewin the work.

Staff transfer and the Fair Work Act

The cleaners do not travel with the keys unless someone employs them. The seller must terminate or redeploy. Notice or payment in lieu is the seller's problem if they end employment. If you want the same people on the same floors the following week — and you usually do, because the building knows them — you are making job offers.

If those people start with you within three months, do the same or substantially the same work, and there is a "connection" between the two employers, the Fair Work Act 2009 may treat it as a transfer of business. A connection includes an arrangement under which you own or use assets that relate to the transferring work — vans, machines, contracts, even the site files — or an outsourcing / ceasing-to-outsource pattern, or associated entities.

Transferring employees bring consequences the sale agreement cannot wish away. Service with the old employer is generally recognised for personal/carer's leave, parental leave and flexible-work requests. Annual leave, redundancy and unfair-dismissal service are more complicated: the new employer may be able to choose not to recognise some of those, but the old employer can then face the corresponding payout. Enterprise agreements can transfer. Get advice that is specific to the deal. The Fair Work Ombudsman's pages on transfer of business are the starting point, not the file.

A buyer who says "we will start everyone as casuals on day one" is describing an underpayment. A seller who tells staff their leave "resets" without paying it out is describing the next claim. Write who pays accrued annual leave, who handles long service leave (a state matter), and what happens to employees the buyer does not want. Redundancy on a contract loss is a known cleaning-industry argument; do not invent the answer in a handshake.

Consult the people. A transfer announced by text the night before settlement is how you lose the only cleaner who knows the food plant lockout procedure.

WIP, leave and the completion accounts

Work in progress is the labour you have already delivered and not yet invoiced, or invoiced and not yet collected. On a monthly-in-arrears book, WIP is most of the last month. Decide who owns it. A buyer who pays full price for the book and lets the seller keep the March invoices has paid twice for March. A seller who hands over the debtors without a collection mechanism has given away cash.

Accrued leave is a number, not a mood. Personal leave that transfers, annual leave that is paid out, long service leave that is close to vesting — none of this is "included in the multiple". Plant leases, chemical accounts, and bonds held by landlords or clients belong on the same completion statement.

Retentions and bank guarantees should be listed, with the release test and the date. A retention you cannot free is not an asset.

Tax is not a footnote. GST on a going-concern sale has conditions. Payroll and superannuation must be current. A BAS that is "a bit behind" is a price issue and a risk that the ATO, not the seller, will talk to you after completion.

Multiples without folklore

There is no official multiple for an Australian cleaning book. Anyone who quotes one as a rule is selling confidence. What buyers actually pay for is remaining contracted term, margin after a rebuilt labour cost, client concentration, the quality of the site files, and whether the owner is still the supervisor.

A high revenue number with a thin margin is a large payroll and a small business. A short remaining term is a retender with your name on it. A book that only works because the owner does unpaid nights is worth the owner's salary, in reverse.

Earn-outs and holdbacks exist because clients leave. If you use them, tie them to named contracts and a measurement both sides can audit — collected revenue, not "happiness". Do not accept an earn-out that depends on the seller remaining as a business-development consultant with no authority and all of the relationships.

The clients who retender the day you buy

Some clients treat a change of contractor entity as a free chance to test the market. Some are required to. Government, universities and large landlords often cannot "just novate" without a procurement step. A consent letter is not a new term of years.

Assume a percentage of the book will be in play within a year. Which percentage depends on the assignment clauses and the sector, not on the seller's optimism. Price the rebid cost — the hours, the bank guarantees, the risk of winning at a lower rate — or discount the purchase price until you can stand the loss of the two largest sites.

After completion, do not disappear into a rebrand. Visit. Keep the familiar supervisor if they are competent. Do not cut hours in month one to "find the synergy". The building will notice before your spreadsheet does. If you do change the specification, change it in writing with the client, not as a quiet roster trim.

Sellers have duties too. A book pumped with last-minute cheap work to fatten the invoices, or starved of chemical to fatten the margin, is visible to anyone who walks a cupboard. Warranties about "no adverse change" exist because this behaviour is common.

If you are the owner who built the book from two vans, the cleanest way to sell it is the same work you should have done to run it: site files, a supervisor who is not you, Award-clean rosters, and contracts that can be shown to a stranger. That is the product. The vans are a spare part.

More on this desk sits in pricing and growth.