Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a janitorial firm sold at 12x EBITDA with no turnover
Transcript
- Lucas: I want to talk about a janitorial company out of Atlanta called CleanLine Services. It was a small operation — about 80 employees, 12 client contracts — and it sold late last year for 12 times EBITDA. Luna: Twelve times for a janitorial firm? That feels high for a low-margin service business. What was the trick? Lucas: The trick was they solved what kills most service businesses: employee turnover. CleanLine had been losing over 150 percent of its workforce every year. That's common in commercial cleaning — people leave, you scramble to replace them, quality dips, clients get unhappy. Luna: Right, and every time someone leaves, you're paying for recruiting, training, and overtime coverage. It eats into margins. Lucas: Exactly. The founder, a guy named Marcus, realized that if he could stabilize the workforce, his margins would improve and buyers would see a more predictable business. So about three years before the sale, he started a profit-sharing plan for crew leaders. Luna: What did that look like in practice? Lucas: Each crew leader got a quarterly bonus based on the profitability of their assigned accounts. If they kept turnover low and client satisfaction high, they earned up to 15 percent of the account's net profit. That gave them a direct incentive to retain their team members. Luna: So they had skin in the game. Did it work? Lucas: Within the first year, turnover dropped to about 60 percent. By year three, it was under 30 percent. Marcus also introduced a referral bonus — $500 for any employee who referred a new hire who stayed at least six months. That brought in better candidates because current employees didn't want to recommend someone who'd flake out. Luna: That's smart. Referrals tend to have higher retention rates anyway. So the workforce stabilized, but what about the financials? How did that translate to EBITDA? Lucas: The first year of the program, EBITDA was around $420,000. By year three, it was $700,000. The savings from reduced recruiting and training costs fell straight to the bottom line. And because the crew leaders were cross-trained across multiple sites, the business didn't fall apart when someone called in sick. Luna: Cross-training is huge for a service company. A buyer wants to see that no single employee is irreplaceable. How did Marcus handle the client contracts? Lucas: He locked in three-year agreements with annual price escalators tied to inflation. That gave buyers confidence that revenue wouldn't vanish overnight. And because the service quality stayed consistent thanks to the stable workforce, clients were happy to sign. Luna: So when he went to market, what was the process? Did he use a broker? Lucas: He did — a regional broker who specialized in lower middle market service businesses. The broker ran a competitive process and got three letters of intent. The winning bid came from a larger janitorial firm that wanted to expand into the Atlanta market. Luna: And the buyer paid 12 times EBITDA? That works out to what, about $8.4 million? Lucas: Right around there. The deal was structured with an SBA 7 loan — the buyer put down 10 percent, the SBA guaranteed the rest. There was also an earn-out clause tied to retention of the key crew leaders for two years post-sale. Luna: That makes sense. The buyer wanted to make sure the turnover problem didn't come back. Did Marcus stay on? Lucas: He stayed for a six-month transition period as a consultant. After that, he was free to walk away. The earn-out was only for the crew leaders, so Marcus got his full payout upfront minus the small earn-out pool. Luna: I think the key takeaway here is that the value wasn't just in the revenue — it was in the operational stability. A buyer can always add more contracts, but they can't easily fix a broken culture. Lucas: Exactly. And Marcus's numbers prove it. Three years of intentional work on retention turned a 5x EBITDA business into a 12x one. That's the difference between walking away with $3 million and $8 million. Luna: If listeners are thinking about selling their own service business, I'd say start tracking your turnover rate today. It's one of the few levers you can pull that directly affects both EBITDA and multiple. Lucas: Absolutely. And if you want more deep dives like this one, you can support the show at buy me a coffee dot com slash fexingo. It's a small way to keep these conversations ad-free and focused on real numbers. Luna: Yeah, we really appreciate everyone who chips in. It helps us spend more time on stories like CleanLine's. Lucas: So back to the practical side — if you're a business owner and you're thinking about an exit, one thing you can do this quarter is look at your own retention data. Ask yourself: if a buyer walked in today, would they see a stable team or a revolving door? Luna: And if it's a revolving door, start with one change — maybe profit-sharing for your most critical roles. It doesn't have to be expensive. Lucas: Right. Marcus's plan cost him about $30,000 in bonuses the first year, but it saved him more than double that in turnover costs. The ROI was immediate. Luna: I think that's the kind of practical advice our listeners can actually use. Thanks for breaking it down, Lucas. Lucas: Thanks, Luna. That's it for this episode of The Buyer & Seller Podcast. We'll talk next time.