Selling a cleaning business in Canada

A cleaning business is a list of clients who trust you with their keys, a schedule that keeps them happy and the people who do the work. Buyers pay for recurring clients who stay after you leave, so most of the work in selling is showing that the clients, the contracts and the team are real and will carry on. Here is what to expect and how to prepare.

What buyers look at first

Most buyers of a residential or commercial cleaning business ask the same questions early. Have clear answers ready before you list:

• Recurring clients. How many there are, how often each is cleaned, what they pay and how long they have stayed.
• Contracts. Which commercial clients have written contracts, how long they run and whether they can be assigned.
• Concentration. How much of your revenue comes from the largest three or five clients.
• The team. Who cleans, whether they are employees or subcontractors, how they are paid and who plans to stay.
• You. How many hours you still clean, quote, schedule and answer client calls yourself.
• Vehicles and equipment. Vans, vacuums, floor machines, carpet extractors and any leased or financed items.

Buyers will check these during due diligence, so it helps to gather them now. Our list of documents needed to sell a business is a good start.

Clean, matching numbers

Your scheduling and invoicing system is your best record. Pull sales by month and by client for the last two or three years, and make sure they match your bank deposits and the sales on your tax and GST/HST returns. Cash jobs that never reach the books cannot be shown, so a buyer generally will not pay for them. If you pay yourself a wage or run personal costs through the business, such as a family vehicle, list them clearly as add-backs with proof.

Recurring revenue is what buyers value most. A simple table showing each regular client, the visit frequency, the monthly amount and the start date tells a buyer more than a year of totals. Be honest about clients who left and why. If one office building makes up a third of your sales, say so early, because a buyer who finds it on their own will trust the rest of your numbers less.

Client contracts and who holds them

Residential clients are often on a handshake and a recurring booking. Commercial clients such as offices, clinics, strata buildings and property managers usually have written contracts. In an asset sale those contracts are with you, so each one generally needs the client's consent to move to the buyer. In a share sale the company keeps its contracts, but some include a change of control clause that lets the client end the contract or requires notice.

Read each commercial contract for the term, renewal, notice period and any assignment clause. Many cleaning contracts can be ended on 30 days' notice, which a buyer will see as a risk. Where a few clients make up much of the value, buyers often ask that their consent or renewal be a condition of closing, or that part of the price depend on those clients staying, through an earn-out or a holdback. Our guide to transferring contracts, licences and permits has a wider checklist.

Cleaners as employees or subcontractors

Cleaning businesses often mix arrangements. Some cleaners are employees on wages. Others are independent subcontractors who invoice you per job. A buyer will want a clear list of who is who, the written agreements, pay rates and who plans to stay, because the clients usually follow the cleaners they know.

Getting the status wrong can mean unpaid payroll deductions later, and a buyer inherits that risk. The CRA looks at the whole working relationship, including who controls the work and the schedule, who supplies the equipment and products, whether the worker can send a replacement and their chance of profit or loss. If a status is unclear, either side can ask the CRA for a ruling.

Employment law is provincial. In British Columbia, section 97 of the Employment Standards Act says that if all or part of a business is disposed of, an employee's employment is deemed continuous for the purposes of the Act, which can affect vacation and length of service for staff who stay on. Ask your lawyer what you owe on closing, and plan when and how to tell the team. See what to tell employees.

Keys, alarm codes and client privacy

Few businesses hold as much trust as a cleaning company. You may have house keys, building fobs, alarm codes, gate codes and notes about pets and preferences. Keep a key log that shows which keys and codes you hold for which client, and plan how they will be handed over, or whether clients will be asked to change codes after the sale.

Client names, home addresses, access notes and billing details are personal information. In British Columbia, section 20 of the Personal Information Protection Act lets a business share personal information about customers and employees with a prospective buyer without consent, but only if it is needed to decide whether to go ahead and the buyer has signed an agreement to use it only for the deal. If the sale does not go ahead, the buyer must return or destroy it. After closing, the information can pass to the buyer if it is used for the same purposes and clients are told the sale happened.

In practice, many sellers share totals and anonymous client tables first, under a confidentiality agreement, and the full list, keys and codes only at closing. Agree with the buyer how and when clients are told. Our guide to telling customers when selling covers timing and wording.

Vehicles, equipment and supplies

In an asset sale, write a list of what is included: vans or cars, vacuums, floor scrubbers and buffers, carpet extractors, pressure washers, ladders, carts and any branded uniforms. Note anything leased or financed, because those agreements need the lender's consent or must be paid out on closing. Vehicle ownership must be transferred properly, and the buyer will need their own insurance. Cleaning products and paper supplies on hand are usually counted on closing day at cost; see selling a business with inventory.

Also list the accounts that keep the business running: the scheduling and invoicing software, payment processor, website and domain, Google business profile, social accounts, phone number, email list, product suppliers and insurance. Your liability insurance and any bond are in your name, so the buyer needs their own in place from closing day. Many commercial clients will ask for proof of it before they agree to stay.

WorkSafeBC and other clearances

Cleaning is physical work, so workers' compensation matters. WorkSafeBC asks buyers to get a clearance letter before buying the assets of a firm, because unpaid premiums can lead to a lien. Keep your account current and expect the buyer to ask for a letter near closing. The buyer will also need their own coverage if they have workers. Other provinces have their own workers' compensation boards.

Tax on the sale

How the sale is taxed depends on whether you sell assets or shares and how the price is split between goodwill, vehicles and equipment. See asset sale vs share sale, goodwill when selling and taxes when selling a business. If you run the business on your own without a company, see selling a sole proprietorship.

For GST/HST, the CRA explains that you and the buyer may be able to jointly elect under section 167 of the Excise Tax Act, using Form GST44, so that no GST/HST is payable on the sale. This generally needs the buyer to get at least 90% of the property needed to carry on the business, and if you are a registrant, the buyer must be one too. In British Columbia, PST generally applies to taxable goods in the sale such as vehicles and equipment, but not to goodwill, and the Province says a buyer should get a PST clearance certificate before buying a business. Alberta has no PST. See GST and PST when selling a business.

A simple worked example

These numbers are made up and rounded for illustration only. Your own deal, timing and tax will differ.

Questions to take to your lawyer and accountant

• Which of my commercial contracts can be assigned, and whose consent do I need?
• Should consent from my largest clients be a condition of closing, or handled with a holdback or earn-out?
• Are my cleaners set up correctly as employees or subcontractors?
• What client information, keys and codes can I share before closing, and how should they be handed over?
• Which vehicles and equipment are leased or financed, and should I pay them out on closing?
• How should we split the price between goodwill, vehicles, equipment and supplies?
• Can we use the section 167 election for GST/HST, and how are PST and WorkSafeBC clearance handled?

For more, read what your lawyer and accountant do. Selling a route based service like lawn care or snow removal instead? See selling a landscaping or lawn care business. Own a self serve laundry? See selling a laundromat in Canada. Managing the buildings rather than cleaning them? See selling a property management company. This guide is general information, not legal or tax advice for your situation. Questions about listing with us go to hello@sellmybusinessdirect.com.