Buying a commercial cleaning business: what to check in the contracts
Short answer
A commercial cleaning (janitorial) business is a set of contracts with offices, medical facilities, schools or retailers, served by night crews. Read every contract: term, cancellation notice (often short), scope and price, and whether it can be assigned to a new owner. Then check customer concentration, contract tenure, labor cost per contract, supervisor quality, supplies, and bonding and insurance.
Revenue that can cancel on 30 days' notice is only as durable as the service.
Commercial cleaning has the look of recurring revenue and the legal reality of cancellable contracts. The trick is telling which accounts are truly sticky.
Contract-by-contract review
| Check | Why |
|---|---|
| Monthly price and scope | Revenue and what you must deliver |
| Start date and renewals | Tenure predicts retention |
| Cancellation notice | How fast revenue can leave |
| Assignment clause | Whether you need consent |
| Labor hours and supplies per contract | Profitability |
| Who manages the relationship | Owner vs supervisors |
| Facility manager or property manager | One manager may control several accounts |
Worked example: margin by building
Janitorial contracts are priced per month, and costs are almost all labor hours plus supplies. That makes per-contract profit easy to calculate if you get two things: payroll by site and the contract price. Many small companies have never done it, and a few large accounts priced years ago often turn out to be the weakest.
Illustrative example, not a real company or wage
Office A pays $6,500 a month. It takes 2 cleaners 3 hours a night, 22 nights a month: 2 × 3 × 22 = 132 hours. At $18 an hour plus 15% for payroll taxes and workers' comp, that's 132 × $18 × 1.15 = $2,732. Supplies run $350 and supervision about $400. Contribution: $6,500 − $2,732 − $350 − $400 = $3,018, or 46%. Medical Office B pays $9,000 but needs 4 cleaners for 4 hours: 4 × 4 × 22 = 352 hours, or 352 × $18 × 1.15 = $7,286, plus $600 supplies and $400 supervision. Contribution: $9,000 − $8,286 = $714, under 8%. B is the biggest account and earns less than A. If B's facility manager also controls two other accounts, losing that one relationship could hurt more than the revenue figures suggest.
Labor and risk
- Night crews and supervisors: tenure, pay, classification. See employees.
- Bonding, liability and workers' comp; claims history; customer insurance requirements.
- Specialized work (medical, food service) with training or compliance requirements.
- Concentration: one customer or property manager controlling a big share. See customer concentration.
Documents to request
- Every contract and amendment; revenue by account for 3 years.
- Payroll by site; supply purchases.
- Insurance, bonds, claims; any customer complaints or performance notices.
- Tax returns, P&Ls, bank deposits; receivables aging.
Specialized sites carry specialized rules
Medical offices, labs and clinics bring OSHA's bloodborne pathogens standard (29 CFR 1910.1030), which requires training, exposure control plans and, for at-risk workers, the offer of hepatitis B vaccination. Food facilities, schools and government buildings often require background checks, specific chemicals or certifications in the contract itself. Every site brings OSHA's hazard communication rules for the cleaning chemicals. Ask for the training records and the contract clauses that set these requirements, because failing them is a common reason commercial customers cancel.
Supplies and equipment
Supplies are a small cost per site but add up, and they're an easy place for margin to leak: chemicals bought at retail, paper goods supplied free when the contract says the customer pays, floor machines left at sites with no inventory. Ask for twelve months of supply purchases by site and the equipment list (auto-scrubbers, burnishers, vacuums) with where each machine lives. Equipment parked in customers' buildings is easy to lose track of in a handover.
What an SBA lender will check
Lenders will compare tax returns with IRS transcripts, review the largest contracts and their cancellation clauses, and look for concentration. They'll check payroll tax compliance closely, because janitorial companies have large payrolls and unpaid trust fund taxes are a serious liability, and they'll ask whether any crews are paid as contractors. If the owner manages the key customer relationships, expect them to ask who will after the seller's consulting period ends.
Worked example: what a 30-day cancellation clause means
Illustrative example, not a real company
A company has 22 contracts producing $1,320,000 a year. Every contract can be cancelled on 30 days' notice. The top four, all managed by one property management firm, produce $480,000 (36%). In the last three years, the company lost two contracts a year on average and won three. If the property management firm moves its buildings to a competitor after the sale, revenue falls by $480,000 within about a month, and the crews and supervisors serving those buildings have nothing to do. "Recurring revenue" here is really a set of month-to-month relationships. That's normal in the industry, but it means the price and the debt have to be sized for the possibility, and the first conversations after closing are with the people who can cancel.
Bonding, insurance and what customers require
Commercial customers often require certificates of insurance, specific coverage limits, background checks for crews, and sometimes a janitorial bond that covers theft by employees. Read each contract's insurance and compliance clauses and confirm you can meet them under your own policies from day one; some customers will suspend service if a certificate lapses. Ask the seller for the current policies, the claims history, and any customer audits of compliance. Workers' compensation cost matters too: cleaning is labor-heavy, and the experience modifier affects premiums for years.
What moves the value of a janitorial company
We don't value deals or publish multiples we can't verify. These are the factors appraisers and lenders weigh:
| Factor | Supports a higher value | Pulls it lower |
|---|---|---|
| Contracts | Many sites, long tenure, written agreements | Few accounts, short notice, no paper |
| Margin by site | Known, healthy across most buildings | A few large accounts priced near cost |
| Concentration | No property manager controls a large share | One relationship carries much of revenue |
| Supervision | Tenured supervisors run nights | Owner inspects every building |
| Compliance | Payroll, workers' comp and training in order | Contractor crews, payroll tax gaps |
Red flags specific to commercial cleaning
- Contracts rebid recently at lower prices to keep them.
- High crew turnover with no recruiting pipeline.
- Customer complaint logs or performance notices nobody mentioned.
- Crews paid in cash or as contractors while working fixed schedules.
- Revenue from a building that's being sold or emptied.
The first 90 days after you buy
Visit every building in the first weeks, meet each facility contact, and walk the sites with the supervisors at night. Keep crews on the same buildings. Get workers' compensation and liability certificates to every customer that requires them on day one. Then use the payroll-by-site data to rank contracts by margin, and plan careful repricing conversations for the weakest ones after you've proved the service hasn't slipped.
Questions to ask the seller
- Which contracts have the shortest cancellation notice, and which have cancelled or rebid in the last three years?
- Do you have payroll hours by site, and which buildings would you reprice if you could?
- Who is the contact at each major account, and do they know about the sale?
- Which contracts need consent to assign?
- Have any customers issued performance notices or withheld payment?
- How long have your supervisors been with you, and are they staying?
Before closing, visit the largest sites at night with the seller and meet the site leads. Most commercial accounts are kept or lost on the quality of the night crew, not on the owner's relationships.
Frequently asked questions
Are janitorial contracts long-term?
Many are written for a year or more but allow either side to cancel on short notice. Check each contract's actual cancellation clause and the account's history.
Do contracts transfer to a new owner?
In an asset purchase, contracts usually need to be assigned, which may require the customer's consent. Read the assignment clause.
How do I check profitability per contract?
Compare each contract's monthly price with the labor hours and supplies it uses. Some legacy contracts are priced below cost.
What insurance and bonding do I need?
General liability, workers' comp and often janitorial (fidelity) bonds, since crews work unsupervised in customers' premises. Customers may require specific coverage.
How should I protect myself against contracts cancelling after the sale?
Talk to the largest customers before closing (with the seller's permission), get assignment consents where contracts require them, and consider structure: a holdback, seller note or price adjustment tied to accounts that stay. If you're using an SBA loan, seller earnouts aren't allowed, so agree the mechanism with your lender first.
How do I verify a janitorial company's revenue?
Match monthly invoices to each contract's price, then invoices to bank deposits and the tax return. Payroll by site should line up with the hours each contract needs; a site billed every month with no payroll hours either isn't being cleaned or is being done by unrecorded labor.
Sources
- IRS: Independent contractor or employee?
- SBA SOP 50 10 8.1, Appendix 15 (QoE: contract continuity, concentration)
- OSHA Bloodborne Pathogens standard, 29 CFR 1910.1030 (medical facility cleaning)
- OSHA Hazard Communication
Related guides
General information, not legal, tax, financial or investment advice. Rules and lender practices change; check the linked sources and talk to your attorney, CPA and lender about your deal. Examples with named numbers are illustrations, not real businesses. OKtoBuy's Deal Check does not value businesses or give price opinions.