Deep Cleaning Business Acquisition Analysis

Introduction: A Deep Dive into Business Acquisition Due Diligence

In January 2024, I explored the opportunity to acquire an established cleaning and handyman services business in Singapore. What started as a promising acquisition target revealed itself to be a complex web of operational challenges, partnership conflicts, and financial irregularities. This analysis documents my due diligence process, including multiple site visits, stakeholder interviews, and financial analysis that ultimately led to my decision not to proceed with the purchase.

This experience provided invaluable insights into the realities of service businesses, the importance of thorough due diligence, and the often-hidden complexities that can make or break an acquisition.

Part 1: The Target Business - Model and Sale Overview

The target company, a professional cleaning service, offers a wide range of services including deep cleaning, painting, upholstery care, electrical handyman work, parquet and marble flooring polishing and varnishing, curtain cleaning, and handover/end-of-tenancy cleaning. The business primarily relies on high-margin services like flooring and curtain cleaning to drive profitability.

Key Business Highlights:

• Client Acquisition: A mix of property agent referrals, HIP flyer contacts, online inquiries, and strong word-of-mouth.
• Digital Presence: Investment in SEO and a functional website.
• Financials:
  • Monthly Revenue: $30,000 - $40,000
  • 2023 Take-Home Earnings: $300,000
  • Main Cost: Labor, with rates varying by skill level.
  • Valuation: Initially listed for $80,000 (considering SEO, website, and equipment). An offer for $60k was later made, and rejected.
• Operations:
  • Staffing: Primarily freelancers and part-time workers.
  • Management: Partner J handles administration; owner DN focuses on hands-on operations.
  • Equipment: Owns necessary cleaning and maintenance equipment.
• Market Position:
  • Competitive Edge: Diverse, high-quality service range.
  • Clientele: Regular customers in real estate and commercial sectors.
• Most Profitable services

1. Parquet Flooring Polishing & Varnishing
2. Marble Flooring Polishing
3. Curtain Cleaning
4. Handover/End of Tenancy Cleaning

Challenges and Future Potential:

• Challenges: Manpower limitations, lack of detailed financial records, and reliance on cash transactions.
• Opportunities: Growth potential in untapped markets, streamlining operations with technology.
• Reason for Sale: Personal reasons – physical and time demands, conflicts with partner.
• Post-Sale Plans:
  • Owner: Plans to study Interior Design and spend more time with her child.
  • Partner: Considering a career change to tech.
• Advice to New Owner:
  • Develop an app (like Sendhelper) if technologically inclined.
  • Focus on high-margin services (parquet/marble polishing, curtain cleaning).
  • Aim for a $1/sq ft pricing strategy.

Business Origin: The owner, a former chef, started the business during COVID-19 after his restaurants closed. He initially worked as a contractor for Sendhelper, learning various trades on the job.

Part 2: Site Visit 1 - Residential Project (January 24, 2024)

This visit provided a glimpse into the financial realities of specific jobs and highlighted potential management issues.

Financial Breakdown of Current Project (as shared by the owner):

| Job | Revenue (SGD) | Cost (SGD) | Profit (SGD) | Profit Margin (%) | |-----------------|---------------|------------|--------------|-------------------| | Varnishing Job | 1,060 | -246 | 815 | 77 | | Painting Job | 2,750 | -984 | 1,767 | 64 | | LED Job | 850 | -260 | 590 | 69 | | Sofa Job | 240 | -150 | 90 | 38 | | Marble Job | 480 | -305 | 175 | 36 | | Parquet Job | 900 | -600 | 300 | 33 |

Key Observations:

• Profitability Discrepancy: Contrary to claims, marble and parquet jobs showed lower profit margins due to higher costs.
• Financial Management Concerns: The owner's management of multiple companies and phone numbers, along with calculating earnings based on her personal bank account balance, raised red flags. This method likely overestimates actual profits.
• Strained Partnership: The owner shared details of a challenging business partnership marked by constant conflict and verbal abuse.
• Background of male Business partner: Former financial advisor, has a tumultuous personal and professional history, including infidelity and legal trouble. His tendency of exploit vulnerabilities.

Part 3: Site Visit 2 - Commercial Project (January 23, 2024)

This visit focused on the perspective of a foreign worker, providing insights into labor costs, working conditions, and the broader network within the cleaning and renovation industry.

Worker's Profile and Work Experience:

• Background: Arrived in Singapore from Bangladesh at 18, now 27.
• Early Career: Five years with his first company, starting at SGD 600/month (SGD 18/day + SGD 3/hour overtime). He described the newbie pay, where they are still learning.
• Wedding Gift: Received SGD 2,000 from his boss upon his marriage.
• Current Wage: SGD 50/day (8 am - 5 pm), SGD 7/hour overtime, plus SGD 5 for dinner if working until 10 pm.
• Transport: SGD 40 one-way lorry transport, SGD 80 round trip.
• Skills:
  • Waterproofing
  • Polyurethane (PU) injection
  • Hacking
  • Painting
  • Timber painting, marble polishing, and all parquet work
  • Electrical certificate (CoreTrade)
• Efficiency: Min can complete a full HDB toilet hacking, including debris cleaning, in just one day. For this, he is paid SGD 80, while the company charges around SGD 600. Standard Daily Rate: For most other day jobs, Min's rate stands at SGD 60 per day.
• Future Plans: Return to Bangladesh for 4-6 months to obtain a driving license. Envisions a team with a lorry driver and 2-3 workers.
• Monthly Lorry Rental: $2000

Trust and Reliability:

• Clean record during his five-year tenure at his previous company.
• Trusted by current employers and supervisors.

Accommodation and Financials:

• Current Residence: MOM-approved hotel in Geylang, SGD 650/month rent.
• Worker Levy: SGD 600, but approximately SGD 1000 handed to the boss.
• Insurance: Covered by contracting company, ML.

Subcontractor Profile:

• Owns a 100 sq ft warehouse with tools and equipment.
• Financially secure, able to retire comfortably in Bangladesh.
• Family: Highly educated but unemployed son, two daughters (one married).

Worker's Background:

• Owns sizable land in Bangladesh.
• Prefers a modest lifestyle with his wife.
• Aims to work until his children are independent.

Main Contractor Profile:

• Started in tiling, transitioned to property rentals.
• Rented, renovated, and leased out 75 properties in two years, plus 40 in partnership.
• Rental Prices: Master bedrooms SGD 1850, standard rooms SGD 1600, smaller renovated rooms SGD 1200.

Construction Work and Cost Details:

• Parquet Job:
  • Three rooms: SGD 600
  • Two rooms: SGD 500
  • One room: SGD 300
  • Material Costs: Varnish (5L) SGD 35, Lacquer SGD 30, Thinner SGD 30.
  • Transportation: SGD 80 round trip.
  • Worker Compensation: Regular worker SGD 60/day, Freelancer SGD 150/day.
  • Established businesses can achieve cost margins of 45%, while startups might face 80% costs, resulting in only 20% margins.
• Marble Job: SGD 1 - SGD 1.2 per square foot.

Part 4: Additional Due Diligence Findings

• Background: Former intelligence unit member in the army.
• Recent Job: Toilet marble stain removal, acidic paste cost SGD 100-200, job negotiated down from SGD 1,000 to SGD 600.
• Business Fatigue: The partners appeared exhausted from running the business.
• Met with other buyers, a team of 3 restaurant chain owner and 2 interior designers.

Conclusion: Why I Walked Away

After extensive due diligence, I decided not to proceed with the acquisition for several key reasons:

1. Financial Red Flags: The lack of proper bookkeeping, reliance on personal bank accounts for business calculations, and heavy cash transactions made accurate valuation impossible.

2. Partnership Dysfunction: The toxic relationship between partners created operational instability and legal risks.

3. Margin Erosion: Actual profit margins were significantly lower than initially claimed, particularly in supposedly high-margin services.

4. Operational Dependencies: The business relied heavily on specific individuals and informal networks that couldn't be easily transferred.

5. Compliance Risks: Multiple regulatory and tax compliance issues that would require significant investment to rectify.

Lessons Learned

This experience reinforced several important principles:

• Trust but Verify: Initial claims about profitability often don't match reality
• Due Diligence Depth: Surface-level analysis misses critical operational details
• Human Factor: Business success often depends more on relationships than systems
• Build vs Buy: Sometimes starting fresh is better than inheriting problems

While the acquisition didn't proceed, the insights gained about the service industry, labor dynamics, and small business operations proved invaluable for future ventures.