- THE MAGAZINE
It is the “good news/bad news” of the carpet-cleaning world. The good news? Most carpet cleaners make more money per hour than they ever dreamed possible. Come on, honestly: did you ever dream you could consistently make 100 bucks (or more) per hour?
As a new carpet cleaner I was (and still am) amazed that I could make so much money doing something I loved.
But now for the bad news. For many carpet cleaners a little voice keeps nagging away in their subconscious: “You know you are never going become financially independent and retire! Since you’ll never be able to sell your business you are condemned to die on the scrub wand!” Wow, a “death sentence” like this would cast a pall on anybody’s day!
Here is the “dirty little secret” of the carpet cleaning industry: “Most carpet cleaning businesses never sell, they just wither away!” This is just so very sad because the typical carpet cleaner is a good, honest, hard-working person who deserves to reap the rewards of a lifetime of hard work, but too often doesn’t!
Now, I am not an attorney, accountant, financial planner or even a self-proclaimed business guru. I realize this article is “painting with a wide brush.” Every business (and every life) is different, and you should always seek professional advice before putting your company up for sale.
However, I have “been there-done that” and after 16 years down in the trenches running my carpet cleaning company I “cashed out” in 1991. I was 38 years old at the time and my last 19 semi-retired years have been wonderful!
So just how can you cash out and retire while you are still young enough to enjoy your financial freedom? Here are some basic principles to reflect on:
1. What Do You Want Out of Life?A tough subject indeed! So huddle with your family, talk about your goals, your dreams and yes, your current and future anticipated obligations (e.g. taking care of aging parents can delay a lot of things). Once you have determined your life goals, you must…
2. Set Your Time TargetDon’t just make it a hazy “I-wanna-retire-some-day” goal. Instead, pick an exact “freedom date.” For example, if you want to retire in 15 years, “I will be totally independent financially and retired on January 1, 2025” resonates so much more powerfully than “down the road”! To use these years wisely you must…
3. Set a Retirement Dollar TargetFocus on both the net worth and the monthly income you will need to retire. (Aim on the high side – you’ll need it!) There are many financial planning programs on the Internet that let you enter your desired future income/time target, then spit out exactly how much you will need to save monthly to achieve this goal. Use this monthly target amount to…
4. Divide and ConquerSo how are you going to spend – invest? – your next 15 years? If you are going to follow your same old “make it/spend it” routine, then prepare to grow old on the scrub wand!
Instead, prepare a “Financial Independence Master Plan” with concrete, exact steps year by year while at the same time socking away your monthly target amount. However, remember that you don’t have to sell your company to retire. Instead, you should now…
5. Examine Your "Getting to Financial Freedom" OptionsMost carpet cleaners are small owner-operators working solo (or with an assistant) on the truck. Nothing wrong with this! But it is extremely unlikely that the sale of your single truck, owner operated carpet cleaning operation will completely fund your golden years!
So if you decide (see No. 1) to keep on enjoying the stress free life of an owner-operator with no employees, you should implement: An aggressive personal investment schedule. Raise your prices today by at least 20%. If the owner is on the truck giving personal attention to each customer, homeowners will pay extra for this level of “boutique service” if you ask!
Tomorrow, start sweeping the entire 20% of your new found “extra profits” off into a varied Personal Investment Plan. (The type and mix of investments you choose is up to you and your financial planner. However, most experts agree that consistently “dollar cost averaging” into any investment is the best approach.)
Diversify your investments. Depending upon your “hassle tolerance,” retirement time line and your market area, at least consider rental real estate. The recent downturn in values currently makes real estate an even more attractive investment. Rentals offer some great tax advantages plus will provide a great retirement income if you can put up with your tenants!
Other future income sources. If hassling with tenants just isn’t your thing, look into a “hobby type” of business that you can start small now and grow into a cash cow for your retirement. Search for something that you:
- Will be part time and can be left for extended periods of time, and
- Won’t require full-time employees. (If you didn’t want the problems of employees as a carpet cleaner, why would you want to put up with them in retirement?)
You should never put all your financial eggs in the very fragile basket of selling your business for a fortune. However, if you want to taste the joys and profits of building a big company that can be sold for big bucks down the road, you must …
6. Change Your MindsetIf you want to create “something of value” out of your carpet cleaning operation, you no longer are “just a rug-sucker.” Instead, you must function as a “business-building entrepreneur.” You must stop running the typical slap-dash, out-of-my-hip-pocket owner-operator carpet cleaning business. Instead, begin with the end in mind by asking:
So how much do I need? Determine what percentage of your desired future total net worth (calculated in No. 3) should come from the sale of your company and when you plan to cash out. Just for grins, let’s say you want to clear a cool million from the sale of your company in 15 years (but trust me – a million bucks really is not much to retire on, and will be worth even less in 15 years!)
Calculate the current estimated value of your company. Let’s say your two-truck company comes in at $210,000 on an Estimation Value (EV) worksheet, not an unreasonable valuation for a well run, two-truck company with lots of profitable long term contracts in place. Remember, this “value at a glance” number obviously is just a rough estimate and should never be used to list your company for sale. However, you now have a base number so you can…
Determine the growth rate needed to clear your million! In this case, if your company currently worth $210,000 grows by just 1% per month over the next 15 years, it will sell for $1,259,118.41! This sales price – after taxes and sales expenses – should give you your cool million! So now all you have to do is…
Track the value of your company religiously. Fill out the EV worksheet every single month. In our example, the estimated valuation of your company will need to grow next month by $2,100 to a total of $212,100. Not a big change, but over the next 15 years this steady 1% per month EV increase will make you a millionaire just from the sale of your company!
Every day obsess about your EV number and how you can improve it. Frankly, there are only two ways to increase your EV: cut expenses or increase profitable gross sales (even better, you will do both); anything else will just be a distraction for you. By compulsively tracking your company’s estimated value, your focus will completely change. Instead of just drifting along and making impulsive buying and management decisions, you will now realize that your “EV day of reckoning” is waiting for you at the end of each month!
So all your daily business decisions will now be weighed against one key question: “How will this purchase/decision impact the long-term value of my company?” Great! Now you are thinking like a business owner who is going to sell his company and retire while he is young enough to enjoy it!
Author’s Note: To download a free Estimated Valuation (EV) worksheet for a cleaning/restoration company, go to http://tiny.cc/SFSevw