Have you ever thought about what your business is worth if you wanted to sell it one day?
A few days I was on a webinar with a person who is very big in the Business Transfer world, and roughly speaking this is what he said:-
Your business could be worth an amount equal to the annual revenue or, three times the net profit before tax, which ever is the lowest.
If your business only consists of recurring jobs, then you will get the highest sale price, but if your business consists of just one off jobs, then it is worth nothing.
So if your business has a mixture of recurring and one off jobs, you can only base its value on the recurring jobs, because the recurring jobs are the only ones that have any value to a potential buyer.
Also, what adds extra value is:-
If you have recurring jobs booked for the next 36 months.
Collecting payments electronically (credit / debit card) at the point of sale or within a short period (7 days).
Not taking waste away.
Having high density routes.
Having high utilisation of man power.
Having a customer churn rate of 5% or less.
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Why does not taking waste away add value? You can make money on waste removal if you're smart about it.
Taking away waste reduces the amount of time that can be spent on other jobs and therefore reduces the profit margins of the business.
In other words, everything you do that is not earning money ( such as travelling) is a waste of time and money.
If you are getting paid to take waste away (and most people do not charge) then that maybe a good thing for you. But you should know how much extra time is involved in taking the waste away and what it is actually costing you, when you could be doing more jobs and earning more money.
Most house holders do not have a clue as to the true value of getting rid of waste. As a rule of thumb, the commercial rate for disposing of green waste is roughly £7 per 90 ltr bin (thats a rubbish bin size). Then you should add transport and profit margins to that, so about £12 per rubbish bin full is a reasonable price.
Clearly if you don't charge to take waste away then you are loosing money.
It's akin to cutting a lawn and not charging for it.
As Seth states, if you charge sensibly or role it into the contract, waste removal can be financially neutral or at least profitable.
If client does not want the service or is not willing to pay for it, why would you remove ?
Do you personally take green waste away & charge for it?
Why would you do it if you weren't getting paid to do it? You're not really making sense here. Basically all you've said is that if you do something for free you could instead do something else and be paid for it, when you could instead do the first thing for money.
I read this more as you can make £x / hour doing lawns, £y taking away rubbish. If x > y, then do more on lawns and less on rubbish. Key is working out total costs and comparing like for like. Then it's kind of obvious; but actually quite hard to work out accuratly.
Your just about right there Andrew.
The fact is that if you concentrate on getting all your customers in a small area, and don't spend time on taking away waste, you can go from one property to the next quicker and fit more into the day, which increases profits substantially.
If you know how many actual man hours you do working, and divide that by the the number of work ours, you get a labour utilisation figure. Example: If you do 4 man hours per day and divide that by 8 the answer is .5 which is about an average figure. But the aim is to increase that to as high as possible, so you are working to maximum capacity, and you can't do that until you cut out all the work that wastes time.
If you have enough room to carry the days waste and a yard with composting space and facilities then taking it away is profit making as you can charge for it, not waste time and have a product to use/sell further down the line.
My waste disposal place is very local to me and I pass it on my way home.
I lose time having to wait on the weigh bridges in and out. The cost is reasonable for the disposal, even though the rate went up this April.
I used to charge cost but now I charge for it and the time at my hourly rate. Its my time, petrol, wear and tear on van due to heavy load, risk of running a puncture entering a grotty place like that.
I try to avoid it as its a hassle, but when I have to do it i now charge properly for it. All thanks to some guys on here who opened my eyes to the subject matter.
As to the subject of business value, I dont think the small businesses have any value, contracts or not. However if the business is well established, has hundreds of contracts (contracts can end however and not be renewed), a good number of vehicles and a slow churn on employees the business may have value. How much depends on what someone is willing to pay.
The next question would be: Has anyone ever thought of buying a running business and why? Or bought into a franchise? And why? Why would you spend £25K or more on a franchise that could not take off?