What a week it was with the news that Swan Services, one of the largest cleaning companies in the country had been placed under administration. It has been reported that workers are owed close to $1.6 m and suppliers around $2.7 m. It’s hard to understand how a large cleaning services business, employing 2500 people could collapse so spectacularly but according to the administrators, the collapse of the 47-year-old business has been blamed on “unprofitable contracts, a computer glitch and a delay in receiving payments worth an estimated $2.5 million from customers.” Source Sydney Morning Herald
As a large & successful company, cleaning some iconic sites around the country, this news makes you look inward and ask yourself a number of questions about the structure of your own business and the model. Since the GFC there wouldn’t be too many people in business who would suggest that business is bouyant. Outside of the mining sector there are not too many who would suggest they are setting any records. Although the banks do seem to be tracking pretty well with the big four all posting multi billion dollar profit results for the half year.
Cleaning as an industry has been hit pretty hard over the past couple of years with margins under extreme pressure due to businesses reducing overheads and some pretty intense competition. We have come across plenty of examples where competitors are quoting in some cases up to 30-40% less than our price on a ‘like for like’ basis. Sure we are not the lowest cost commercial cleaning company but neither are we the most expensive but some of the pricing we have seen is unsustainable and doesn’t look good for the future. Some of our calculations would suggest that some companies are paying well under award wages and working on single figure margins. At some, stage, when operating on such tight margins, something has got to give and in the case of Swan it would appear that this has been the case. ‘The Perfect Storm’ one would suggest where a combination of tight cash flow and low margins have resulted in a situation that was most likely ver unsustainable.