Margin and mobilisation cost

A thin margin changes the arithmetic, not just the profit

The parent sector page notes that facilities management has the longest contracts and the thinnest margins of the sectors on this site. The consequence for a buyer is more specific than "be careful".

When the margin on a contract is small, a modest movement in the cost of delivering it consumes a large share of the profit. The same movement in a higher-margin business is an irritation. In labour-heavy soft services it can be the whole of the debt service. That is why a lender assessing an FM purchase spends its time on what could move the cost base rather than on last year's profit.

It also means turnover is close to meaningless as a pricing basis here. Applying any factor to revenue in a business where most of the revenue is somebody else's wages produces a number that cannot be serviced.

Where the margin is actually set

Four contract models are common, and they carry completely different risks:

Fixed price. The provider carries the risk of cost movement for the life of the contract. Simple, and the most exposed.
Fixed price with indexation. The price moves against a stated index or against defined wage rates. The single clause that most often decides whether a soft services contract stays profitable.
Cost plus or management fee. Costs pass through and the provider earns a fee. Lower risk, lower margin, and the fee itself is then the thing under pressure at re-tender.
Open book with a gainshare. Transparent costs with a share of savings. Fine where the relationship is good, and it depends on a client who honours it.

Read every significant contract for the mechanism, and then for whether it has ever been used. An indexation clause that nobody has invoked in four years is a clause the buyer will be invoking for the first time, which is a conversation rather than a right in practice.

Change in law provisions deserve the same attention. Where statutory wage rates or employer costs move, a contract without a mechanism to reflect that leaves the provider absorbing it, and those movements are announced with enough notice that a buyer can and should model them before completing.

What mobilisation actually costs

Mobilisation is everything that has to happen between winning a contract and being paid for delivering it. Most buyers know the phrase and few have costed it.

Recruitment where the transferring workforce does not cover the requirement.
The transfer process itself: information gathering, consultation, payroll set-up, and the management time all of it consumes.
Screening, vetting and training to the client's standard.
Uniforms, equipment, consumables and any plant the contract requires.
Systems: helpdesk configuration, asset registers, compliance and reporting platforms set up to the client's specification.
Double-running during handover, where the outgoing provider and the incoming one overlap.
A mobilisation manager, whose time is a real cost even when it is not charged anywhere.

All of that is spent before the first invoice. The first invoice is then raised in arrears, and paid on the client's terms, which in FM are rarely short. The cash trough sits at the start of a contract that is going to be profitable for years, and it has to be funded by somebody.

Winning work makes cash worse

This is the point that catches buyers who have come from other sectors. In most businesses, growth is a good problem. In labour-heavy FM, every new contract consumes cash before it produces any, so a strong pipeline is a funding requirement rather than a reassurance.

A business bought with no headroom is a business that has to decline the contract that would have made the deal work, or take it and run out of room. Neither outcome appears in the model that justified the price.

So the funding conversation has two halves: what it costs to buy the business, and what it costs to run it forward through the mobilisations already in the pipeline. Treating those as one number is the most common mistake in the sector. See working capital, invoice finance and stacking facilities.

Ask who pays for mobilisation

Not every contract leaves the provider carrying it. Some clients pay a mobilisation fee, some allow the cost to be recovered over the early months, and some expect it to be absorbed into the price for the term.

A contract that recovers mobilisation separately is worth more than one at the same annual value that does not, and the difference rarely appears in a contract schedule. Ask for it explicitly, contract by contract, and ask what was actually spent on the most recently mobilised accounts. That figure is the best available estimate of what the next one will cost.

Demobilisation is a cost too

Contracts end, and the ending has a cost: retrieving equipment, final compliance handovers, records to be passed on, and the management time of running an orderly exit. Where employees do not transfer out to the incoming provider, the redundancy exposure lands on the outgoing one.

Look at the expiry profile of the contract book with that in mind. A book with several large contracts expiring inside the debt term carries not only the revenue risk the parent page describes, but a cost that arrives in the same period. See customer concentration.

How a lender sizes it

Expect the profit figure to be rebuilt with realistic assumptions about wage movement rather than with last year's rates, and expect a downside case in which a large contract is lost at re-tender. Expect questions about the indexation position on the biggest contracts and about the pipeline, because a funder who understands FM knows the pipeline is a cash requirement.

Expect, too, that the working capital line will be sized separately from the term facility and will matter more. In this sector the constraint is almost always working capital rather than the purchase price. See TUPE and contract novation for the other half of what arrives with the contracts.

Why this needs the right funder

A generalist lender sees large turnover, a very thin margin and a workforce, and concludes the business is fragile. A funder that has lent into FM sees a long contract book with indexation, understands why the margin is thin and why that is normal, and asks about mobilisation and expiry instead.

We know this market and we know specific people who have funded facilities management acquisitions before and size the working capital properly rather than treating it as an afterthought. Tell us the contract profile, the headcount and the shape of the deal, and we come back to you with who can fund it and what they will want to see.

We introduce buyers who are acquiring through a limited company or a NewCo. If you are buying personally, as a sole trader or as a partnership, we will point you to an authorised firm directly instead.