Planning Your Exit: Selling a Plumbing Company
Acquisitions are high in the plumbing sector – make sure to set your business apart using these 4 tips.
It’s a great time to own a business. The Southeastern economy is thriving, consumers are spending more dollars than ever, and SBA loans are being granted at an unprecedented rate. Due to these favorable conditions, buyers are actively looking for acquisition opportunities, especially in the service industry. One of the most commonly sought sectors within the service realm is plumbing, due to attractive features such as expansion opportunities and high dollar jobs. There are currently 93,000 plumbing businesses in the United States and on average, they are seeing profits of around 5%. The plumbing industry contributes nearly $145 billion dollars to our economy and is expected to grow at a rate of 8% next year. Business in this industry is consistent, as there will always be bids for commercial jobs and residential needs as well.
Buyers view service businesses as a great investment – but what can you do to ensure you get the best payout possible for your plumbing business? We have helped dozens of businesses owners sell their business, and in the past year, we have represented two sellers during the sale of their plumbing company. While many factors come into play while selling a business, such as size, cash flow, industry trends and market conditions, we wanted to provide you with a couple formulas that are commonly used to calculate the worth of a plumbing company. Keep in mind that only a professional business broker can tell you the true value of your business.
- 25-50% of annual sales + inventory.
- 3-4x Seller’s Discretionary Cash flow
- 5-4.5x EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization)
Now that you understand what types of formulas are used to calculate the value of a plumbing company, you can begin taking steps to ensure your business secures the highest multiple possible. I have compiled a list of tips on how to boost the value of your plumbing business so that when you are ready to sell, you are able to reap the reward you deserve.
Preserving our planet is important and more businesses are implementing green initiatives to help do their part. While it might not seem like a buyer would care much about how green your company is, another important party might – your clients. Consumers value eco-friendly products and services more than ever before and are often willing to spend a little more to ensure they are making sustainable purchases. One of the most important factors when valuing a business is consistent and strong cash flow, and offering green alternatives to your current products may be a good way to boost your current revenues. Industry experts have seen an increase in sales of items such as tankless and solar water heaters, as well as central stack plumbing layouts. There has also been in rise in graywater recovery system purchases. Adding even one of these services/products to your offerings will not only help you build up your cash flow, but it helps your business stay competitive and will attract buyers.
Due to the specialized nature of the plumbing industry, certain licenses are required for business owners. If you are the only person in your business that holds a license, this could become a problem for you when you decide to sell, as it will significantly narrow down your buyer pool. The top tier license level requires years to obtain, which will surely deter any buyer that does not already hold the license. This is where you have a chance to be proactive and significantly increase the value of your business and create a more seamless transitionary period after the sale – get your employees licensed. Start by taking a look at your team. Who are the most tenured, experienced employees that you feel will remain loyal to the business after your departure? These are the employees that are worth investing the time, money and energy of licensing into. We recommend licensing a few employees within your organization so that your team can practice a higher level of plumbing work and so that there will always be a license holder should another employee quit. For a general overview of what types of basic and advanced licenses your employees will need, where they can take the classes and what is required, visit the website below.
As we mentioned above, specialized licenses can take a while to obtain. Taking the time to get your employees licensed now will help you down the road when you are searching for the perfect buyer.
A team of skilled employees is one of the most important factors in buying a business. Buyers will want to be sure they are walking into an established, organized business where the employees take pride in their work and are accountable for quality and service. To create this strong team environment in your business, we recommend providing continuous training to all of your employees. By constantly training your employees, they will not only provide higher quality work but they will also decrease your liability, giving buyers the peace of mind that your business is reputable and efficient. If you have not actually created a training program for your employees, it is never too late to start. Utilize your team to create training manuals for new employees so that they learn the correct way to do things from day 1. Establishing a cross-training program can also prevent delays or errors should an experienced employee miss work. Finally, consider designing an annual training program for your technicians so that they are able to constantly update their skills and also stay fresh on new techniques. While training can be expensive, it will save you money down the road when your employees’ skills improve and also makes for a great talking point with buyers.
To someone who is unfamiliar with the industry, plumbing may seem like a cut and dry type of business but that could not be further from the truth. There is a wide variety of additional services/products that a plumbing business could offer to bring in additional revenues. If your company mainly focuses on plumbing needs, you may want to consider bringing on an HVAC tech or two. HVAC and plumbing go hand in hand and oftentimes, business owners in one sector will add the services of the other to increase cash flow and build a customer base. You could also research the trends in your industry to see where adding an additional service may be feasible. Consumer spending is at an all-time high since the 2009 recession and more people are willing to pay for luxury items in their home. Examples of the items your clients might buy include water filtration, tankless water heaters, and wireless controls for their HVAC systems. Adding new products/services to your repertoire will not only boost your cash flow prior to the sale (which is one of the most important factors in determining value) but it will also show buyers that your business is stable due to multiple streams of revenues.
Someday you will decide to explore your options for a sale and hopefully, these 4 tips can help you prepare. By understanding the monetary and operational aspects of your business, you can begin to see where you are succeeding and where you may need some improvement to reach your ultimate goals. Viking Mergers & Acquisitions can help you to understand where you stand today and how far you need to go. We offer a no-cost, no-obligation valuation for business owners. Valuations are a priceless tool that all business owners should equip themselves with and we are here to help when you are ready.