How to sell a plumbing business does not have to be overly complicated, even in today’s economic climate. Buyers are still actively looking for acquisition opportunities, especially in the service industry. Attractive features like expansion opportunities and high dollar jobs make plumbing one of the most sought after sectors within the service realm. There are currently over 120,000 plumbing businesses in the United States. The plumbing industry has experienced moderate growth over the past five years, with total revenue increasing an annualized 2.1% to reach $105.5 billion. Business in the plumbing industry remains fairly consistent, as bids for commercial jobs and residential needs have continued even in a global pandemic.
In our decades of experience, we have helped many business owners sell a plumbing business. Buyers already view service businesses as a desirable investment; but as a seller, it is still important to understand how to sell a plumbing business for the best payout possible. While a number of factors come into play when selling a plumbing business (such as size, cash flow, industry trends, and market conditions), the first step is to obtain a professional business valuation.
Why is a professional valuation important?
How to sell a plumbing business begins with being able to present a fair and accurate accounting of your plumbing business’s value. Really, this is essential for a number of reasons (like estate planning, life insurance, or loan applications), but a professional business appraisal is particularly important when attempting to sell a business. A valuation document is the single most useful piece of financial information about any company, and it must be able to stand up to scrutiny. This demands an accurate and comprehensive valuation approach. For reference, the following information is needed for Viking M&A to complete a business valuation in the Southeast U.S.:
- Past 3 years Federal Tax Returns for the plumbing company,
- Past 3 years Profit and Loss Statements (P&L), including balance sheets,
- Interim Profit and Loss Statement (P&L), including balance sheet and a year-to-date comparison for the same period last year,
- Copy of the lease or property tax bill if property is owned by the business owner.
4 tips to maximize a plumbing business valuation:
Having sold more than 600 businesses over the past 20 years (and specifically, dozens of plumbing companies), we have seen what factors tend to increase or decrease the value of a business. The good news is this: in addition to the aforementioned numbers entered into standard market multiples, there are actionable steps you can take to ensure your business secures the highest multiple possible and improve your plumbing business’s value.
1. Green Initiatives
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. Offering green alternatives to your current products may be a good way to boost 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. The purchase of greywater recovery systems is also on the rise. Adding even one of these services or products to your offerings can help build up cash flow, help your business stay competitive, and attract buyers.
2. Multiple Licensees
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 when you decide to sell, as it significantly narrows your buyer pool. The top tier license level requires years to obtain, which will certainly deter any buyer that does not already hold the license. As the seller, this is an opportunity to be proactive, get your employees licensed, and significantly increase the value of your business by creating a more seamless transitionary period after the sale. Consider your most tenured, experienced employees who will likely remain loyal to the business after your departure. These employees are worth the investment of licensing. 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 an employee leave the company. Taking the time to get your employees licensed now will help you down the road when you are searching for the perfect buyer.
3. Skilled Employees
A team of skilled employees is one of the most important factors in buying a business. Buyers want to know 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 yet 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 they learn to do things the right way from day one. 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 they are able to constantly update their skills and stay fresh on new techniques. While training can be expensive, it will save you money down the road when your employees’ skills improve, and it also makes for a great talking point with buyers.
4. Additional Services/Products
There are a wide variety of additional services and products that a plumbing business can offer to bring in additional revenues. For example, if your company mainly focuses on plumbing needs, consider bringing on an HVAC technician or two. HVAC and plumbing services coincide with each other, and business owners in one sector will often add the services of the other to increase cash flow and build a customer base. Research current trends in your industry to see where adding an additional service may be feasible. Adding new products or services to your repertoire will not only boost your cash flow prior to selling your business (which is one of the most important factors in determining value), but multiple streams of revenues also show buyers that your business is stable.
By understanding the financial and operational aspects of your plumbing business, you can begin to identify where you are succeeding and where you may need to improve to reach your ultimate goals. As we have already mentioned, how to sell a plumbing business begins with an accurate, comprehensive business valuation. Beyond maximizing your business’s valuation, it is also advantageous to utilize a broker with a large network of potential buyers. All of this is where Viking comes in. Not only do we utilize a proven approach to business valuations, our plumbing business brokers and advisors have almost nine decades of combined experience buying and selling businesses. Our closing rate is 4x the industry average, and businesses we represent sell for, on average, 96%+ of their asking price.
Bottom line: Viking Mergers & Acquisitions can help you to understand how to sell a plumbing business, where your plumbing business stands today, and how far you need to go. We are here to help when you are ready. Contact us today for our no-cost, no-obligation valuation for business owners.