It is a great time to own, buy, or sell a business in Knoxville. The Small Business Administration has stepped up their efforts to make acquiring a business more obtainable in the short term. Also, the current tax structure is as advantageous for a seller as it likely will ever be.
We are seeing a surge in buyers looking for companies who have been able to withstand the impact of COVID-19, and due to attractive features like expansion opportunities, high dollar jobs, and the expected resurgence in both residential and commercial construction activity. Within the service realm, one of the most sought-out sectors in Knoxville is plumbing.
Buyers in Knoxville already 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 successfully closed sales on over 700 businesses in a variety of industries across the Southeast and in Knoxville. Our experience with plumbing businesses provides a few considerations that rise to the top.
While factors like size, cash flow, industry trends, and market conditions are all factors in selling a business, there are three formulas that are fairly standard in how to value a plumbing business in Knoxville. (Keep in mind that only a professional business broker can tell you the true value of your business.) Three standard formulas are:
- 25-50% of annual sales + inventory
- 3-4x Seller’s Discretionary Cash Flow
- 5-4.5x EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization).
With those formulas in mind, you can identify and begin taking steps to ensure that your business secures the highest multiple possible. We 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 in Knoxville 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 your current revenues by keeping pace with consumer expectations. 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 a rise in gray water recovery system purchases. Adding even one of these products or services to your offerings will not only help you build up your cash flow but will help your business stay competitive and attractive to 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 because it will significantly narrow your buyer pool. The top tier license level takes years to obtain, which will certainly deter any buyer that does not already hold the license.
By proactively having your employees licensed, you have the opportunity to significantly increase the value of your business and create a more seamless transitionary period after the sale. 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 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 another employee quit.
For a general overview of what types of basic and advanced licenses your employees will need in Knoxville, where they can take the classes, and what is required, visit the TN Department of Commerce & Insurance.
As we mentioned above (and as you are likely already aware), specialized licenses can take some time to obtain. Taking that time now will help you down the road when you are searching for the perfect buyer.
Buyers recognized that a team of skilled employees is one of the most important factors in buying a business. Buyers 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 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 that they learn the correct way to do things 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 that 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 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. In reality, that is far from the truth. There is a wide variety of services and products that a plumbing business in Knoxville can offer to generate additional revenues. For example, 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 may also research the trends in the Knoxville market to see where adding a complementary service may be feasible. Adding new products and 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 multiple revenue streams also show buyers that your business is stable
Whether or not you plan to sell your business in the very near future, these four tips can help you prepare even now. By understanding the monetary and operational aspects of your business, you can begin to see where you are succeeding and where you need to improve in order 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 in Knoxville and across the Southeast, and we are here to help when you are ready.