How to Buy a Plumbing BusinessBy My Service Depot on Tuesday, December 17, 2019
Want to break into the plumbing industry overnight? Or expand your growing empire? Find out how to buy a plumbing company.
There are many reasons a person might want to buy a plumbing business. For some people, doing so simply represents a promising investment. Others will see the purchase as a way to break into the plumbing business overnight. Savvy entrepreneurs may also see buying a plumbing business as a way to expand their own shops.
That said, not every deal is a good one.
Before you try to buy a plumbing business, make sure that you understand how you will benefit and why your target acquisition is priced the way it is.
Making a Good Investment
Investing in an established plumbing business isn’t just an option for plumbers. It can actually be a clever money move, even if you don’t know anything about plumbing.
Buying an established plumbing business taps into a lot of elements successful entrepreneurs look for. While you do need to consider why the current owner wants to sell their business, buying a business gives you a ready batch of recurring customers and a proven business model as long as everything checks out. The business may even have a well-known brand name respected in your area, plus a staff of trained plumbers in place. With the infrastructure of success already ironed out, you you may even have a better work/life balance than you would have had if you tried to start everything from scratch.
Buying an existing plumbing business can be smart for other reasons as well. Let’s say that the company in question does excellent work, but they were unorganized, hired the wrong people, mismanaged the money, or fell short on customer service. This actually works in your favor. Finding plumbers to work for you generally isn’t difficult and you have an easy way to differentiate yourself right off the bat by focusing on good customer service.
Growing Your Existing Plumbing Business
You can also buy an existing plumbing business to help grow your existing company. Purchasing a complementary business can help you expand your offerings or multiply your assets. Acquisitions come with several benefits. They can help you enter a new market in a geographic area or with a new product/service offering. You may also benefit from the increased power that comes with a higher share of the market. You could leverage these synergies for economies of scale (e.g., buying supplies in bulk) or economies of scope (e.g., it becomes easier to service homes in another geographic area because your service area is larger). Many companies that buy another business find that the acquisition gives them access to added resources, such as talent.
Understand the Costs
If buying a plumbing business sounds right for you, start by taking the time to understand what the business is worth. Look at the price tag of the business and its cash flow. You will want to know whether the company is generating money and how much you need to spend to harness that revenue. Further, look at the expenses each company has. In addition to the debt payments on the purchase price, you will still have to cover overheard on the plumbing business. Utility payments, salaries, rent or mortgage, vehicle costs, marketing efforts, admin, payroll, and more will all need to figure into your calculations, so do your research.
Differences in Pricing
The smart strategy is to look at three things: market value, asset value, and earnings. The market value of the company is based on other companies of comparable size that have a similar cash flow. Think of it like looking at comparable properties in real estate. Next, consider the value of the assets included in the purchase of the company. Outfitting a fleet and running a plumbing business, in general, may include vehicles, tools, software, and property. These items have value too. How much would you get if you sold everything? Obviously, most companies cost more than the sum of their assets, but this approach helps you see the minimum that a business is worth. Finally, consider the company’s earnings. The real question is whether the business is profitable and able to effectively leverage its assets to produce a return.
Finding a Good Deal
Remember that different plumbing businesses will price their companies differently. Understanding why a firm is priced the way it is can help you decide whether it is a good deal for your needs. Fair market value is really just the price that someone would pay for the company, but the price tag can include different things. The valuation will likely include tangible assets like tools as well as intangible resources like client lists. Do your research and investigate the value that a plumbing business can offer before deciding whether to buy.