Buying a plumbing business can be an incredibly profitable investment strategy – if you are able to ensure a smooth transition.
Although buying a plumbing business might not be the most glamorous entrepreneurial endeavor, they are generally considered wise investments.
Most homeowners are unable to do any plumbing repair work, but they always need potable water and a functioning sewer system.
A Profitable Plumbing Business is generally considered to be a recession-resilient industry for that reason.
Buying an existing, profitable plumbing business also means that you’re getting an existing customer base that has a proven track record.
They are often cheap relative to other businesses because the industry is made of many small to medium sized operations so are available to small buyers.
Here’s a look at how to ensure a smooth transition when buying a plumbing business.
Research and Due Diligence
Identifying the right plumbing business
You’ll want to make sure that the company matches your investment thesis – a clear statement of what sort of businesses you’re looking for and those that you aren’t.
A well-crafted investment thesis can help you separate the signal from the noise and remove emotion from the equation when poring over potential deals.
You should consider the following questions:
- Where is the business located?
- How large is the business?
- Is it management-run or ownership-run?
- Are there any risks to the business, like customer concentration or keyman risk?
These will help you sort out what sort of plumbing business you’re looking to acquire.
Researching the target company and its industry
What sort of plumbing work does the business do?
Basic residential services like unclogging toilets and fixing leaky faucets take the least amount of training. Each truck or team in operation can generate about $200,000 a year with a 50 percent gross margin.
Intermediate residential service includes gas work and installing or repairing water hears. This is, obviously, more complicated work that requires more training but revenue per truck is about $300,000 with a 50 percent gross margin.
Underground plumbing work is generally some of the most difficult and, accordingly, requires the most training but is also the most profitable. This can include jobs on sewer lines, water mains and gas lines in either a residential or commercial context.
Each truck doing this sort of work generally earns between $350,000 to $400,000 each year but the gross profit margin is generally between 60 and 65 percent.
You’ll also want to look at what other similarly sized plumbing businesses have sold in the same region to get a multiple that is in line with the industry.
Conducting Due Diligence to Ensure a Good Fit
A thorough due diligence check is crucial during the acquisition process.
You want to look over countless financial documents, like profit and loss statements, and balance sheets to ensure that the business is profitable.
You’ll want to make sure all its licensing is up to date.
Are there any pending legal issues against the company?
It is very helpful to hire a professional like a business broker, lawyer, or business valuator to make sure you don’t miss anything.
This can be a daunting task but don’t rush it. Try to turn over every rock before deciding to pursue the acquisition.
Evaluating the target company’s online presence and digital assets
You’ll also want to evaluate the company’s online presence and digital assets to look for low-hanging fruit that can be fixed easily enough once you take over.
Lots of plumbing businesses are owned by baby boomers who may not be the most tech savvy.
Does the business have a cleanly designed, highly functioning website that ranks in SEO and can generate leads?
Does it have a reputable online presence in the various social media channels?
These relatively simple steps can help you generate more business relatively quickly after taking over.
The Acquisition Process
The acquisition process can be a long one so be prepared for the long haul. Expect to take anywhere from six months to two years to find a business and ultimately close a deal.
You can work with a business broker as you begin your search, generally a faster process that involves doing all the research yourself and cold calling entrepreneurs directly.
Once you settle a target you’ll have to reach out to the owner, craft a Letter of Intent and probably sign a nondisclosure agreement so you can get access to at least three years’ worth of detailed financial information.
It can be incredibly helpful to introduce yourself to both the employees and suppliers and customers during the transition period. This obviously must occur once you’ve almost completely finalized the deal.
It can also be very helpful to develop a personal relationship with the seller. Many small business owners have put years or decades into growing their business and they care about its legacy.
Keeping them around post-sale can also be extremely helpful if any unforeseen problems arise and to ensure a smooth transition.
Once you have closed the deal, it’s time to make the business yours.
You can focus on relatively easy tasks like sprucing up the website and online presence before moving into more wholesale changes.
You want to effect change but not at a pace that will lead to a mass exodus of staff, suppliers, or customers.
Are there inefficient aspects of the business you want to change? Or any unnecessary assets that are worth selling? How do you want to change the way the business operates to make it more profitable and reflect your management style?
Buying a plumbing business can be a wise investment strategy.
They are generally considering recession-resilient industries that are generally very profitable albeit not as glamorous as other entrepreneurial endeavors.
You’ll want to do extensive due diligence to identify the right plumbing business that matches with your investment thesis. You’ll also want to look at its website and online presence.
During the acquisition process, you’ll want to make sure there is a smooth transition for the seller, employees, suppliers, and customers.
After the deal is finally closed, you can start to implement changes at a pace that isn’t going to unduly rock the boat.
It can be a bit of a balancing act, but a smooth transition can be the key to your successful acquisition of a plumbing business.
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