Steps to buying a plumbing or HVAC business

Identify the Plumbing Business to Buy

Most business for sale offerings can be separated into 3 categories

Squared-up businesses- These are established, well-run, dialed-in businesses. The owner gets it, heck we may even know the owner. They will have owner benefit and EBITA numbers larger than most company’s annual sales and typically do more than 3 million of residential service revenue. They also likely have layers of management in place and significant assets. Businesses like these are often purchased by investors, venture capital groups, consolidators, or other major players in the space. Just because they are big and expensive doesn’t mean they can’t make an outstanding ROI. Often, the way to improve a larger organization such is this is through growth or streamlining operations. Keep in mind, the larger the company, the harder it can be to move the needle.
Diamonds in rough- This is the type of company PlumbAmatic™ sees the most value in from a buying perspective. The sellers of these businesses are typically retirement age, hands-on trades people and have been in business for a very long time. They often have a very loyal client base and if they have employees, many of them will be long term team members. These businesses rarely specialize in just one thing. They will do some new construction, some remodel, and some service. In the right hands and with the right strategies, these diamond in the rough businesses will make you very wealthy.
Not worth anything- Sadly, you will come across many plumbing, HVAC, and electrical businesses that fit into this category. These are businesses that have been in the hands of an unqualified business owner too long. On paper, they aren’t worth a penny more than asset value, but the hard headed, my-way-or-the-highway seller has told his business broker that if he/she can’t get $xxx,xxx for the business they won’t sell it. What is this pricing method based on? Typically nothing other than an amount of money this type of owner thinks they are entitled to in exchange for the past 30 years of not making any money.

Click here for resources to find plumbing businesses for sale.

Assembling your acquisition team

This is likely the most important step in buying a business. One of the largest mistakes made by small business owners is buying a business without assembling an acquisition team. This team will help serve as a board of advisors to help you see different perspectives and help with pieces of puzzle as the process develops. Having your own team that serves you and your best interests is the only way to make sure you’re making the soundest investment decision for you and your family.

Who should be on your acquisition team?

Ultimately, your acquisition team can be made up of anyone you like. At a minimum we suggest:

Your accountant
Your attorney
PlumbAmatic™

Contacting a plumbing company business broker

You won’t be able to obtain any real hard fast information about a target company without making contact with the seller. If you find out about a business for sale on the internet, there is a very, very good chance you’ll be dealing with a broker.

Dirty truths about business brokers

Business brokers serve a very important part of the process of buying a plumbing business, in the same way a real estate agent helps sell houses. Here are a few things to keep in mind when dealing with a business broker.

First and foremost, they work for the seller.
They are paid by the seller in the form of commission when the business is sold. Typical commission paid is 10%.
Since they don’t get paid unless they sell the business… they are VERY motivated to find a buyer. Sometimes too motivated.
A large majority of business brokers were never successful in business themselves despite calling themselves business experts.
Most know little to nothing about plumbing, HVAC, or electrical businesses. These brokers sell everything from coffee shops, bars, and nail salons, to manufacturing companies.
They are well networked. They can help put you in touch with lenders and other professional services that buying a business requires. Again, be careful! Do your own research and interview other people offering the same service before blindly trusting the broker’s recommendation.
Their primary function is marketing the business. That’s it. Getting it on websites and fielding inquiries.
They will do everything possible to control the whole buying process.
The information they provide to you about the business is provided to them by the seller. All they do is reformat it to the format they use for their business offerings. They do not in any way verify that the information is accurate or truthful.

Here is more explaining the in and outs of a broker, straight from a business brokers website.

Diving deeper into the target business

Before the business broker will give you any real information about the business they have listed, there will be paperwork to sign. Be sure to consult the legal advisor on your acquisition team before signing anything. Generally, you will be asked to sign and/or fill out 3 things-

NDA- Means non-disclosure agreement. These agreements are to protect the confidentiality of all information transferred to you and disclose how you may and may not use the information. Again, consult your attorney.
Buyer’s profile- This is where the business broker gathers information about you to quickly determine if you’re an actual prospective buyer for this business and what other businesses you may find interesting in the event this inquiry doesn’t work out. This form will require income information, asset information, liquid net worth info, business interests, etc.
Business Broker Disclosure- This document typically spells out the nature of the relationship of the business broker in this deal, who they work for, how they are paid, and usually states they have not verified any information they are about to provide you. It will also outline how all communication will take place between the buyer and seller, etc.

Analyze the business prospectus

After you fulfill all the paperwork requirements and the broker deems you a qualified buyer, they will send you a more comprehensive report on the business. Depending on the complexity of the business, this report may or may not contain complete profit/loss reports, balance sheets and other financial data.

This is where you’ll want us in your corner. Even though the information you’ll get at this phase isn’t complete, it should be enough to decide if this particular business has potential to meet your requirements. Most home service businesses keep less than desirable records and have loose accounting practices. With our vast experience working with companies at all levels, we have seen just about everything and will be able to quickly sift through the information to expose the true colors of the potential target business.

Because the information provided at this point isn’t complete, often times a request for deeper information is submitted. This is where the push from the business broker comes in.

Making an offer

Both in my personal experience acquiring an additional Plumbing & HVAC business and in my role as a business strategist, when you begin to request deeper information about a business you will encounter a push to write an offer and get it under contract. I personally find this rather silly, but as an expert in sales I understand why they push for this. If you write an offer and you begin the due diligence process, you’ll use the information you gather to justify the reason to buy the business vs. use the information to decide if you want to write an offer. Put in other words, by writing an offer you’re one step closer to that broker getting his or her 10% commission check.

Before writing an offer, a huddle of your entire acquisition team should be called. In one quick meeting your legal advisor, your financial advisor and your PlumbAmatic™ business strategist can weigh in and formulate a plan on your behalf.

Your first offer likely won’t be the last

If you’re getting sound advice from your acquisition team (and you will if we’re on it), your first offer will be littered with contingencies (ways for you to get out of the deal). For some reason, writing an offer that is easier to get out of than a wet paper bag will make the seller side more comfortable answering the questions that you must know the answer to in order to close.

Due Diligence

During this phase of the process is where the real fun happens and PlumbAmatic™ will shine.

We will peel this business apart to expose what it really is. After all, if this seller is smart, they have spent the better part of year putting lipstick on it. We will dig deep into the books (accounting) of the business. With the tenacity of a bloodhound on a fresh scent, we will paint a realistic picture of this business’s current form. Analysis of the existing employees, business financials, call count, business expenses, and all other key performance indicators will provide you a clear picture of where this business is and where you can take it. With this information, together we can start to make projections about what potential lies within. It is also during the due diligence you may elect to have an independent valuation completed on the business and have the assets and/or real estate appraised if included in the purchase.

A deep dive into our Due Diligence Service for plumbing and HVAC businesses.

Projections

Because of the way businesses are priced for sale, unless you grow sales, grow profitability, and make other improvements to the business you are not likely to make a great return on your investment. We want you to make a terrific return on your investment! During the projection phase, we take all the information that we gathered during the due diligence and assemble the financial and operations model to square up this business. These projections will also be helpful when it comes time to obtain financing for your new plumbing or HVAC company.

Financing

Unless you’re a cash buyer, in the early stages of the due diligence phase you’ll need to explore what financing options you have. Together with your financial arm of your acquisition team you can decide what the best financing options are for you and your future new business. Some of the more common financing vehicles for buying a plumbing or HVAC business are (this is not investment advise, we are not financial advisors or bankers):

Traditional bank financing
SBA loans
Using a retirement account to fully or partially fund a business purchase
Private equity investors
Seller financing

Negotiations and coming to a final deal

During the due diligence there will likely be some things exposed that will need to be negotiated to come to a final agreement. Typically, these are things like non-compete agreements, owner training arrangements, purchase price adjustments, seller financing details, real estate matters, and general logistics of the deal.

Preparing for closing

When the seller of this business hands you the keys, you better know exactly what you’re going to do and how you’re going to do it. You likely just put your life’s net worth on the line to buy this business and you have one shot at making it work. PlumbAmatic™ will work with you to build a strategy to minimize client attrition after the sale, maximize employee retention, identify key areas that must be addressed quickly and long-term items to address. Your best bet to insuring a successful execution of a Plumbing, HVAC, Electrical, or home service business purchase is to have PlumbAmatic™ standing shoulder to shoulder with you.

The closing

Buying a business is electric and quite exciting. The actual closing, however, is usually very boring. Sign papers, write checks, shake hands… and then it’s time to get to work!

It’s like bringing home a new baby

The first few weeks of your stewardship of your new business will be a learning process for all. It’s best not to make too many changes too quickly. The entire organization just went through a stressful and emotional event. They don’t know you and you don’t know them. It’s important to keep in mind at this phase that business is chess, not checkers. Be patient, learn the business, and most importantly, learn the team. Get them to like you and get them to trust you by getting to know them.

Square up your new plumbing business

At some point after the honeymoon period it will be time to put the carefully crafted strategy we built together into place. This is where we begin to mine the overlooked gold from this business. This is where we create a highly profitable, virtually recession proof, easy to manage home service business.

I want to help you mine gold. We’re very good at polishing diamonds. Let’s build something spectacular together.

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