Selling a Small Plumbing Business

by Moe Bedard | May 19, 2024 | Selling a Business

Selling a small plumbing business is not easy. It takes the right knowledge and preparation to get it ready for sale.

The first fact I want to share with you is that 10 out of 11 businesses do not sell.

If you don’t understand and prepare to do this correctly, then you may be one of the 10 business owners who are left with nothing and no retirement.

As you can see, this is very serious.

You thought running a business was hard. Hell, selling or retiring from the trades is even harder.

At a small plumbing company, the owner is often the face of the company, and sometimes also the main plumber handling service calls.

This makes it very difficult for legitimate buyer to purchase your company. Let me explain…

When it comes to smaller operations, the sale is often more personal and emotional.

The business is typically the owner’s lifeblood, and the decision to sell is often a difficult one. They may have built the business from scratch, and it’s not uncommon for the sale to be driven by personal circumstances, such as retirement or health issues.

Customers may have also grown accustomed to dealing directly with them for decades making it very difficult to transition the business to a new owner, as customers may feel a sense of loyalty to the current owner and be hesitant to continue their business with someone new.

In these cases, the seller is often more concerned with ensuring the business is left in good hands, and the sale process can be more focused on finding the right buyer who will maintain the business’s reputation and legacy.

Other companies may have 3-7 employees and do a million a year in revenue, but they lack formal systems and processes, as well as poor or inadequate financial records, and limited staff, all of which can make it difficult to attract potential buyers.

You also have to take in account that the sale of your business may also involve the transfer of licenses, permits, and other regulatory requirements, which can be a complex and time-consuming process.

Valuation methods: How to determine the worth of your plumbing business

When it comes to determining the worth of your plumbing business, the valuation method you choose can have a significant impact on the final sale price.

For smaller companies, a simple asset-based approach may be sufficient, where the value of the business is calculated by adding up the value of its tangible assets, such as trucks, equipment, and inventory. This method is often used for smaller businesses with limited financial history, as it provides a straightforward and easy-to-understand valuation.

On the other hand, larger plumbing businesses with a more complex financial structure may require a more nuanced approach. One common method is the income approach, which estimates the value of the business based on its expected future earnings.

This method is often used for larger businesses with a stable financial history, as it takes into account the company’s ability to generate revenue and profit.

Another method is the market approach, which compares the business to similar companies that have recently sold. This method is useful for businesses of all sizes, as it provides a benchmark for the sale price based on real-world data.

For example, if a similar plumbing business in the same region recently sold for a certain multiple of its earnings, you can use that as a guide to determine the value of your own business.

Ultimately, the right valuation method for your plumbing business will depend on its unique characteristics, financial history, and market conditions.

From understanding the unique challenges and opportunities presented by each type of business, to navigating the intricate web of financial, legal, and operational considerations, selling a plumbing business requires a deep understanding of the industry and the market.

By working with a business consultant, broker or accountant who has experience in the contracting or plumbing industry, you can ensure that you’re using the most appropriate methods to prepare to sell and achieve the best possible price.

By understanding these unique challenges, small plumbing business owners can better prepare themselves for the sale process and take steps to overcome these obstacles.

My mission is to help owners of small plumbing companies get educated and prepare so they can sell or build a retirement plan.

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