Why selling your contracting or home service business is a bad idea

by Moe Bedard | May 12, 2024 | Selling a Business

“Did you know that 10 out of 11 (less than 10%) business owners will not be able to sell their companies when they are ready to retire?”

As a contractor or home service business owner, you’ve worked hard for years. Now, you’re thinking about how to retire comfortably.

One popular option is to sell your business and live off the proceeds.

Selling your contracting business sounds sexy.

But is it really the best way to ensure a livable income?

For example, let’s look at the math if you were to sell your small plumbing company for $500,000, which is about the industry average.

10% goes to the broker = $50,000

50% to the IRS = $250,000

Misc fees and marketing = $30,000

Your net profit = $170,000

That is not a lot of money in this day and age!

This amount translates to only approximately $15,000 a year or $1,200 a month over just 10 years and then it’s gone!

It’s a matter of basic arithmatic which explains why investors and private equity firms are buying contracting and home service businesses such as yours.

They are preying and taking advantage of uneduated contractors.

By offering a multiple of three to six times your EBIDTA and strategically acquiring multiple companies of similar size, they can consolidate these businesses into one, thus creating a higher valuation of eight to ten times, or perhaps even more, upon eventual sale.

All the while, the seller of the small business now lives near the poverty level until the money dries up.

This is the stuff NO ONE talks about, especialy business brokers or M&A advisors.

And that is if they are lucky unlucky enough to sell!

The reality is that business owners have a less than 10% or 1 in 11 chance of selling their businesses.

Meaning, 10 of 11 founders will not be able to sell their companies.

Most of these people will be forced to close their doors with nothing to show for their years of hard work. Some will have to reenter the work force as low wage service workers because their too old and their bodies are too worn out from the years of hard work.

There are a many reasons why this happens, but the main four are:

#1 The business owner did not plan or prepare for their exit or retirment

#2 The business cannot operate without the owner’s full time involvement or management

#3 The business has no employees or not enough to operate effeciently without the business owners labor or management

#4 The business owner did not develop systems and procedures to systemitize and simplify their business to operate without them

If you’re a solo contractor running a business from a truck or van, with or without subcontractors, many people think you have a lucrative job. They believe they could easily replicate your business by getting a license and a vehicle.

In reality, why would someone pay a large sum of money to buy your business when they could start a similar one quickly and at a lower cost?

You might know a seasoned contractor who has been successful for decades, relying on word-of-mouth referrals without a website or online presence.

If this sounds like you, I’m sorry to say that your business and client base may not be as valuable as you think when you try to sell.

You might even end up working for a big company just to make ends meet in retirement.

Don’t assume your client list is worth a fortune. The truth is, clients work with you because of your personal touch, and statistics show that most will switch to a competitor once you’re no longer involved.

I’m not trying to be harsh, but I want to warn you about the reality so you can plan ahead.

So, we need to ask ourselves: why do these businesses struggle to sell, and what’s a better solution?”

Change Your Mindset and Change Your Business

The solution for many contractors is they are going to have to face reality and make some big changes if they ever want to have a chance to retire with an income.

But change is tough. I get it.

The alternative is that after decades of running your small company, you are left with nothing and no retirement.

You don’t want this to happen to you so you are going to have to change your mindest to make changes in your business. Just like you have done building your company,  through hard work, sacrifice, and time, you can set yourself up for retirement.

These changes will include:

#1 Systemetize their business

#2 Brand and market their business

#3 Hire 2-5 or more employees to replace them and bring in more revenue

#4 Grow and scale the business to operate without you

This all sounds great you may ask, but how do I do this?

The Solution is to Retire in Place

One option I recommend to my clients is to create a ‘hands-off’ business.

This approach isn’t about selling your company, but rather setting it up to run smoothly without needing your constant supervision. This way, you can earn a steady income and focus on the things you enjoy.

You’ll still own your business, but you’ll hire professionals to handle the daily tasks. To make this work, your company needs to generate enough income and profit.

I’ve used this strategy with one of my own businesses, and it only requires about 10-20 hours of my time per month. I’m fortunate to have my son helping me, and I’ve taught him well. He earns a good salary and a share of the profits, and I still get a steady income without having to work full-time.

The best part is that I get to keep control of my business, look out for my customers and employees, and earn a steady income for as long as I live.

When you create a business that can run without you, you’re no longer tied to the daily grind, free to pursue your passions, golf, surf, travel, or simply enjoy the fruits of your labor.

I love this approach because I enjoy the work, but I don’t have to put in long hours anymore. Now, I have time to focus on my other business, Contractor Brotherhood, and spend quality time with my family.

Please contact me if your a contractor or home service business owner who would like a free strategy call on how we can help you get there with the right systems and people who can get you there much quicker.

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