Buying a plumbing company can be an incredibly smart investment – their services are in high demand and largely recession-proof.
This is likely to accelerate as the US sees a shortage of skilled workers.
Instead of starting from scratch and going through the long process of starting a business, hiring people and finding customers, you can buy an existing profitable business.
Let’s take a look at the things you need to know before buying a plumbing company.
Factors to consider beforehand plumbing shop
1. Market Analysis
You should conduct a thorough market analysis of the demand for plumbing services in your area. Is there a lot of new construction? Is it mainly domestic services like unblocking toilets? Is there a high demand for commercial services?
Check out the other plumbing companies in your area so you understand what your competition will be like. Is there a big player or is there a collection of small and medium-sized companies in competition?
2. Financial Analysis
After looking at the market, think about what kind of sales and profit margins you want to see.
Basic home services like cleaning toilets and fixing faucets have a gross profit margin of about 50%, and each truck you have brings in about $200,000 in annual sales.
Intermediate home services like installing or repairing water heaters and/or gas work have a similar profit margin, but each truck brings in about $300,000 in annual sales.
Underground plumbing work on sewer and water lines – whether residential or commercial – has a gross profit margin of 60 to 65 percent and each truck can fetch up to $400,000.
3. Legal Analysis
Plumbing is a highly regulated profession in the US, so you should make sure you are aware of all the rules and regulations required to work in your area.
A breakdown by federal state can be found here.
4. Operational Analysis
You should also make sure you buy a company that has all the necessary tools and equipment to do the type of plumbing job you want to do.
Buying the company likely means you get all of the existing employees as well. Make sure they have the appropriate experience.
Due Diligence Checklist
One of the most important steps when buying a plumbing company is to conduct extensive due diligence. Basically, you want to examine all aspects of the operation to make sure it’s profitable and meets your investment criteria.
- Preliminary due diligence: This is an initial review of the company’s records and documents to determine if it is a good fit financially, culturally and strategically. You want to look at financial data, employee salary information, customer lists, etc. from 3-5+ years.
- Operational due diligence: This process is much more future-oriented as you determine the sustainability of the company in the future. You basically want to ask yourself, “What do I do with it if it’s mine?”
- Legal due diligence: You should also review any legal risks associated with the business, including ownership, loans, securities, employment, or customer disputes. Is there a pending lawsuit?
Financing options for purchasing a plumbing business
Let’s look at some of the financing options for purchasing a plumbing business.
- self-funding: This basically means that you are funding the purchase with your own money, either personal assets or perhaps assets from a business you already own.
- bank loan: They go to a lending institution like a bank or credit union and ask for a loan. You must provide collateral and agree on a term and an interest and payment schedule.
- Small Business Loans: The SBA is a federal agency charged with, among other things, matching potential small business owners with the capital they need. The SBA won’t give you the money, but will guarantee a large part. You always get a loan from a bank that is insured with the SBA.
- Vendor Financing: It is very common for a small business seller to provide some of the money in the form of seller financing, essentially a private loan between you and the current owner. Similar to the bank loan, you need to negotiate the terms. Ten percent is standard, but it’s ultimately up to you to negotiate.
In order to raise the necessary capital to purchase a plumbing business, you will likely use a variety of the sources listed below.
A typical deal might look like this: You get approval for an SBA loan where you provide 10 percent of your own money, 10 percent of vendor financing, and the rest from the loan.
negotiation of the purchase price
Once you are confident that the deal is viable and stands up to the due diligence process, you will enter the negotiation phase.
Make sure you have a good understanding how much similar large or small companies in your area have sold for.
Determine a fair price that works for you and the owner. You should also work out payment terms, such as whether there is seller financing.
You should also ensure the transfer of the necessary licenses and permits.
Finally, you need to work out how the transition will go and whether you want to negotiate with the current owner to help in any formal way in the short to medium term.
Diploma
Buying a plumbing business can be a good move if you want to own a business that is profitable and always in demand.
Very few people have the technical skills to fix plumbing problems. It’s also not the kind of spending that people can just put off. If their toilet is clogged, they will have it fixed.
You should do a lot of planning to determine what the market needs are in your area and what type of work you want to specialize in.
You should also conduct a very thorough due diligence on the company before setting out to negotiate a final price.
urbanmatter.com
https://urbanmatter.com/things-to-know-before-buying-a-plumbing-business/
