If you are thinking of selling your plumbing and/or HVAC business, I have good news for you. The market is good for plumbing and HVAC businesses. The Covid-19 pandemic has not hurt the selling prices of businesses that continue to do well in spite of it. There are many buyers for plumbing businesses. In addition to other plumbing companies and plumbers, individuals without a plumbing background are buyers. Every plumbing company does not sell for the same price. According to DealStats, most plumbing and HVAC businesses, with between one and five million in sales, sell for between 31% and 60% of sales. That is a big range. There are a number of things that you can do to make your plumbing and HVAC business sell for a better price.
The one factor that influences the price more than any other is the “owner’s cash flow” of the business( also referred to as seller’s discretionary earnings). That is the total income available to one working owner. It is the total of the owner’s salary and benefits plus the profits of the business. In addition to this, interest is “added-back” because a business is normally sold debt-free. There are other adjustments also, such as taking out one-time income or expense and adjusting for depreciation vs capital expenditures.
One of the more important other factors that affects the selling price is the quality of the company’s financial statements and tax returns. Keep them accurate and current. Be sure that all of your sales are included. It’s okay to expense typical personal benefits such as company cars or some travel and entertainment. Be sure to track as much detail as possible. Buyers will want to know how much of your sales come from service vs. renovations and new construction. Be sure you keep the revenue and expense categories the same from year to year so a buyer can compare.
Profitability makes a difference in how much your plumbing and HVAC business will sell for. Profitability is how much your owner’s cash flow is as a percentage of sales. According to DealStats, the percentage for most plumbing and HVAC businesses ranged from 12% of sales to 23% or sales. Businesses that are more profitable will sell for a higher multiple of owner’s cash flow. Whether you bill based on time and materials or flat-rate, you need to be sure you are billing at a profitable level. If you do work for contractors, be sure it is profitable enough.
There are other factors that affect the selling price also.
One of the more important other factors is having management and good employees in place. Most buyers don’t have extra plumbers or managers to operate your business. The more your business can operate without you, the better it is. If you are the only person who is licensed as a master plumber, it could be a detriment to selling to a non-plumber buyer.
Don’t make your business dependent on a few customers. This can happen when a company does a lot of work for contractors. If one of them gives you a lot of business, a buyer will offer a lower price due to the risk of losing that customer.
Have a marketing program in place so sales come from more than just the owner’s reputation. A Google AdWords or Angie’s List campaign to bring in customers are a couple of effective marketing programs for many plumbing companies. Also, be sure that your online reviews are very good. Consumers looking for a plumber look at them and use them to make a decision on who to call. Buyers for your business will look at them also.
If you still have a few years until you plan to sell, increasing the sales, and the owner’s cash flow with it, is an excellent way to increase the selling price of your business. Be sure that the business you add is profitable business and not dependent on a few customers.
When you decide to sell, use a business broker to sell your business. As I showed earlier, the selling price of plumbing and HVAC businesses vary a lot – much more than the cost of using a business broker to sell your business. A business broker will find more buyers and that will result in your business selling faster for more money.
If you are ready to sell now, contact us. We can give you advice regarding your situation and do a valuation of your business so you have a better idea of the selling price you are likely to get.