If you are a licensed plumber who has had success with plumbing services within your local area, then you may be a good candidate to sell your plumbing company. This is particularly the case if you have different life goals and ambitions for your future. In this review, we discuss how to sell a plumbing company. We highlight industry trends, how to determine your business valuation, and what steps the sales process involves.
About The Plumbing Industry
Plumbing services are essential for residential and commercial properties throughout the United States. Consequently, the plumbing industry continues to thrive. As a result, now is an excellent time to sell for many companies as they can receive more than fair market value in many cases. Here are several key figures concerning the plumbing industry:
- There are approximately 125,000 plumbing companies and contractors in the U.S.
- There was a 2.3% annual growth rate for plumbing companies between 2018 and 2023
- There is a -0.6% projected growth for plumbing companies between 2023 and 2028
- The annual revenue for the plumbing industry is $128.7 billion ($5.1 billion profit)
As can be seen, the plumbing industry has grown significantly over the past five years. However, its growth is likely to halt over the next five years. Unlike cheese and wine, business valuations do not continue to grow over time. This means that now more than ever is a good time to sell for many plumbing companies.
How Do I Determine The Value of My Plumbing Company?
There are different types of business valuations. The one that works best for your plumbing company depends on several factors. The most notable types of business valuations include:
- Asset Valuations
- Owner Benefit Valuations
- Capitalization of Income Valuation
- Market Valuation
Your business broker can assist you with determining the type that is most appropriate for your plumbing company. In general, rule of thumb data, geographical location, and future projections play an integral role in the valuation.
Use Rule of Thumb Data
Rule of thumb data is a simple way to approximate the worth of your plumbing company. It is not to provide a precise value. However, for both plumbers and business brokers, rule-of-thumb data offers an excellent way to start certain types of valuations. So, how is rule-of-thumb data calculated? Quite simply, rule-of-thumb data provides calculated averages based on the most recent sales data within the plumbing industry. For instance, Business Reference Guide provides the following figures:
- Plumbing companies sold between 1.84 and 3.94 times the Seller’s Discretionary Earnings (SDE)
- Plumbing companies sold between .72 and 1.64 times the company’s Gross Profit
- Plumbing companies sold between 2.73 and 4.57 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
The valuation you receive from rule-of-thumb data should not be used as a direct indicator of your plumbing company’s worth. Instead, it serves as a starting point and tentative guide to your potential worth.
Consider The Intrinsic Value
Rule of thumb data is available to help you formulate a tentative idea of your plumbing company’s valuation. However, although rule-of-thumb data is important, it is on its own not reliable enough. Instead, you should also consider the intrinsic value. Specifically, this is what makes you different than your competitors and what is often the most attractive to prospective buyers. For example, this could be the special bond you create within your local community, which is often reflected in the quality of your reviews. A proper valuation identifies and considers this unique value.
Consult With a Business Broker
Of course, the best way to determine your plumbing company’s value is to receive a professional business valuation from an experienced business broker. They can review all of your financial information along with acquisition multiples such as SDE and EBITDA, along with an evaluation of the intrinsic value you have, to provide an accurate business valuation for your plumbing company.
What is The Process of Selling a Plumbing Company?
The process of selling a plumbing company is different for every company. The fact is there are no textbook examples of how to achieve a successful sale as no two businesses are the same. Consequently, brokers who offer cookie-cutter solutions often do not acheive the intended outcome for their client. While personalization is the key to any great sales strategy, there are steps that you can expect throughout the sales process for your plumbing company. These steps include:
- Receive a business valuation from a licensed business broker
- Prepare all of the documents you will need to complete the sale
- Determine the appropriate time to market your plumbing company
- Market your plumbing company and find the right buyer in a confidential manner
- Complete the due diligence process and prepare to finalize the sale
- Finalize the purchase agreement and all additional paperwork (i.e. non-compete clause)
As discussed, the first step is to contact a business broker you can trust for a business valuation. This provides an idea of how much your business is worth and allows you and your partners to decide if and when to sell the business.
Once you bring your business to the market, you should prepare everything in advance; your broker, lawyer, and CPA (f applicable) can help you with this process. Next, it is time to find the right buyer by executing a sound marketing strategy. Once you have a letter of intent to purchase in place, the buyer will go through the due diligence process before the deal is finalized and the sale is complete.
Get Started With a Professional Business Valuation
Sigma Mergers and Acquisitions offers professional business valuations for plumbing companies. We also assist our clients throughout the sales process, from determining the appropriate time to sell your company to assist with due diligence and the purchase agreement. We encourage you to schedule a free consultation to learn more and get the process started.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!