Selling A Plumbing Company

Plumbing companies are generally considered excellent investments as most people ‘need’ rather than ‘want’ safe and workable plumbing fixtures. Some plumbing companies focus more on repair and service while others focus more on large-scale renovation or new construction projects. Buyers of plumbing companies may be individual plumbers seeking to strike out on their own, competitors seeking to expand their market position, or private equity groups that acquire larger plumbing companies for investment purposes. Prior to selling, it is important for plumbing company owners to have an organized set of financials, boost profitability, diversify revenue streams, and reduce the dependency of the business on the owner’s involvement. A plumbing company’s recurring revenue, physical assets, and licensing status all play a part in its valuation.

Valuing A Plumbing Business

Plumbing companies in Florida are valued at a median multiple of 2.8 x its annual adjusted owner benefit or Seller’s Discretionary Earnings. The adjusted owner benefit is the true economic profits of the business derived by a working owner, and includes the owner’s salary as well as the owner’s personal expenses that may have flowed through the financial statement. The higher the owner benefit and larger the plumbing business, the higher the valuation multiple. A plumbing business with an absentee owner or an owner that manages the business rather than working actively as a plumber on job sites will also sell for a higher multiple. This is because a buyer of an absentee-owned plumbing company is more likely to retain the customer base without using their own labor or incurring higher costs in replacing a working owner.

Evaluate Recurring Revenue

Recurring revenue is a continuing stream of safe, predictable, and reliable revenue that is expected to continue with a high degree of certainty. Plumbing businesses with a large degree of recurring revenue receive a premium valuation multiple since buyers are more assured of future profits. Customer service contracts which provide regular maintenance on a customer’s plumbing-related appliances (such as toilets, sinks, and showers) in exchange for regular fees represents a strong source of recurring revenue. Also, many plumbing companies have a long list of repeat customers (both residential and commercial) who periodically require service. Note that plumbing businesses which specialize in construction projects and remodeling jobs do not have the regularity of revenue associated with plumbing businesses specializing in service and maintenance.

Evaluate Physical Assets

Tangible or physical assets of a plumbing business typically consist of trucks, equipment, and inventory. While most plumbing companies do not have a large amount of equipment, a well maintained and valuable fleet of trucks is of paramount importance in valuing plumbing businesses. Large plumbing service businesses with multiple locations may employ dozens of technicians, each of whom may operate a company vehicle. The value of these physical assets will enhance the valuation of a plumbing company when it comes time to sell. It is important to clarify, however, if any debt associated with the vehicles are to be assumed by the buyer after the sale. If not, then the vehicles’ debt servicing costs are properly considered part of the seller’s adjusted owner benefit (as used for valuation purposes).

Evaluate Inventory

The inventory of a plumbing business refers to parts or appliances that are available for sale to customers. Most plumbing businesses keep a certain amount of inventory on hand so that they do not need to order a part or appliance before completing a customer job. Inventory is valued at cost, and may or may not be included in the asking price of a plumbing business. Many buyers of plumbing businesses may not want to purchase all of the seller’s inventory due to its age or obsolescence. If inventory is included in the asking price, then it should also enhance the business valuation along with the other conveyed tangible assets.

Licensing Status and Transition

In Florida, there are two types of plumbing licenses, a journeyman plumbing license and a master plumbing license.
Both have age, education, and experience requirements before allowing an applicant to take a comprehensive exam.
The journeyman license allows one to work as a plumber under the supervision of a master licensed plumber.
A master licensed plumber may work independently as a plumber without any supervision.
The Florida Department of Business and Professional Regulations (DBPR) allows master plumbers to be either a state certified plumbing contractor (who can work anywhere in Florida) or a registered plumbing contractor (who may only work in the locality where the exam was passed).
Journeyman plumbers may only work as registered plumbing contractors.
Any plumbing company in Florida must have a master plumber serve as its qualifier.
When it comes time to sell, some buyers (who lack the licensing requirements) frequently ask the seller to stay after the sale and serve as the qualifier for a negotiable salary.
For plumbing companies who have an employee with a master plumbing license, the buyer may use this individual to serve as the company’s qualifier.
Because the buyer in such cases does not have to rely on the seller to stay after the sale, the valuation of the plumbing business will be enhanced.

Valuing a plumbing business is dependent on the unique characteristics of the individual business being sold, which should be evaluated by a professional business broker. Important factors to consider are its historical growth rate, operating margins, transferable customer base, physical assets, licensing status, and degree of recurring revenue. The sales process itself should always be confidential so that its employees, customers, and competitors are unaware of the sale and so that the business may run smoothly until the business is sold.

Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.