Value Drivers for a Plumbing Business
The plumbers’ industry is heavily influenced by the construction industry. As the demand for residential construction increases, so does the demand for plumbing services. Plumbers incur revenue through regular maintenance, repair work, and installation of new pipes and plumbing fixtures. The industry expects to continue growing over the next five years. As such, it is a great time to consider buying, selling, or maximizing the value of a plumbing business.
When you receive a valuation from Peak Business Valuation, our business appraisers will discuss specific value drivers for a plumbing business. These value drivers are very important to the success of your business. For more information, please schedule a free consultation using the link below.
Value Drivers for a Plumbing Business
Below are important value drivers for a plumbing business. A valuation expert will consider these value drivers when determining the value of a plumbing business. See also, Valuing a Plumbing Business, How to Value a Plumbing Company, and Valuation Multiples for a Plumbing Business. For questions, reach out to Peak Business Valuation, business appraiser.
Product & Service Mix
With the recent pandemic, commercial construction has declined, impacting industries like plumbing. While commercial demand decreased, residential demand increased. This forced plumbers to change their business models and adapt to new environments. To succeed, they must increase focus on residential plumbing opportunities. A valuation expert will look at the split of revenue between residential and commercial. They will compare these to industry averages.
Specialization
There are nearly 130,000 plumbers’ businesses across the country. Offering specialized services or products is essential to company success. Plumbers offer several types of services including repairs, regular maintenance, and installation. Setting your plumbing company apart is key to increasing revenue. Revenue directly impacts the value of a company.
Owner Dependence
Next, creating a less owner-dependent plumbing business is a very important value driver. For many plumbing businesses, the company revolves around the owner. This creates a lower business value. It also prohibits the business from growing and bringing on new revenue. If you are looking to sell, seek to reduce owner dependence. There are many ways to do this. It can include creating systems, documenting information, and creating training, among others. For more information see Reducing Owner Dependence. This will be one of the more important value drivers a potential buyer will look at.
Trained Team
Next, most plumbing companies average 4.5 employees. These low numbers can make it very hard to expand a business. If you do not have trained and experienced plumbers, you will be unable to acquire new sources of revenue. If you want to sell your business, this is one of the most important things to have settled. A trained team and licensing reduce the owner’s dependence. In addition, having trained employees are very valuable to a potential buyer. It also increases the overall value of a plumbing business.
Licensing
Being a plumber requires an apprenticeship and over 8,000 hours of on-the-job training. Having a fully-licensed team is essential when selling or maximizing the value of a plumbing business. As an owner, it is important to take the steps necessary to create a trained staff. Encourage current employees to start an apprenticeship or offer on-the-job training. The more licenses a plumbing business has the more valuable it will potentially be.
Recurring Revenue
Plumbing businesses have a lot of opportunities to incur recurring revenue. Recurring revenue comes from signing contracts with individuals or businesses for regular maintenance work, repairs, and new developments. This value driver is easily transferable between owners. Recurring revenue is key to maximizing the value of a plumbing business.
When you receive a business valuation, recurring revenue is more valuable than other types of revenue. A buyer will be more inclined to purchase your business if it has plenty of recurring revenue. For more information, please contact our business appraiser by scheduling a free consultation. See also Growing Your Business Through Recurring Revenue.
Service Contracts
Last, signing service contracts is a great way to gain recurring revenue. Whether you are doing installations or regular maintenance, obtaining service contracts will significantly increase the value of your plumbing business. Service contracts ensure the quality of the work that has been done. They can also help prevent and solve problems in the future. Service contracts help establish solid customer relationships which bring in further revenue. A valuation appraiser will consider customer concentration and service contract revenue when valuing a plumbing business.
Summary
There are many growth opportunities available in the plumbing industry. Key value drivers for a plumbing business should be the top priority for a business owner who is wanting to buy, sell, or grow their plumbing business. Each value driver offers unique and specific advantages.
A third-party business valuation is a great way to understand the value of your plumbing business. It can also show you the factors that drive the value of a plumbing business. Peak Business Valuation, business appraiser, would love to discuss the opportunities your plumbing business has to grow. Feel free to contact us by scheduling a free consultation below.
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