Valuing a Plumbing Business
In today’s market, there is an ever-increasing demand for plumbers. In the state of Utah, a state that has seen drastic growth, the demand far surpasses the supply of plumbers. For many other states, this is the case as well. With such a demand, we have seen a spike in the buying and selling of plumbing businesses. Whether you plan on selling a plumbing business or buying a plumbing business, it is important to understand the fair market value of a plumbing business.
There are dozens of factors that can impact the value of a plumbing business. As a business appraiser, Peak Business Valuation works with dozens of individuals who are buying, selling, or growing a plumbing business. An important step of this process is obtaining a business valuation. Below we discuss some of the factors used in valuing a plumbing business. Keep in mind these factors are only a guide. For more specific information about valuing a plumbing business you are looking to buy, sell or grow, schedule your free consultation with Peak Business Valuation.
Market Multiples for a Plumbing Business
- SDE Multiple Average: 1.68x – 2.97x
- EBITDA Multiple Average: 2.43x – 4.45x
- REV Multiple Average: 0.34x – 0.66x
** Disclaimer: These multiples have been provided for educational purposes only. Multiples are based on companies with revenues between $1-$5 million. As such, the information provided does not constitute valuation advice and should not be acted as such. These multiples do not represent the valuation opinion of Peak Business Valuation or any of its valuation professionals. Instead, you should seek the guidance and advice of a qualified business valuation professional with respect to any matter contained in this article.
By understanding what the value of a plumbing business is, you can take steps to increase the value. This is helpful whether you are expanding your plumbing business, acquiring a new plumbing business, or want to maximize the value of a plumbing business before selling. Here are a few ideas to help you increase the value of a plumbing business. If you are searching for a more extensive business valuation, schedule a free consultation with Peak Business Valuation.
Key Success Factors
Peak Business Valuation values plumbing businesses on a regular basis. Below are several key success factors that can help distinguish your plumbing business and increase the value of a plumbing business.
First, the service mix of your plumbing business plays a large part in the value of the company. Services can range from commercial and residential construction/installation to service and maintenance, and emergency repair. With the recent pandemic, we have seen a slow in commercial construction, while residential construction continues strong growth because of increased consumer spending and low lending rates. Business models for a plumbing business can vary quite significantly. As such, it will impact the value of your company. A valuation expert will compare your business model’s service mix to the average of the plumbing industry.
Next, steady, repeat business is key to maximizing the value of a plumbing business. Ongoing service and maintenance contracts are extremely helpful to sustain profitability. Not to mention, these contracts can also be easily transferable to a new business owner. Recurring revenue provides predictable revenue that is expected to continue in the future. This tool also reduces owner dependence. For more ideas on how to better serve your plumbing customers see, Growing your Business through Recurring Revenue.
One of the largest factors impacting the value of a plumbing business is the dependence on the owner. For many plumbing businesses, the owner is the key employee. This makes it difficult to sell and as a result much less valuable than a company that has a fully operating, skilled, and independent team. As such, building a skilled team can be extremely helpful. In addition to your team, be sure to document all key information and processes. For more information see, Reducing Owner Dependence.
Having a skilled team is one of the most important factors, specifically for individuals who are looking to sell a plumbing business or a potential buyer of a plumbing business. A buyer will want to walk into a business that is highly functioning and trained. Creating a consistent training program is key to ensuring all your employees are held to the highest standard of service. This can also decrease your liability and help ensure your technicians stay up to date with their skills and any new techniques and services.
Green initiatives are becoming more important as individuals are seeking to do their part in preserving the planet. For consumers, we are seeing an increased demand for eco-friendly products and services. Offering green alternatives to your current product mix can be a great way to boost your current revenue. As these products often have higher margins, adding green product offerings can not only build your cash flow but help your business stay competitive.
Last, specialized service businesses such as a plumbing business often require licensing. If you as the owner are the only person in your business with licensing, this will become an issue when you are trying to find a buyer.
The highest level of licensing for a plumber can take years of training to obtain. This may turn off prospective buyers who do not already hold the license. This is where you can take steps to increase the value of your plumbing business and create more ease in finding a buyer. The more of your employees with licensing and up-to-date training, the more valuable the plumbing business becomes.
There are many important factors to consider when valuing a plumbing business. Understanding the value of a plumbing business is important whether you are looking to buy, sell, or grow a plumbing business. Obtaining a business valuation from Peak Business Valuation can help you understand the fair market value. It can also identify opportunities to grow and maximize the value of a plumbing business.
Peak Business Valuation values plumbing businesses across the country on a regular basis. We are happy to answer any questions you may have about understanding the value of a plumbing business. Reach out via email or by scheduling your free consultation below.
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