Why Plumbing Companies Fail to Sell and Tips to Create a Working Exit Plan

There are over 128,000 plumbing companies in the United States. Every plumbing company owner is different, but they will all exit their business someday. Every plumbing company owner will either shut down their business, sell it, pass it down, or die. No matter which path they take, all paths lead to an owner eventually leaving their plumbing company. This reality is why every owner needs an exit plan to ensure a smooth transition from one owner to the next.

Sadly, most plumbing companies lack an actionable exit plan. In the United States, 8 out of every 10 businesses will never sell because their owners have not prepared the companies for their departure. It is in your plumbing company's and your team's best interest to create an actionable exit plan.

Here are a few reasons many plumbing companies don’t have an exit plan, along with tips on how to make one.

Owners Run All Daily Operations

Plumbing companies represent a working-class success story. A plumbing contractor learns their trade, grows as a professional, saves money, and eventually starts a plumbing company consisting of themselves, their tools, and their truck. The owner does all the work because they are the only person who works there.

As the company grows and the owner hires employees, the owner never relinquishes any management responsibilities. The plumbing company owner has created a profitable business, but they are involved in nearly all daily operations and are the only person with the proper licensing. Many plumbing companies operate this way until it is time to sell.

This dynamic makes it almost impossible to sell a plumbing company because the owner spent no time delegating responsibility or training a replacement. Your business can’t be sold because no one is qualified to run it.

This lack of delegation may be fine when you are running your company, but it kills your company's value when you leave because your business literally cannot operate without you. Invest in your employees. Train them, promote them, and pay them. The time and money you spend on them will pay off handsomely when it's time to sell your plumbing company.

Bad Bookkeeping

Selling your plumbing company successfully means making the process easier for the buyer and their team. This means the due diligence process must be organized and free of chaos.

Today’s buyers aren’t likely to come with cash; they are likely to come with a lender. All lenders want to see well-organized business records to mitigate risk and ensure the companies they finance generate sufficient revenue to repay the loan. They will want to see a current balance sheet and an accurate profit and loss statement that meets industry standards. No lender wants to deal with chaotic books that show large chunks of money going out as seller discretionary earnings.

Many plumbing company owners keep chaotic financial records. If the buyer’s lender can’t clearly see that you have a steady income stream and predictable profitability, they aren’t going to close your deal.

Organize your financial records to industry standards. Clarity attracts buyers, and lenders are less likely to walk away if they see you are a profitable, well-organized business.

No Documented Process and Structure

Nothing hurts a plumbing company’s value more than chaos. Even the perception of chaos can undermine a plumbing company’s value.

One of the biggest reasons profitable companies don’t sell is that they lack a documented structure. A plumbing company is profitable and employs competent workers; however, there is no written policy or chain of command beyond the owner. Everyone knows their job, but what will your team or the new owner do when your inevitable departure leaves a void in the company’s structure?

Who runs service? Who runs new construction? Who prices re-pipes and replacements? Who manages warranties and callbacks? Who handles vendor relationships, scheduling, dispatch, and collections? A buyer has no idea how to answer these questions unless processes and chain of command are documented.

Take the time to document your job processes and the company-wide chain of command. Documenting these will increase your company’s value when it is time to sell.

A Lack of an Exit Strategist

The hardest part of selling your company is finding people you trust to give you the straight truth. Everyone involved, from yourself to the buyer and the business broker, has a different incentive to get a deal done. You need a third party with no skin in the game and compensated on a flat fee.

This is why hiring an exit strategist is important. You have someone who can tell you the strengths and weaknesses of your plumbing company, and their payment is not tied to the outcome of your deal.

A good exit strategist will provide you with a qualitative and quantitative way to measure your plumbing company’s exit readiness. They can present a detailed report with data and explain how they gathered it. The report will incorporate real numbers from your CPA and bookkeeper and compare your exit readiness with that of other plumbing companies of your size and niche.

It is hard for many plumbing company owners to see the flaws in their business. An exit strategist can objectively assess your company and identify what needs fixing and what doesn’t.

Measuring Exit Readiness

Not every plumbing company owner has the resources or desire to hire an exit strategist. However, you still need to prepare an exit strategy and assess your exit readiness.

Creating an exit plan is a long process. It will take years to develop properly. You need at least three years of accurate bookkeeping so you can ensure your financials are accurate when it is time to sell.

What is the current value of your business? Start with a range and then become more specific as you zero in on the number. Focus on the next few years. You need to run an internal report to identify the items within your company that are suppressing its value. Every company has issues, so be brutally honest with yourself and your team.

Create a plan to address those issues based on the timeframe you set for your company's exit. A good exit plan will span three to ten years. The earlier you do this, the better, because more time spent fixing issues is time spent improving your company.

It is important to remember that an exit plan doesn’t have to center on an exit in the near future. Sometimes the best exit plan is to grow your business over the long term. Growing your company by acquiring more customers or buying competitors can be easily incorporated into your exit plan. You don’t have to stop growing your business. You just need to know what the end goal of growth is and how to capitalize on it when it is time to leave.

Every plumbing company owner will eventually leave their company. Creating an actionable exit plan will position you and your team for success when it is time to move on. Your plumbing company is likely your largest asset, so it makes sense to create a plan that maximizes its value when it is time to exit.