It is always amazing to encounter a plumbing contractor with one or two trucks who wants to stay that way. These are lifestyle companies, not businesses. A business is a company that can run without the owner. Here are four reasons to build a business that most plumbers overlook.
1. Delegate Things You Hate
Everyone who owns a company, experiences aspects of ownership that are distasteful at best and downright detestable at worst. Yet, they must get done. Some things can be outsourced, which is why a good accountant and a good attorney are important. Unfortunately, some things cannot be avoided.
Grow a company large enough and it is possible to hire people to do the things the owner hates. Think of the things you dislike today. Wouldn’t life be better if you had someone to do them for you? That is what can happen when you grow a company and it becomes a business.
2. Self-Actualize
In 1943, psychologist Abraham Maslow published a paper where he described how people are motivated by a hierarchy of needs. This was depicted as a pyramid. Basic needs were at the bottom, starting with physiological needs (i.e., food, water, warmth, and rest) at the very bottom. According to Maslow, until physiological needs are satisfied, nothing else matters. Once they are satisfied, people next want safety needs (i.e., security and safety). When all of the basic needs are met, we focus on psychological needs, starting with belongingness and love (i.e., intimate relationships and friends), topped by esteem needs (i.e., prestige, feeling of accomplishment). At the pinnacle of Maslow pyramid is self-actualization, which is described as “achieving one’s full potential, including creative activities.”
Self-actualization is where the owners of true businesses operate. They work on the things they want to work on. They do what is enjoyable. They focus on activities where they can grow as business leaders and as people. It is a great place to be. When you grow a company to a business, you can self-actualize.
3. Make Money in Your Leisure
As long as they work with their tools, plumbers are making money from their labor and from their salesmanship. When they get out of the truck and grow, transforming their companies into true businesses, they make money from the labor of others. They make money from the sales of others.
The ultimate objective is to hire a general manager or head of operations to run business, allowing the owner to focus on strategy, to self-actualize, and to enjoy leisure. Lifestyle company owners can take a day off whenever they want, but they do not make money when they do. Business owners can take a month off whenever they want and continue to make money. Their businesses become money machines. As long as they keep them polished and in good repair, the business spits out money every day.
4. Generate Real Wealth
Lifestyle companies are not salable. Sure, someone might buy the customer list, but this is peanuts. There is true wealth to be generated from building a business that can be sold to others. Private equity had already discovered the service trades before COVID hit. The fact that plumbing is an essential business and plumbing companies continued to make money when other businesses were shut down did not escape private equity. The prices getting paid for good companies is increasing.
When someone buys a company, they are paying for a strategic fit or for future earnings. For a plumbing company to fit strategically, it must be substantial enough to serve as a platform in a given market. It must be a platform that can serve as the foundation for growth by acquisition of smaller tuck-in companies. The platform is paid a higher multiple of earnings.
If the buyer is interested in future earnings, these are discounted by the perceived risk associated with the company. Risk factors for essential businesses just got lowered.
Generate a business that can throw off a million dollars of earnings (or more) and you will generate real, after-tax wealth to enable you and your family to join the ranks of the multi-millionaires. That is a lot more fun than continuing to turn a wrench when you turn sixty.
Are you ready to grow your company into a business? The Service Roundtable will make it easier and faster with thousands of downloadable business templates, support from other plumbers, and cash rebates on the purchases from strategic partners. It’s only $50 a month. Give it a try at www.ServiceRoundtable.com. Call 877/262-3341 for more information.