How can you value a small plumbing and heating business?

[A1P]

I think we would all agree that a small business relies to a large degree on its owner's skills.There are numerous threads on selling yourself to the customer,'people skills',excellent workmanship.fair prices etc.If this is so important ,is it possible to put a monetary value on such a business?The reason I am asking is that I want to help my son to have a business with enough work to be viable enough to cover the cost of a house/possible future family.He put himself through Technical College while working and added Gas Safe to his NVQ3 .He did practical work with 2 experienced tradesmen.He has grown his business from scratch over the last 6 years entirely through referrals and he genuinely loves the work.The problem is work is so hit and miss.There are 20 plumbers within 2 miles of where we live in West Yorks.

I am looking at the possibility of buying all/part of an existing business or from a retiree. The main benefit is buying customers/work.The main problem is can customers/work be secured this way? I am a realist and already have a list of possible problems.I would welcome your thoughts on this.Eventually you will all have a business to dispose of!!!!

 

[Howsie]

On its books and customer base, nothing else really comes into in i'm afraid.

It's a good way to buy into the market/area. IMHO you must ensure that you make the business better in every way otherwise your competition is just going to capitalise on the change.

 

[jtsplumbing]

Make sure that you buy the telephone numbers, both Landline & Mobile and web page if they have one. Only 20 in a 2 mile radius, Plymouth area has over 600 !!

 

[Killy Bing]

Ive never considered this before however in my thoughts it will be a double edged tactic.


if you get the opportunity to do this, have your son be part of the business for say 6 months to a year. Then do some sort of take over flyer with a photo of him, say some of the customers may have met him and hes now taken over the business.

would ease any unsure feelings over a new company owner.

 

[lame plumber]

buying someone else's customer list isnt a guarentee of work, a good percentage will walk away, some will drop out anyhow and youll be getting new ones through your own ads anyhow. A local plumber in my area retired and passed on all his customers to his ex apprentice who had worked with him for 5/6 years.within 6 months the lad had gone back to factory work having lost the whole customer base in 6 months even though most knew him. He wasnt the old boss who everyone trusted and liked!

 

[REDSAW]

you can only value a construction/service business on

a) the value of future booked contracts, service work and repeat work (such as annual boiler services)
b) the total working stock, tools vehicles etc.
c) goodwill, trading title, based on a percentage of the business's t/o using their returns. typically 20% plus above.

 

[Phil]

Hi What part of Bradford are you from? I'm from Bingey, maybe I'm one of those 20 plumbers?

 

[neild]

What are the guarantees of his customers becoming yours?

 

[SimonG]

I would think there is very little value in a small plumbing and heating business. Other than hard assets as such (tools van etc), any confirmed orders on the books then it's purely good will. A list of names and addresses of past works and services isn't going to guarantee any future work.

 

[mountainman]

Ten per cent of last years declared turnover would be in my mind.

 

[REDSAW]

one thing to bare in mind...no customer is loyal!!

 

[thompsonbrown]

There are pro's and con's with buying any business.
And well established business can bring in lots of business based on its own merit.
Here's a few things I would consider before investing.

Ask to see the last 7 years of accounts to get a feel for real turnover.

Business rates can be a killer see if you could negotiate new terms.

Dont be fooled into thinking the £-stock supplied with the business is worth anywhere near the real value. Most plumbing manufactures will supply plumbing equipment to display either free or heavly discounted.

What guarantees must you honour?

Ask how many of there suppliers, have contracts to supply items solely to this company in that area. and what are the terms.

Does the business have a good website?

These are a few things I would consider before investing, but the main thing you need to know would be, has your son got a good business head?

Being a good plumber and being a good business man really are too different things.

 

[lame plumber]

true, got a call to a combi tonight, cant get to them till thurs (too busy damit) and they said no problem I'll go elsewhere! know anyone, so being a good sort I mentioned right local cowboy, been with me 5 years and off at the first issue, still they may well be back

 

[REDSAW]

i like your way of thinking (on this one ) might try that myself lol

 

[lame plumber]

i like your way of thinking (on this one ) might try that myself lol

always pleased to help a plumber learn the trade

 

[A1P]

Make sure that you buy the telephone numbers, both Landline & Mobile and web page if they have one. Only 20 in a 2 mile radius, Plymouth area has over 600 !!

If for example the purchased business is 10 miles from your base the telephone No.will be an issue.Your home no. would indicate a non-local business which could lower customer confidence/loyalty.Possible use of a free phone 0800 no.Mobile less of an issue.Not sure about buying the nos.

 

[A1P]

On its books and customer base, nothing else really comes into in i'm afraid.

It's a good way to buy into the market/area. IMHO you must ensure that you make the business better in every way otherwise your competition is just going to capitalise on the change.

I think a close look at the books for possibly upto 5 years would be essential.I think I heard a quote that Turnover was vanity,Profit (Net ) was sanity.

As regards customer base.It would be good to see how many are 'regulars'.If buying from a retiree this could be a good thing or it could be a test of loyalty.I've been with 'Fred' 40 years ,who is this young whippersnapper/'.This leads on to the wider issue of loyalty.Can customers be bought?How loyal are people these days.Often their loyalty is to the current owner.Someone posted a cautionary tale of a business passed to the apprentice who knew many customers and it had folded in a few months.Are many just loyal to price? I think a reasonably long handover period would be important as a way of meeting the 'best' customers via the seller.This would give a chance to assure them of a high quality service.

 

[A1P]

you can only value a construction/service business on

a) the value of future booked contracts, service work and repeat work (such as annual boiler services)
b) the total working stock, tools vehicles etc.
c) goodwill, trading title, based on a percentage of the business's t/o using their returns. typically 20% plus above.

As regards stock,tools,vehicles,a fair but hard-headed price as a fair amount will duplicate what you have.He will not want someone to pick and choose.
Re-goodwill,trading title.This will have to be kept on so that in effect you finish up with 2 businesses.I can see a good accountant being needed to do the tax etc.You could even finish up with 2 'stickered vans for yours and his customers!!!!
If he has an employee this creates an issue.If you let them go -bad will.You would have to get on with them to keep them on.There is a lot involved in having full-time employees.

There is certainly a lot involved.Buying a business almost certainly creates more than a 1 man business or there would be no point in doing it. Anyone in West Yorks gets any 'as and when needed work' for a hardworking Gas Safe plumber,please contact !!!

 

[glenno1]

i would Invest your money in advertising and get it out there constantly reminding customers that your there

 

[woodsy]

I live on the edge of Bradford , Leeds & Kirklees - 1/2 mile either way and i'm in one or the other. I think you are very optimistic if you believe there is only 20 plumbers within a 2 mile area round here. I agree with many of the comments that i personally wouldn't buy a one man business as the majority of there customers will be affiliated to the particular person of the business and you would basically be buying goodwill, of which there is little about. In my opinion its just a case of keeping his head down and building his own customers, not expecting it overnite.

 

[jase158]

I would love to sell my business, live too far away though, I would sell for last years turnover, would get me debt clear would work for someone for a year and get ready to start again!! so much I would do different

 

[woodsy]

I think a close look at the books for possibly upto 5 years would be essential.I think I heard a quote that Turnover was vanity,Profit (Net ) was sanity.

I agree with the quote but i think most of us are hanging on to the first as the second one, profit is a myth and only in Fairy stories.

 

[A1P]

I live on the edge of Bradford , Leeds & Kirklees - 1/2 mile either way and i'm in one or the other. I think you are very optimistic if you believe there is only 20 plumbers within a 2 mile area round here. I agree with many of the comments that i personally wouldn't buy a one man business as the majority of there customers will be affiliated to the particular person of the business and you would basically be buying goodwill, of which there is little about. In my opinion its just a case of keeping his head down and building his own customers, not expecting it overnite.

We live in Bradford 6 and I am going on the number who advertise in the local area free magazine so probably a few more.It is not a matter of wanting anything overnight,7 years is hardly that.The point is advertising is expensive and far too many competitors.We have tried all the suggestions on the Forum but basically it has been from scratch via referrals.Our local Free Paper had a feature advert this week for The Inexpensive Plumber-Hourly rates from £5 no wonder things can get desperate.I still believe there is some mileage in adding another business or forming a partnership but as you can see from my posts I am not going to be throwing money around and whether a seller would accept all my 'safeguards'mentioned in posts above, I am not sure.

 

[Ray Stafford]

A wise old gent once told me "There is no such thing as a customer list. What you have in your hand is a list of people who bought stuff off you LAST month."

I would be very wary of buying a domestic plumbing business for all the reasons other posters have listed.

A commercial business with existing contracts, or even a service company with a large number of boiler services on the books might be worth something, but in the latter case, be sure to check how many actual services were generated by the database. Its one thing to know when a boiler needs servicing, its another matter entirely to persuade the householder to pay for it.

 

[nicro3]

I agree with Thompson on this one, a good business man will do well in any field. A good plumber is good at plumbing..