I receive calls like this regularly, and they’re some of the most difficult conversations I have. A single operator, who’s been working hard for years, is finally ready to retire or leave the business. Or his family is calling after his death, asking me what his business is worth. My response, almost every single time, is “I can’t help you.” Here’s why.
First, I never get a call from someone telling me “I’d like to buy a business where I work in the field 14 hours a day, in all kinds of weather, then come home and do six hours of paperwork every evening after dinner.” That’s no one’s idea of owning a business. In fact, that’s why this single operator is calling me – it’s no longer his dream, either.
What this owner has is a job, not a business. And it might be a great job. With no overhead, no office, no staff (he can outsource when he needs extra help on a job), his margins are about 50%. He’s probably making six figures, and he doesn’t have a boss looking over his shoulder or questioning why he needs a day off. That’s not a bad deal. But it’s not a sellable business, either.
When I take on a listing, my first job is to envision who might want to buy this company. There are three potential buyers for an owner/operator company, and all three have barriers to buying a business like this.
Large HVAC companies might be interested in acquiring a new territory or a solid customer base, but they can’t operate the company the way the owner has been. They’ll need to lease an office, hire staff, buy more trucks, raise prices, and start to scale the business. They’re going to want to purchase this operation at a deep discount because it will take years for them to become profitable. Many of the long-term customers will be unhappy with the price hikes and not being able to deal with the previous owner whom they’ve known and trusted for years. They’ll wind up moving their business.
Large companies will either pass or make an offer that’s a fraction of what the owner thinks it’s worth.
Another single operator understands the business model, but they already have more work than they can handle. Unless they’re at the point where they’re ready to grow their operation into a full-scale business, they’d be crazy to pay someone to sell them customers they won’t have time to service. The idea simply doesn’t make sense for them, even if they had the time and money to think about making an offer.
The most likely buyer for a business like this is a person just getting into the industry. A recent graduate from trade school or an HVAC employee who is ready to go out on his own. They’re willing to work hard and put in the time to be successful. But they almost never have any capital to buy a business.
There are only two solutions for getting this person to buy your operation. The first is to bring them into the business and get them ready for ownership over a couple of years. But that costs the owner money, and if the agreement doesn’t work out, the owner is right back to square one. The other solution is to become the bank; self-finance the deal and hope that the new owner can make a go of it. That’s an enormous risk, considering that they’ll be a first-time business owner.
What I tell single operators is that the business isn’t sellable, except under very specific circumstances. If they enjoy the work and can continue to do it for the next few years, they should do so. Create a plan to exit the business as soon as possible, in close consultation with your financial advisor. Save as much money as you can and invest it wisely. You can still have a comfortable retirement, but the proceeds from selling the company you’ve worked in for so many years won’t be able to fund it. I’ve made a short video about this topic. View it here.
