Consulting Project to Grow a Plumbing Company from $1.1mm to $4.5mm Annually

Overview

Industry: Plumbing Heating & Cooling
Entity Type: S-Corporation
Ownership Structure: Partnership
2018 Annual Revenues: $1,180,000
2018 Seller Discretionary Earnings (SDE): $80,000
2022 Annual Revenues: $4,500,000

2022 Seller Discretionary Earnings (SDE): $550,000

How They Found Acuity Edge

The owners of ABC Plumbing Company responded to an acquisition letter sent them on behalf of a buyer V4 represented seeking to acquire a Plumbing and/or HVAC company in Kansas City market area. After it was determined this business had financial reporting issues V4’ buyer passed on the opportunity. V4’s intermediary VJ Jonusas provided feedback to ABC Plumbing on why the buyer passed and what they could do to increase the value in the future.

Client Situation

ABC Plumbing had realized a ten-year stagnation of topline revenue around $1,000,000 per year for its last 6 years. The owners did not have a business attorney nor an ongoing engaged CPA beyond year-end tax returns. They also had no Business Plan, Growth Strategy, Operating Agreement and/or Bylaws. The back back-office manager was self-taught on QuickBooks which caused major reporting errors.

The approach to an advertising and marketing plan consisted of simply trying things based on available cash and ad-hoc guidance. One of the principals disengaged from the daily operations of the business and delegated that responsibility to an employee who had no management or business expertise resulting in too many call-backs on projects eroding profitability. The business leased three thousand sq-ft in an industrial park. Each owner pulled a $36,000 per year salary.

They considered selling the business when originally responding to V4’s solicitation but had no idea how businesses were valued and transitioned smoothly to a buyer for maximum value upon a liquidity event. After confirming with other trusted advisors all the issues needing attention and repair, they contacted Mr. Jonusas and requested a proposal for consulting and advisory services. The value of the
business at this time was estimated to be $350,000.

Consulting & Advisory Services

The engagement began December 2017, with Mr. Jonusas functioning as an outside business advisor and coach assisting the owners post a deep-dive analysis of each and every aspect of the business. A deficiencies report was generated along with a negotiated drafted growth roadmap, identifying needed improvements and action plans for ownership to implement.

Action Plan

Post this deliverable, the owners found it difficult managing the daily operations of the business and implementing all elements of the plan.

Within three months the engagement and relationship transformed into a daily hands-on role for Mr. Jonusas. As interim COO Mr. Jonusas immediately incorporated and drove sound business practices, documented processes and procedures (SOP’s) within each department and managed a newly developed strategic growth plan by assisting ownership augment its business culture, gorilla marketing tactics and identifying ways to diversify the company.

He assisted ownership hands-on with each new hire promoting the new vision of the company. This guidance and the development of a comprehensive business toolkit, banking relationship, CPA engagement and utilization for proper reporting provided the business a sound foundation to grow from.

Issues Identified

The owner’s and past manager found it difficult securing good employees. Call to action and branding efforts within marketing and advertising campaigns had no budget or business methodology. Industry standards within this service sector suggest 8% of annual sales be allocated towards marketing and advertising, ABC Plumbing only committed approximately 1%.

Such a budget must be driven by correctly pricing services and understanding how to sell value against a plethora of “Chuck and a Truck” competitors. Training and mentoring employees were nearly nonexistent prior to the consulting engagement.

Little if any technology was utilized to manage and run the business efficiently such as tablets and a CRM system with comprehensive reporting and accounting integration. Properly maintained equipment and vehicles caused service-call issues, and the lack of inventory management hindered growth and profitability.

Due to a combination of all the above, callbacks on poorly serviced customers continued to grow and the business suffered and stagnated and trapped the business with customers only looking for lowest bids on service. All growth, marketing and advertising initiatives were driven by the daily checkbook balance and an old working capital line of credit was nearly maxed-out.

The Fix

Mr. Jonusas launched new initiatives uncovered in the deep-dive and outlined within the comprehensive strategic growth plan. The low hanging fruit was launching gorilla marketing tactics company wide, solicitation of small commercial accounts and diversification of the business services.

Training technicians how to ethically upsell and not simply go to a customer’s home for the original service call. Through his network, Mr. Jonusas identified a bolt-on new HVAC acquisition and Ownership agreed. Within 90 days such a target was located and within another 120 days a merger was transacted.

To also assist in growth, Mr. Jonusas personally communicated with commercial accounts and new hires motivating these parties to jump on board. Ownership then agreed to recapitalize the business through personal real estate assets. A new CPA and business attorney were engaged, and the current banker signed on-to the growth plan and increased working capital lines.

With the fresh injection of working capital, new technologies, budgets, and incorporated best practices the business secured a top tear GM and CSR manager. Post-merger (1.5 yrs.) and fully absorbing the HVAC acquisition, ownership realized the following:

Outcome & Success

2020 Gross sales soared to $3,200,000 and a $500,000 line of credit was secured through Ford Motor Credit. A new Website was developed, vehicle wraps, and employee uniforms drove new excitement with employees and the business consistently upgraded employees where needed. In 2021 the business realized $4,500,000 topline with $550,000 of Sellers Discretionary Earnings. The company is now housed within a free-standing building 4x its previous size. The annual advertising and marketing budget is in line with industry averages.

Future Goal of Ownership

The exit strategy of ownership is to sell the business once debt is retired and the business valuation exceeds $3,000,000. The process to take this business to market will be to secure a strategic buyer through a highly controlled auction process.

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