latest early retirement idea

[huggytree]

i had originally thought of selling my business when i retire......but too many people now have told me my 1 man shop is worth nothing even though my sales are close to $600,000 a year....i dont get it, but almost no one thinks it has value being a 1 man shop

i am considering trying to retire at age 55.....one idea i have is to partially retire and hire a journeyman plumber to do 100% of the work....id answer the phone calls and do the bids (1-2 hours a day)......im thinking i can do this for 10+ years and probably still make 33-50% of what i do now...depending on how good/fast the employee is

my original retirement plan was age 65, but im having back issues and cant see working 22 more years in such a physical job....(im age 43)

anyone heard of someone doing this?

[billbenson]

I have been told my business has no value without me. That's because I know the marketing side as well as the product and sales side. Marketing being web marketing. I have a partner, but he doesn't know the web side / technical side. He does know the product and sales side. It's kind of my security blanket in the partnership. Without me the business wouldn't survive. Of course he could study and learn my side of the business as well.

You are kind of in the same situation. You certainly can find someone to do the labor. But without you the business would fail. I suspect many of the businesses on this forum would fall in that category.

The first step in your case is get a good laborer and do less of the physical work. It will probably mean a pay cut for you. But maybe not in the long term.

[Fulcrum]

How about solving two problems with one solution. Find that new employee you're after and groom him/her to take over for when you retire. This gives you the chance continue to grow the business to make it worthwhile for a new owner and eliminates the "one man show" problem.

[Freelancier]

We're in the same place, although I'm a bit further along the path. What we decided was that since we couldn't sell out at any point in the future, we'd diversify into other businesses that we could operate with only a little bit of our time now but that would continue to produce revenue into the future as we slowly reduce the time we spend on our current cash cow businesses. Basically, we re-thought our "IRA-first" strategy and are now investing that money into other opportunities that we can keep doing as we near retirement and they won't require us to work a lot harder than we do now.

[huggytree]

How about solving two problems with one solution. Find that new employee you're after and groom him/her to take over for when you retire. This gives you the chance continue to grow the business to make it worthwhile for a new owner and eliminates the "one man show" problem.

problem w/ that idea right now is an apprentice would cost me around $60k a year and a journeyman $80-85k a year

also i dont have 40 hours a week....sometimes its 10, sometimes 50.....

if i hired a journeyman right now id really struggle w/ my lifestyle to live on whats left....i do make a very nice income, but i couldnt deduct $85,000 from it

i need to save extra $$ for retirement......i wouldnt be able to save anything with that expense...im trying to hire a part time guy because he only costs me 20k a year ....i can easily pay $20k right now to save my back....


im still not understanding why my business isnt worth something....i figured it was worth $100k-$200k.....if i trained someone how i handle things id assume they would be able to hold 75% of my customers........maybe they would be better than me w/ customers....and grow it MORE.....why wouldnt someone want a $600,000 business?? to me it must have some value......the phone rings daily.......when im gone it will still ring.....those calls have value....especially when these lead services want $50-100 per lead........my calls arent leads, they are mostly jobs...

[Fulcrum]

The problem with the 1 man show is that very few people would be interested in it and of those few, only a handful would be able to pull the trigger on something like this. When the papers are signed any buyer would still be buying a job and any growth required to turn the business into a going concern would be on them. I'm curious though, are you losing out on work because its only you? I know that many large companies don't want to deal with 1 man outfits.

I fully understand where you're coming from with the hesitation to bring on an apprentice/journeyman. My shop is effectively a 1.5 man operation and I'm turning less than $200K/year (being single my needs are a lot less than what yours would be). I didn't need to bring my guy on when I did but I figured it was better to train someone new when things were a little slower than when business was hectic and there wasn't time to take the time to train.

[Paul]

I don’t think it makes sense to say your business has no value. It certainly should have value to another plumber who wants to own a business. It’s no different than a doctor or dentist buying an existing practice, a mechanic buying a repair shop or a chef buying an existing restaurant. Most small businesses are owner operated and are sold to the next owner operator all the time.

[Freelancier]

It’s no different than a doctor or dentist buying an existing practice

It's all about valuing future cash flow. Doctors and dentists have 6-month and 1-year check-ups that most people do... and the health insurance companies also help lock in a set of clients by being "in network". That's a pretty well-defined future cash flow.

Unless huggy has long-term contracts for regular work, he has to go out and land new clients all the time, because once he fixes the pipes at an existing consumer client, they likely won't have to call him again ever. So the value of the non-contract customers is nearly 0, since you can't define a future cash flow off them. But a corporate contract has a future cash flow, so it has value. So if he wants to create future cash flows to sell, he has to land those contracts that will pay regularly far into the future.

When someone buys a small shop, they're not buying the owner or even the brand, they're buying the customers and future cash flow. If there's no regular future cash flow in place, there's little value in the existing customers. So there's nothing that anyone needs to buy (they can buy the customer list for a few thousand maybe).

[huggytree]

The problem with the 1 man show is that very few people would be interested in it and of those few, only a handful would be able to pull the trigger on something like this. When the papers are signed any buyer would still be buying a job and any growth required to turn the business into a going concern would be on them. I'm curious though, are you losing out on work because its only you? I know that many large companies don't want to deal with 1 man outfits.

I fully understand where you're coming from with the hesitation to bring on an apprentice/journeyman. My shop is effectively a 1.5 man operation and I'm turning less than $200K/year (being single my needs are a lot less than what yours would be). I didn't need to bring my guy on when I did but I figured it was better to train someone new when things were a little slower than when business was hectic and there wasn't time to take the time to train.

yes i do lose business because im small........but i also gain business because im small.....its all about what the customer is looking for in a plumber....in order to gain the customers who are looking for a large company i would need to have 3-5 employees.....just hiring a 2nd one wouldnt be enough for them.....most would view 2 employees as being the same as 1.........the customers who use me do so because of the service....if i had 4 employees im not sure if i could keep the current level of service up.....i am able to answer the phone 90% of the time right now....and if there's an emergency i am there sometimes in 30 minutes....if i had 4 guys to manage i think all id be doing is handling work schedules/problems........id most likely have to hire someone to handle the phone......my customers like the fact that i answer the phone 14 hours a day

when i say i have $600,000 in sales---remember $350,000 of that goes back out in parts/fixtures......you may gross $200,000, but you may not have as much in materials as i do.......

[huggytree]

It's all about valuing future cash flow. Doctors and dentists have 6-month and 1-year check-ups that most people do... and the health insurance companies also help lock in a set of clients by being "in network". That's a pretty well-defined future cash flow.

Unless huggy has long-term contracts for regular work, he has to go out and land new clients all the time, because once he fixes the pipes at an existing consumer client, they likely won't have to call him again ever. So the value of the non-contract customers is nearly 0, since you can't define a future cash flow off them. But a corporate contract has a future cash flow, so it has value. So if he wants to create future cash flows to sell, he has to land those contracts that will pay regularly far into the future.

When someone buys a small shop, they're not buying the owner or even the brand, they're buying the customers and future cash flow. If there's no regular future cash flow in place, there's little value in the existing customers. So there's nothing that anyone needs to buy (they can buy the customer list for a few thousand maybe).


no long term contracts.......but every customer WILL call!.....its a instant chance........people pay lead services $50-100 per chance(call).....and my calls arent leads....95%+ are jobs.....your almost guaranteed to get 1 more job from each customer.....if you run the business poorly you will lose them on the next job....but if they run it as good or better than me they will hold the customer.....and i really have good customers...most upper middle class....many small business owners and rich over all.....

i think the sales $$ alone would attract someone....and the consistency over the years....ive never had a down year....its always up 10%.....this year is up 15-20%.....all that would attract someone eventually...

a 2-3 man shop could buy it and hire a 4th employee....its an instant chance at $600,000 a year....that has to be worth $100,000+


when i retire from the physical part of the job im sure i can get another 10 years just running the show.....so i will make 1/2 what i do now.....at that time i will be easily able to live from it......and it will give my retirement $$ another 10 years to double

[Freelancier]

but every customer WILL call!

That's the owner talking, not an investor.


Its an instant chance at $600,000 a year

Nope, it's a chance as you said earlier at $200K per year. And if there's nothing locking those clients in (like a contract), an investor looks at it as a poor chance. Sorry to be the bearer of bad news, but I've gone through the same process on my consulting business (and I've had some clients with me for 15+ years, but that doesn't guarantee that when I hand the business to someone else that those clients won't take their business elsewhere). Contracts with guaranteed payments are king... everything else is just "hope".

[huggytree]

That's the owner talking, not an investor.



Nope, it's a chance as you said earlier at $200K per year. And if there's nothing locking those clients in (like a contract), an investor looks at it as a poor chance. Sorry to be the bearer of bad news, but I've gone through the same process on my consulting business (and I've had some clients with me for 15+ years, but that doesn't guarantee that when I hand the business to someone else that those clients won't take their business elsewhere). Contracts with guaranteed payments are king... everything else is just "hope".

with $600,000 in potential business YEARLY that HOPE still has some value.....$100k isnt all that much to ask for potentially 10-15 million over a lifetime

its not like i do much more than just give many of the phone calls a price...."my water heater is leaking" my response: ' for your size water heater it will be $x'......

how isnt 90% of those calls going to = a $1,000 job????......how isnt there some value for bringing in $35,000 a year just in water heater calls???

i realize if i had a $2,000,000 a year business with 4 workers that it would have a $300k-500k value or more.......what i have issue with is how a 1 man shop = $0

[Fulcrum]

The one man shop doesn't always equal zero. However, because it is a one man shop it does work out to buying a job when looking at it from a future owner's perspective. It is unfortunate but that is just how it is when valuing small businesses. When the time comes, if you are willing to carry the financing, there will be a wider pool of potential buyers available. Your plumbing business will be worth more than an equivalent consulting business due to the nature of the work involved so make sure that you are comparing similar types of businesses when looking at possible valuations.

I guess the best idea for you is to try and turn your current business model (one man with high skill labor) into a going concern where a new owner may be able to buy it without being a fully licensed plumber. This is tough to do without taking a hit to your current lifestyle but I feel it can be done.

[billbenson]

I agree with Fulcrum. Unless you turn this into a 'real business' where you manage it and have employees, you really don't have a sell-able business. Not at any profit you would like anyway. Your going to have to take a profit hit, train and employ people over time, until you rarely go into the field. You have time. But you need to put a plan that does something like that together. Otherwise, you are the business. Without you the business has very little value. A lot of us have the same problem.

[LeroyB3]

Turn it into a lead generation business maybe? The customers still call you and you still bid it. Then you sell that job to someone else you trust in the business for 10% - 30% (or whatever is fair) of the bill. May be a good way to get value out of your business if you can't sell it.

[TTS]

We see this in landscaping quite frequently so maybe I can say the same thing as everyone else using different words and it will make sense. With a larger business with employees and corporate structure the business and the processes in place become an asset and assets are what you sell. The more hands off you are as an owner the more your business can appeal to an investor because then they can stick some money in and have a money making machine that runs on its own. I think we can all agree this doesn't describe your business nor does it cover the demographic you're looking to sell to so let's move on.

A one man operation can hold some value however it's limited. You haven't said yet, are all of these people calling you because you've been around forever and have a good reputation or are they calling you because water is coming from somewhere that it's not supposed to? A good reputation and history can create some value but a smart buyer knows that as soon as you walk away that name, history and reputation are gone with you. If you look at it from a buyers prospective is there $100,000 to gain by buying your business? If they were to start their own business from scratch how much would it take to get where you are? Brand new they will probably receive a high percentage of the same emergency calls because when it's an emergency you call everyone in the phone book until you get it fixed. Lastly let's look from a buyers perspective if they don't buy it. The business is for sale because you're done, ready to get out. If they don't buy your business you are still done. All 600k of work that you used to do is back out there for the taking, they can save 100k and still potentially get every one of those customers.

I'm not picking on you or saying anything bad about your business as I'm really in the same boat but I'm willing to bet you and I will both make more off of selling our tools than our business.

[Dan Furman]

with $600,000 in potential business YEARLY that HOPE still has some value.....$100k isnt all that much to ask for potentially 10-15 million over a lifetime

its not like i do much more than just give many of the phone calls a price...."my water heater is leaking" my response: ' for your size water heater it will be $x'......

how isnt 90% of those calls going to = a $1,000 job????......how isnt there some value for bringing in $35,000 a year just in water heater calls???

i realize if i had a $2,000,000 a year business with 4 workers that it would have a $300k-500k value or more.......what i have issue with is how a 1 man shop = $0

The problem is the business is *you*.

That's it.

It's not a business with a storefront / location. It's a phone number and a website and a sign on a truck. The only real difference between that and a million other plumbers is *you*.

[tallen]

Dan is right.

At least you are operating under a name that is not your own, and there is some reputation/goodwill attached to your business name, and so some (small) value there (reference the guy who was trying to hijack your website traffic using a similar name). Unfortunately, that reputation and goodwill probably won't last once you are no longer the person behind it. If the new owner is not able to operate the business to the same standard that you do, the reputation will quickly evaporate.

Think about your contacts in the construction industry now. The general contractors that hire you now, hire *you.* Unless the person who buys your business is already a known entity in your contractor community, they are going to be starting over in establishing themselves -- your goodwill doesn't transfer.

[nealrm]

As several people have already said, your business has limit sales value because it is based on you. What you need to do is convert so that it is not based on you. You can do this in a couple of ways. One is to bring in a younger employee, and train him, with the prospect of him buying you out in the future. This is normally a 5 to 10 year process. Another approach would be to expand by hiring several more worker and a manager. You would then be the president. Work would move from you to the workers. Then when it is time to sell, you are selling a business based not on you, but on your workers. The last option is to just sell the business for the cost of the equipment plus a little more for the name.

[broudie]

$600K business doesn't say much without context of how much profit it's throwing off. One way to value a business is to use a multiple of owner benefit. If your business was worth $100k-$200k, then your business should be throwing off $25K-$50K in yearly profit for the owner after factoring in the salary of the new "manager/head plumber". Likely no one wants to buy the business because your likely buyer is another plumber, who will only want your contact list.

Myself I am in a similar bind. My business takes about 1-2hr/day max to maintain, but it's work that requires business decisions. The way it's structured is that I have no employees but I contract business functions to other companies, so my own workload is the same even if the business scales to 10x it's current size. No easy replacement for me because the future owner isn't going to hire a full-time manager for a 5-10hr/week job. Workload is so low that I can keep on doing this until I am senile. So I basically consider myself either never retiring, or retired now.