March 15, 2024
Ep 284 - Replay - Buy or Build Your Electrical Business?
Have you ever chuckled at a tech glitch only to find yourself deep in thought moments later? Joe and I sure did when Facebook's AI served us a laugh, but we quickly turned the tables to tackle a topic that's no joke to electricians: the crossroads of building or buying an electrical business. We bared our own trials, sharing those tough early days that shaped our paths and the resilience it took to create a name for ourselves. It's not all about the struggle, though; we also celebrated the wins of organic growth and the power of strong customer bonds for those starting from scratch. For electricians on the brink of making this major career decision, we offer a blend of insights and humor to help you navigate the journey.
Imagine fishing without bait – that's a business without autonomy. Joe and I introduced listeners to the 'fishing test', a handy tool for measuring a business's self-sufficiency and its consequent value. We didn't shy away from the nitty-gritty, dissecting financial vitals like EBITDA and the influence of client diversity and maintenance contracts on a company's worth. Whether you've got more time or cash on your hands, this part of our chat illuminates the intricacies of strategic acquisitions and how they can propel your current business or new venture forward.
Finally, it's all about hitting the mark with your business strategy. We explore the 'fire, aim, fire' approach to decisions, emphasizing the importance of a strong sales foundation and the deceptive charm of revenue versus profit. As we ascend the business hierarchy of needs, from sales to legacy, we invite you to reflect on how expansion aligns with your company's objectives. So, link arms with us, Clay and Joe, as we guide your entrepreneurial journey with wit and wisdom, right here on our show.
Join us LIVE 5 days a week on the Facebook Community page:
https://www.facebook.com/groups/electricpreneursecrets
And see us and our stories and wins at:
https://www.servicebyelectricians.com
00:00 - Building vs Buying Electrical Businesses
09:34 - Maximizing Business Value Through Acquisition
20:17 - Business Expansion and Hierarchy of Needs
27:49 - Become a Generator Specialist Today
WEBVTT
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Welcome to Electrpreneur Secrets, the electrician podcast.
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We're here with you five days a week to help you master sales, simplify pricing and deliver premium level service.
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I'm your host, clay Neumeier.
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With me, as always, my esteemed co-host, joseph Lucani.
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How are you today, joe?
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I'm feeling particularly amazing.
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Not going to lie, can we even drop about what just happened a couple of seconds ago?
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Please do, we might as well.
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I mean, this is live.
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This is candid as it gets right.
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I'm having a great day.
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Things are going super smooth.
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I could hang out with you on a regular basis, which is already fun, but it was even funnier and I'm laughing because we just got booted off Facebook because apparently it said that what we were nude or talking about sexuality or something along those lines.
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Definitely, definitely.
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As you know, Facebook is one of those really big corporations.
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At this point, I don't think there's a lot of human action going on behind the scenes.
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I think it's a lot of robotic and algorithms AI happening.
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So today, the AI thinks we're particularly sexy, sexual no clothes on, I guess so we got booted three times, that's three strikes are out.
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Sorry to our Facebook fans who join us and engage live daily.
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We did get a few minutes to hear the humor from your misses telling us that she's happy to see our clothes back on.
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That's a good step in our direction.
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I really appreciate that.
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As always, I love my wife but honestly, man, I'm so pumped to talk about today's topic because I feel like it's really going to help guide certain people in what decision is the best decision for them and also give some clarity and some comfort to those who've already made the leap.
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Yeah, definitely so, talking about buying or building your electrical business, if you're someone that's still on the fence or maybe you've just started now you're starting to realize, wow, we could really gain some momentum by having something somewhat established.
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I mean, let's face it, the stats are.
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We keep talking about them A bit of a generalist stat.
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Gets overused really, the 80% rule applying to businesses failing in the first one to three years.
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I mentioned this one before, joe, at least in Canada, 49% of those that fail say there was no market for their business in the first place.
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Isn't it a little unusual that that's the case, that you have one of the biggest, like the biggest countries on the continent, and yet people are saying that there's not enough people in it?
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It definitely begs to question how much do they really know about starting a business, how much do they really know about captivating an audience, feeding a hungry crowd, positioning right even storytelling, and how much tenacity or intestinal fortitude, as we keep saying do they have to continue in the pursuit, the resilient pursuit, of that constant audience, constantly filling that funnel?
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Really elaborated there.
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But you've been a part of a startup, I've been a part of a couple.
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Let's shed some light on just how painful this part can be.
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Sure, Do you mind if I jump right in man?
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So we did the same thing that I feel like so many other young businesses do.
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I was working in sales at another company and my actual my service manager was like well, we're doing the installations, we're doing the service calls, we're doing the sales and we're managing the numbers.
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Why don't we just go do it for ourselves?
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And I feel like so many people share in that.
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The problem was we had no idea what was required or what needed to start a business.
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Right, it literally was I'm going to get $50.
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You're going to get $50.
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And the business will get $50.
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And that should be more than enough to cover our costs.
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The story was we were broke as a joke so it didn't actually work that way, but the thing was eventually, over time, we became more profitable, became more successful and I was able to exit the business successfully.
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You know to now work with you know, esteemed people like yourself, that I get to learn and love every single day.
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I appreciate that.
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But looking back at it 30,000 foot view my favorite how many years did it take you to get to that sales level expertise that you attained, to get to that full calendar, to get to a place where you actually felt safe and secure and coming to work every day?
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Really, I didn't feel safe until about four to five years in, and the reason being was that we needed to establish reputation.
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We needed to establish that we were the go-to people.
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We wanted to establish we were the safe bet, that we were the specialists that people could depend on and, in all honesty, for lack of better words, we had to eat a lot of shit to get there, Because it's like you know, it's a great thing to be able to say I don't need that kind of job because I have next week's already accounted for For the first few years, even though we understood how sales work and even though we knew that and, like a lot of you know, we knew how to do the trade really, really well.
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But if you don't know how to fill your calendar, it can be pretty depressing and pretty scary and you'll take what you can get when you can get it.
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Damn right, and that's why we're so passionate about all the organic marketing methods that we preach, really, and having that client relationship management, having these processes in play that we always run.
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So rare are the companies that truly initiate and execute and even follow up on every relationship, and repeatedly.
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It's not common.
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It's really not.
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It's not, but we know how fruitful that can be.
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Now, on the other side, I just want to pose this as a question because part of the title of this episode was also buy.
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I feel we're going to do a bit of back and forth here today, but I've personally witnessed companies that are 5, 10, 15, even 20 years old, with owners that are no longer engaged, that are tired of fighting the good fight, especially in technical trades like ours but they were unable to ever pass that phishing test and truly delegate.
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There are good businesses selling in every town across North America every month of the year, and they don't know how to sell a business either.
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Now, I'm not going to sit here and blow smoke or try to tell you that I've bought a bunch of businesses.
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That is not my area of expertise, but what I do understand is that there is a lot of ground to be gained by buying a business that already has the contact list that is entirely true.
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If you can have the name.
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Think about it.
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Reputation is key.
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Let's say, sake of argument, service of electrical disappeared.
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Tomorrow, I guarantee that there would still be people who look us up and be like where do they go?
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What happened?
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Because we've created the reputation and now there is a space in the area where our void is no longer present.
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There's no longer a void.
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It's a space that's been filled.
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If the owners left, there becomes a void, which means that there's someone who needs to fill it.
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Yeah, yeah, absolutely.
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Even just last year I worked with a business owner and he felt that he had the leadership in his business to promote within and have them take it over.
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I did everything in my power to inspire those people and help them establish that rapport, but in the end they didn't want it.
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In the end this owner closed the door on a 20-year operation.
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The phones rang, joe, I was in the office with them five days a week for a while helping them out here in my hometown.
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The phones would ring organically five to 10 times a day, plus messages coming from Google.
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They weren't able to keep up to the demand.
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There's just a shortage of staff.
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Without that key player, there was no one to take it.
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You, let me go.
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Too.
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Much of a good thing became a bad thing.
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He shut the doors and he shut off that phone.
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The reality is they gave up on finding the right connection to take over that business.
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Now I know there's electricians hearing that right now that are absolutely flabbergasted and maybe even foaming at the mouth, drooling a little bit, wishing an opportunity like that was around.
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I'm telling you there are, like I said, in every town there are electricians that no longer want their business and don't know what it's worth and don't know how to begin to market it, how to even make it something that they can sell.
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That's why there's business brokers and help with that.
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That's a whole other topic In this episode discussing, hey, should I be building or should I be buying?
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I think that leads us to really a decision to make how would I go about buying a business like that?
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Yeah, really, the closest thing that comes to my mind is that there's two different directions that one can take.
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I don't mean to overly simplify it, but I feel like this could be helpful for people.
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Taking perspective, you either have time or you have money.
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When I started, we had no money, but we had a plethora of time.
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We could do 16, 18, 20-hour days because we had it.
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It was available, we could put the elbow grease in and eventually that time turned into money.
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There are other people right now who have successful, established businesses, whether it's an electric or in another industry.
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They're running that business and they're running it profitably.
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They're like you know what, though?
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I wish we could acquire something else, but I can't.
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I can't take on more, I'm already at my max.
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They have the money, but they don't have the time.
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The first question I asked to these people for everyone who's listening to this audience and saying should I buy or should I build?
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What do you find you have more of?
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Do you have more time in your day that you feel like you could productively apply to something, or do you feel that your time is maxed out and now it's time to start leveraging the capital that you've built over the several years.
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That makes sense.
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It does.
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It makes perfect sense.
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It's definitely a consideration.
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I want to tie something else in here.
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Something that I know pretty intimately is, you know, something that real estate investors do.
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Really, the principle that real estate investors often rely on is the leverage of someone else's money to finance their real assets, that they buy that property so that they can then use any capital they have to either invest and flip, or even invest little and just rent it out long term, but it's the leverage of someone else's capital that makes that possible.
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Now, the same is true even for a business.
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It's harder to qualify.
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I know you're gonna need larger down payments here.
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I think we have to have 20% down, but again, I urge you to consider this, at least looking around, because I'm telling you, the company I made reference to earlier sold for the price of their iron, which was under $100,000.
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Wow, I don't have the exact figures at the end, but basically it was just hard assets.
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There's no goodwill left when you shut the door.
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That's it.
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The phone went away.
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Now, when I was there in those discussions, I tried to convince them otherwise, but some people are just that tired.
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But if I'm an electrician looking to start up again, I would go by for that reason.
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The other thing that happens is usually those positions as we mentioned.
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They never passed the fishing test.
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What's the fishing test?
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That's definitely probably the key to everything.
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I honestly feel like if we're gonna discuss that, that is gonna be able to determine whether people are willing to buy or not.
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Because the fishing test is, if you were to step away right now, you were gonna go fishing.
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Want to take a day?
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Could your business operate successfully and profitably with you not there today?
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How many of us can actually say that and really truly mean it?
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Yeah, and if you could say it for a day?
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How about a week?
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How about two weeks?
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How about you go for two weeks and decide, you know what?
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I'm gonna stay for another two.
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Did your business have the same revenue that month, or did it take a dive?
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Did your to-do list add up when you returned, or their clients that wouldn't deal with anyone else until you got back.
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So you came back to a mountain of work that would be not passing the fishing test.
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And the reality is any of these little businesses that are for sale likely never got to that point, not if they're a deal right.
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So, yes, do they need work?
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But yes, is this stuff possible to overcome and tune up and create equity in a business?
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Just the same?
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Absolutely.
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One of the I know one of the most common sales metrics for a business is something they call the EBITDA multiplier.
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Have you ever heard of that before?
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Oh, but I gotta hear about this by all means.
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Drop it on me, okay.
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So first is what is EBITDA?
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It's an accounting term, so most of us know what a profit and loss is right.
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Basically, your sales revenue minus your cost of goods sold gives you your gross profit.
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Then you're gonna have your fixed expenses, so your overheads.
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That comes off your gross profit and what you're left with is net profit, ebitda, meaning your earnings before interest, taxes, depreciation and amortization.
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Did I miss one PBITDA?
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I think I got them all.
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I'm not an accountant disclaimer.
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Not an accountant, not a doctor guys that do my best, okay.
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What I know is this common metric for measuring a business's success is gonna look at certain things to determine what that business is worth.
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Consistent growing revenue, right.
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Diversity of clients with, let's say, no more than how does that work?
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No more than 15% of your revenue from a single client.
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So what does that mean translated in simple terms?
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I've got a bunch of clients who are paying us and that all adds up.
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So if I lose one client, less risk, right.
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That's what it comes down to Less risk, more value, because if someone's going to buy your business, or if you're going to buy a business, the sure bet would be worth more right.
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I would agree with that 100%.
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In addition, I feel like there's something else that also values a business.
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Do you mind if I touch on that as well?
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Yeah, there's a few more things, so let's go.
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But yeah.
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So the next thing is, I guess, why do we push people to do service so much?
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Or why do I personally insist that service residential service is so important?
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Because maintenance contracts and service contracts are actually an incredibly valuable asset when it comes to the sale of a business.
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Yeah, because, let's say, you have hundreds or even 800 maintenance customers or club membership customers that are like I will exclusively use you and I have the agreement of you coming in my home within six to 12 months.
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If you were to sell that company, you could say look, we already have X amount of customers who have a proven track record of purchasing, who have exclusively installed from us or have said I want to use your brand, and those clients are loyal to the brand.
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So you acquire the brand.
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You also now acquire those loyal customers and because of much easier jump off and transition point, Absolutely, and you read my mind because I was going to go into repeat clientele.
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Service contracts are huge, huge, in fact.
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That's one of the things I tried to talk this guy into last summer, right off the bat was actually getting service contracts for the people that he was providing recurring service for.
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Hmm, anyway, didn't stick, but here's.
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Here's where we're going with this.
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Also, the duration of the staff.
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You have their skill levels right.
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How long have they been there?
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If you've got staff that have been there for 10 years, you've got recurring clients and a proven sales process that's showing growth year after year after year.
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This could be a company that then sells for 10, x of beta, going back to that, a beta multiplier rule, and 10 would be, as I understand it again, not a business broker, not an accountant guys, not a doctor.
00:17:11.557 --> 00:17:50.468
But there's one simple way to look at it A 10 would be maybe top of the scale for you, right, but for a company that's ultimately giving up, which they're out there every day, even someone who's had a loan show, who has a phone that's ringing three to five times a week, that already has some present, some good will, some good reviews, and is just tired and can't hit the next step, could be worth looking at if he's been around those for a few years, because that business likely has only suffered the personal touches of that business owner.
00:17:50.468 --> 00:17:51.388
Thanks and thank you, Thanks.
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And already has those clients.
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It's starting to start from scratch.
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Go ahead, joe.
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I didn't want to interrupt your flow because you're really going with it.
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I love it.
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It was also the first thought that came to mind.
00:18:01.714 --> 00:18:05.974
Is these are also people where your Apex players could be as well.
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You know, you think to yourself and say, like all right, we already know the bigger companies, like the one you were talking about.
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They didn't listen to the advice and obviously undersold what they could have.
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But this could also be an opportunity for us to acquire smaller companies than us, even if they're just one men's show or one person show, doesn't matter who you are.
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But the thought is is that you're able to say you know what?
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I understand that you're in a situation where maybe you don't love what you do or you do, but it's just too hard to manage.
00:18:36.412 --> 00:18:44.335
What would happen if I were able to say that you could join our team, do the job you love and not have the job you hate?
00:18:44.335 --> 00:18:56.361
Now you can acquire their clients, their skills, their assets, and now you've expanded your own territory for probably a fraction of what they paid into it for.
00:18:57.070 --> 00:18:59.076
Yeah, I agree wholeheartedly.
00:18:59.076 --> 00:19:08.798
So it's not to say that's the only way, but building a business is hard work and you've got to have, as we said, that intestinal fortitude right off the bat.
00:19:08.798 --> 00:19:14.743
So here's what I tend to see in new electric printers, or inspiring.
00:19:14.743 --> 00:19:17.151
Us firing sorry electric printers.
00:19:17.151 --> 00:19:19.153
We'd be inspiring, they'd be aspiring.
00:19:19.153 --> 00:19:24.983
Is that excitement to get it going, to get started?
00:19:24.983 --> 00:19:28.019
And you ever heard this expression fools Russian.
00:19:28.892 --> 00:19:31.420
Oh God, I mean, isn't that from Elvis Presley right there?
00:19:31.420 --> 00:19:32.746
Yeah, I believe so.
00:19:33.069 --> 00:19:33.613
I believe so.
00:19:33.613 --> 00:19:35.413
This is no different.
00:19:35.413 --> 00:19:46.076
The reason half of the ones that fail said there was no market for their business, didn't do adequate market research, they didn't have an adequate business plan.
00:19:46.076 --> 00:19:52.061
Now this comes with a careful balance and, again, a disclaimer saying present over perfect.
00:19:52.061 --> 00:19:54.557
I just gave you two conflicting ideas.
00:19:54.557 --> 00:19:57.999
You can go overboard with preparation, and we've seen that too.
00:19:57.999 --> 00:20:01.936
People who spend months with no income just preparing, preparing, preparing.
00:20:01.936 --> 00:20:09.902
The best things you can do, honestly, is seek some guidance, seek some mentorship on this topic.
00:20:09.902 --> 00:20:13.259
If you've never done it before, do seek that.
00:20:13.259 --> 00:20:13.779
Go ahead, joe.
00:20:14.550 --> 00:20:15.776
Yeah, sorry, didn't mean to interrupt you.
00:20:15.776 --> 00:20:16.653
I was wondering if you were good.
00:20:16.653 --> 00:20:22.473
There was an expression that I heard that lines up to exactly what you said, that I feel it'd be very relevant.
00:20:22.473 --> 00:20:36.280
So there is actually a concept that I learned when I was doing firearm training, which is called fire aim fire, and the concept is that too many people focus on the aim.
00:20:36.280 --> 00:20:42.113
They only sit there and they line up and they line up, and they line up and they line up and they never take the shot.
00:20:42.113 --> 00:20:54.601
Fire, aim fire is the concept of you can take your first shot or you can take your first step, see where the mark was placed and then readjust accordingly.
00:20:54.601 --> 00:21:04.059
So so many people are stuck in this spot where either they're over preparing and you have others who are just spraying and praying and hoping something makes contact.
00:21:04.059 --> 00:21:17.538
We could get that middle of the road to where we're saying take your intuition, make a move on it, but then consistently reevaluate, measure, see where you're at, dial into your metrics and refire.
00:21:18.864 --> 00:21:20.210
Absolutely, absolutely.
00:21:20.210 --> 00:21:31.714
And speaking of simplifications, I just love something we reference in our program and quite often is Michael McCallowits who wrote Profit First is a book you guys should be reading learning about that.
00:21:31.714 --> 00:21:43.406
But also we wrote another book called Fix this Next that I really appreciate the business hierarchy of needs and it's as simple as this Sales, you need sales.
00:21:43.406 --> 00:21:45.270
How far can a business go without sales?
00:21:45.270 --> 00:21:45.491
Joe?
00:21:46.361 --> 00:21:49.009
I mean it's how far are their reserves?
00:21:49.009 --> 00:21:50.301
At this point You're not going to go.
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You're going to pretty much bleed a drive before you get anywhere.
00:21:52.660 --> 00:21:55.568
It's not even a business really without a transaction right.
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