I Purchased ANOTHER Sparky Business & I Got Jeff! | 155

If you're thinking about purchasing an electrical business, this is probably worth a listen...

Someone offers you their electrical business. Solid reputation, 30 years in the game, fifty grand profit on paper. Sounds like a no brainer, until you meet Jeff. In this episode I break down what you're actually buying, the fake profit trap, and the one question that kills most deals before they start.

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Transcript

You just bought an existing electrical business. Half the clients are gone. The best workers have quit. The old owner's phone is still ringing in his pocket, and he's doing the jobs. Welcome to Simplified Sparky Marketing.

Back in 2017, 2018, I was offered the opportunity to purchase an electrical business. Now, at this time, I had just started my own electrical business, maybe about a year or so in. So I didn't have a fucking clue what I was doing with my own electrical business, not to mind purchasing somebody else's. But when an opportunity comes your way to possibly purchase somebody else's business, you get a massive dopamine hit of "this is a great opportunity for more money, more revenue, more growth." Making your own existing business bigger, or maybe you run it as a separate division to your electrical business, or maybe you'll amalgamate the businesses.

This has come to my attention in recent weeks, purchasing businesses. There's been a few things that have flagged at me in conversations with people and electricians. So I just want to give my two cents on it, and what you need to look out for if you are purchasing an electrical business, in my opinion.

For the purpose of this podcast, we're going to suggest that this electrical business is a one man band business. It's run by a man named Jeff.

My name is Jeff.

Jeff is in business about 30 years, and he's got a solid reputation. The business is humming along, and when you hear that and see that, and you know Jeff yourself around the town, you are immediately drawn to the big headlines. The revenue. The client list. He's this many years in the game. This is an unbeatable purchase.

But what we really have to ask ourselves is, is this company sustainable? Is this company profitable? When I purchase the company, is it going to be as rosy as I make out in my head?

Big question to ask yourself: when you take over this company, will it actually survive the handover?

Just a few factors to consider when you do take the keys of the business, or literally his old Toyota HiAce so to speak. Are the clients going to stick with you? Are they going to like you when you come in to take over this company? The reputation that's been built over many, many years has been "I love Jeff. I want Jeff to do the work in my house, my business." Jeff has built his reputation over the years, and the clients love the business because of Jeff.

The systems for his electrical business are nonexistent. Maybe they live in his head. Maybe they're in an old paper diary. Does he actually have software for his electrical business, because he's such an old schooler? And has he kept the details of his clients over the last 30 years? Some of which, I'd be guessing, are deceased at this stage.

This is where nurturing your client base comes in. Over the years, your clients' parents start referring you to their kids, and this has already happened to me. I had a very early doors client back in the day, maybe nine years ago, and I've recently done work for their son, who's bought an apartment and is 20 odd now. At the time he would have been about 12, which is insane. This is what I'm speaking about with nurturing your clients, because it's planting seeds. Everything you do in your electrical business is planting seeds for the future, and the seeds you plant today will flourish. It mightn't be this year, it might be next year, it might be in 10 years' time.

Let's take Jeff here. Jeff has just been rocking a paper diary, plodding along, word of mouth keeping him going. Let's just say hypothetically he doesn't have a digital presence, because the internet wasn't a thing in his day. He got going off the Yellow Pages, built his reputation in this town and surrounding towns, and just plodded along with a solid business.

Now, another spanner in the works that I want to put out there, and this is something that's missed vitally: 30 years ago, 20 years ago, Jeff would have bought his house in this village or town, and it would have been far cheaper than it is today.

So let's touch on the revenue and profit in the company. Let's say old Jeff is looking at retirement, that's why he's getting rid of his business. Let's say the business is a solid business. He has decided to sell because he's pushing late sixties, he has done his time crawling roofs, going under floors, putting his body through the beatings, and he has just decided to retire. But he didn't lay the foundations and pour the concrete into place before he sold his electrical business, thus the value is going to go down.

Now, with the profit and revenue, let's say the company is making an alleged fifty thousand profit at the end of every year. And you're like, "Fuck, that's okay. That's not bad. I don't mind the sound of that. Fifty grand profit for my first year in buying this business, and we can just run away with it and it'll make us fifty thousand dollars at the end of the year before tax."

And then you ask Jeff, "How much were you paying yourself as a wage, Jeff?" And Jeff will say, "Ah look, about sixty or seventy thousand." And you're like, "What the fuck, Jeff?" And Jeff is like, "Yeah, look, to be honest, my house is paid for." Unlike the modern day person here. He didn't need much to survive, and Jeff has been rocking a seventy thousand dollar wage for the last however long. A little bit of cash here and there. Maybe he took sixty thousand and took twenty in cash over the years. Jeff is a bit rogue.

Then what we look at is that fifty thousand in alleged profit is now basically an average wage that you'd pay yourself as an employee. Let's say you've just come off the back of working an EBA job. You're used to getting a hundred and forty, a hundred and fifty thousand dollars a year for fucking cruising. Six men doing a two man job kind of thing. And now you're looking to buy this business that looks profitable from the outside, but when you actually take over you're like, "I can't pay myself less than the wage I was getting. Now that I'm a business owner, I should probably be paying myself a little bit more."

So what we do now is take that fifty grand profit and pump it into your wage, which brings your wage up to $130,000. We haven't even accounted for superannuation and tax and all of that. So we're actually in the negative in the grand scheme of things.

Then there's a further knock on effect. You find out that Jeff has been charging $106 per hour plus GST to all the locals, all the clubs, pubs and venues he's been travelling around to, and it just doesn't cut the mustard anymore. Jeff doesn't have a mortgage. He doesn't have a big wage to pay. This is where it gets very interesting when you are purchasing a business. What feathers are you going to start ruffling when you come into the driver's seat? You sit in that fucking cockpit of that F1 car and you're like, "Oh fuck, we're going to have to make a lot more money. Is this going to piss off the clients? Am I going to lose the clients? Or do I just struggle on, charge $106 per hour, and end up making 90 grand of a wage, just scraping by with this brand new business?"

Before we sign on the dotted line, let's check out some things about this electrical business, just to make sure we're making the right decisions here.

To start with, why is this person selling the business? Why is big Jeff selling up? We put two and two together, we do our research, and we find that he is retiring because he's quite elderly and he just wants to call it a day. That's genuine. However, if this wasn't Jeff's business, and you were looking to buy somebody else's business where the owner is only mid 30s or 40s and they've just decided to sell, you would really be looking at that person going, "What am I buying here? Is there something a bit suspect that I'm actually purchasing?"

Next, who owns the keys to all the items? For example, with my electrical business, my phone lines are diverted via VoIP. So if I was to sell the business, my mobile number is basically redundant. But particularly in an old school business, they'll be rocking off a particular number. So that is a big thing. Do you actually get Jeff's number? As I mentioned at the start of the podcast, that's one of the fears. If you do buy the business, is that person still receiving calls and doing the work themselves, or delegating the work out to a friend who ends up doing the work?

Then all the digital assets. Now, Jeff is an old schooler, he doesn't have digital assets. But if you were to buy an electrical business, have you got full access to the Google Business Profile? Or does some fucking web developer have a login that their second cousin's dog owner has, that you can't get a hold of, so you're locked out of that Google Business Profile? It's quite juicy, it's got 200 reviews on it, but you no longer have access. And if you are to get access, it's an absolute saga, because you're now a new owner. You're not Jeff with proof of identity and all of that.

The domain. Can you log into the website if the company is coming with a website? Have you got the logins to the emails? Most importantly the emails, that's where the gold is all at. All the software, the authentication, all of that. Is there easy access to it? Or when you hand over your hard earned and purchase this company, is it going to be an absolute ordeal? You need all the logins to all these assets within the business.

Systems. How does this company operate its systems when you take over? Do they rock a software like SYSTEMHUB? Have they landed on something like Google Drive? Do they just have simple checklists? Are they operating off a paper diary, or worse again, is it all inside the business owner's head? Old Jeff, winging it by the seat of his pants. Because it's a one man band business, he might have just been going, "Ah, this is how I do it. I know how to do it, so it's basically stored in my head."

But he might have some specific ways of doing things that you don't realise until you take the business over. Then you're speaking to the person who's now engaging your services as Jeff's old business, and you make a massive error, because there's something vital about some specific door that shouldn't be opened on a specific job, or whatever it may be. Does that then knock on, because you haven't actually got a systemised business? You've basically bought a shell of a business and you've got to wing it to find these things out.

Is there a warranty tail with the business? Did Jeff clock off on the way out? Was he like, "Fucking hell, I'm out of here in six months, I don't care too much about these jobs," doing things a little bit rogue, a little bit half arsed, lack of testing, lack of tightening? And you buy a business that's now getting an extreme amount of callbacks, and it's all falling back on you. How does that go down in the documentation when the business gets handed over?

Will the staff stay? The million dollar question. Jeff doesn't have any staff. But let's say you purchase a business with six staff members and they love the boss. They'd love the boss till they die. You take over the business and you don't click with one of the staff members. Let's say it's the ringleader, the core guy in the business, and they all get on really well. Good community within the staff, good chemistry amongst the team. And then you piss off the main guy. Next thing, all the guys are like, "Jeff isn't here anymore. Let's go look for another job elsewhere."

So what's the probability of staff leaving when you buy the business? The staff may be the people who know the ins and outs of all the jobs. There might be a specific real estate agent or a builder who only wants to deal with that one person. And here's the threat: let's say hypothetically Jeff leaves, then a staff member leaves, and they steal that client as well. There's a lot of i's to be dotted and t's to be crossed in regards to plugging every hole, left, right and centre, so things like that don't happen. If a staff member goes, they cannot engage the services of any contacts or contracts that you have.

Which is the next thing. What percentage of your work is reliant on one, two or three clients? Let's say 60% of your work is through a builder, and that builder loved Jeff, and Jeff has now left. You go on site, you're quoting the jobs, and the builder gets a bit of a sniff off you and doesn't like you. Next thing you know, you're quoting jobs against somebody else, or somebody else just sweeps in, and the builder says, "It's my choice, I don't want to use your services anymore." And you've lost 60% of the work of this infamous business you've bought.

Lastly on the checklist, and this is only lightly skimming over it, there's so much more to look at, is goodwill. Goodwill is what you buy with a business. How much goodwill does Jeff have that the people are going to come back and reuse the business? That goodwill is huge. It's your reputation. It's the work quality. It's people knowing, liking and trusting you. And what amount of goodwill is actually going to come with this business? Because goodwill is a bit of a gamble, truth be told. You're hoping it will all pay off, that when you buy the business there's going to be no hiccups. Or as I said, if that one builder leaves and it's 60% of your work, things are looking pretty sketchy.

Now, there's two schools of thought here, and two avenues to go down. Maybe you're buying this business to save building your own business from scratch. Or maybe you're buying this business because you're going to plug it into your own electrical business.

To be honest, if this business was a bit of a shit show and you had an existing electrical business and it was going cheap, you'd probably pick yourself up a bargain. This is the beauty of it. If you got that business for the right price and you do lose that builder and 60% of the work, you've still got the 40%. Let's say that's mum and dad jobs, reoccurring revenue that keeps coming in, and the goodwill keeps passing around. That business ends up paying for itself, and you snatch those clients into your own electrical business, or you amalgamate them in. That's where there's a good bargain to be had.

But the thing to think about is, if that person is selling the business dirt cheap, like 50 grand, 75 grand, there's probably something amiss. It's probably going to be a paper diary run business, there's going to be a lot of holes, and it's probably somebody winding down who just wants a final payday before they clock off.

Let's do the quick maths here again. Say you were to pay Jeff 150 grand. What you're probably buying is a lot of goodwill, a paper diary business with no contracts, no systems, and not really a brand. Or would you be better off putting that money elsewhere? Say you're willing to burn 150 grand. You put even 10 or 15 grand into your branding. Actually, you could put three grand into your branding and you'd have a branded business. You put another three grand in and get a fucking spanky looking website, and you're already better than Jeff. You put a bit of effort into your online presence, socials, Google Business Profile. A lot of that stuff is free, but you can engage a freelancer to help you out. You're not even scratching the surface of 30 grand.

You get a van on finance, pay it off at a grand per month, and you've got a brand new van under your arse. And you've got the rest of that 100 grand that you can spend on marketing, building your business better, pumping ads, whatever you want to do, to actually build your own electrical business.

And let's say hypothetically you're in the same town as old Jeff, and you know he's on the way out. There's nothing stopping you having a chat and greasing the hand of that builder. You go to those pubs and clubs with your business established, up and running, looking professional as fuck, and you just introduce yourself. You don't say anything about knowing anything about Jeff. You just go in, introduce yourself, "if you ever need an electrician." Next thing, Jeff retires, and guess who steps in? Your electrical business.

This podcast today is really about getting you to think differently about the fantasies of buying a business. I know that at some stage I will want to sell my electrical business, I'd say not in the too distant future. But the thing about my electrical business is the majority of my clients, I'd say 90 odd percent, are mums and dads. That's my bread and butter, that's my client base, that's what I do day in, day out. And there are trickles of leads coming in from other avenues I've got up my sleeve as well. That's the protection I have.

That's why it's super fucking dangerous if you had, say, a hotel you're looking after, a builder, and one other major client, and that was the majority of your work with four guys working for you. If you buy a business with one of those major contracts and you lose one or two, and you've got four or five staff to feed, it gets pretty nasty. They're the i's that have to get dotted and the t's that have to be crossed.

A few weeks ago I did a podcast about buying franchises, and with buying a business there's two schools of thought again. If you're an existing, seasoned business owner, it's not a bad idea to buy a half running vehicle, take the client base, tweak it a bit, and plug it into your existing electrical business. But for people starting out from day one, their first business, purchasing an electrical business going in a bit blind, not having a clue how to run a proper business professionally, systematically, prices dialled in, quoting system dialled in, sales system dialled in, the stuff that creates revenue and most importantly profit for your electrical business? I think people jump the gun sometimes. Some of these can be good purchases, but you really have to watch out for the things I've mentioned.

Just going to put a shameless plug in here. The guys I'm working with inside Simplified Sparky, some of them have had phenomenal changes just by tweaking small, minor things. We had a guy the other day, shout out, not going to mention his name, who made $5,400 in one day, and he credited that down to Simplified Sparky. If you're in that boat and your business is shaky as fuck, there's links in the description, and I look forward to hearing from you.