Profit & Grit with Tyler
Profit and Grit is the no-BS weekly podcast for home service business owners and blue collar entrepreneurs. Each episode features real strategies from successful contractors and industry experts in HVAC, plumbing, electrical, roofing, and other trades. Hosted by Tyler Martin, a fractional CFO for home service businesses and the trades, Profit & Grit dives into growth, cash flow, hiring, pricing, and leadership. If you own or want to grow a business in the trades, this home service podcast will help you build a stronger, more profitable company.
Profit & Grit with Tyler
5 Roadblocks Keeping Home Service Companies Stuck at $3–5M – Patrick Lange
Most home service owners chase growth by adding trucks, techs, or new territories. Patrick Lange learned that more isn’t always better, and sometimes growth hides real financial cracks.
Patrick started in the pool industry, growing his service company fast before realizing that bigger often meant less profit. Long routes, callbacks, and overhead ate into margins until he sold the business and turned his attention to helping others avoid the same mistakes.
Today, as the owner of Business Modification Group, he’s one of the leading brokers for HVAC, plumbing, and electrical companies, having sold hundreds of service businesses across the country.
From his front-row seat in trades M&A, Patrick has seen the same pattern again and again: companies plateau at $3–5 million because of five key blockers that have nothing to do with sales volume. He breaks down how sloppy books, weak service mix, and poor route density quietly cap growth, and what to fix if you want to build a company buyers actually fight over.
In this episode, Patrick shares what separates businesses that stay stuck from those that scale profitably. It’s an honest look at what growth really costs, how to protect margins as you expand, and what turns a busy operation into a valuable asset.
What You Will Learn in This Episode
• The five most common blockers that keep home service companies stuck at $3–5 million
• How Patrick’s experience in pool service revealed the hidden costs of growth
• Why route sprawl and callbacks quietly destroy profit margins
• How clean financials can add hundreds of thousands to your sale price
• The difference between service-driven growth and construction-driven chaos
• When to add managers, and when they just add overhead
• Why maintenance agreements done wrong become liabilities, not assets
• How to build route density that multiplies profit without adding trucks
• What buyers actually value in HVAC, plumbing, and electrical companies
• Why smaller, tighter operations often make more than “big” ones
More From Profit & Grit
Book your complimentary Financial Insight Session with Tyler Martin, fractional CFO for home services and the trades, here:
http://cfointrocall.com
Learn more at http://cfomadeeasy.com
Follow the show for weekly interviews with HVAC, plumbing, and home service owners and experts who share what it really takes to grow, scale, and profit in the trades.
If you listen to any of the following shows, we’re sure you’ll love ours too!
To The Point Home Services Podcast, Toolbox for the Trades, Masters of Home Service, Home Service Business Coach With David Moerman, BlueCollar.CEO, The Home Service Expert Podcast, Next Level Pros, Blue Collar Business Podcast, Home Service Millionaire with Mike Andes, The Contractor Fight with Tom Reber, and Blue Collar Success Group
🎙️ Profit & Grit by Tyler Martin
Real stories. Real strategy. Real results for service-based business owners.
🔗 Website: ProfitAndGrit.com
📍 LinkedIn: linkedin.com/in/thinktyler
📸 Instagram & TikTok: @profitandgrit
Tyler Martin, a fractional CFO for home services and the trades
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Buying a business isn't just about the numbers on a spreadsheet. It's about knowing when you're bringing on an opportunity and when you're inviting in a nightmare.
SPEAKER_00:Welcome to Profit and Grit with Tyler, where blue collar owners and insiders spill the real story behind their hustle, building businesses that thrive through sweat and smarts. We'll dig into their journeys from scaling chaos to growing the bottom line with lessons and grit that pay off big. Here's your host, the Blue Collar CFO, Tyler Martin.
SPEAKER_01:Today we're talking with Patrick Lang, a name a lot of folks in the trades already know. What makes Patrick different is he's actually been in the seat. He's owned pool companies, HVAC, even worked as a financial planner. So when he talks about buying and selling, it's not theory, it's experience. In this episode, we cover why people first isn't just a nice phrase. Why bigger isn't always better if you ignore things like pricing and travel time, and why growth can drain your cash if you're not ready for it. Patrick also shares the sticking points he sees over and over at the one, three, five, and ten million dollar marks. Plus, the four things every owner should tighten up before they even think about selling. Let's get into it. Hey Patrick, welcome to the Profit and Grid Show. How are you doing? Doing fantastic. Thank you so much for having me on, Tyler. I really appreciate it. Yeah, thank you for being here. I will argue you are the most known broker potentially on the internet, or one of them. I mean, I literally see you everywhere. Well, I appreciate that. I spend a lot of time and money for people to say that. So I'm glad to hear it's working on some level. Absolutely. So let's start with that. Tell me a little bit about your career, what you're doing now, and then maybe a little bit about your career too.
SPEAKER_02:Yeah, absolutely. So uh I'm a broker. I own business modification group. We specialize in the sale of heating and air, plumbing, and electrical companies nationwide. So that's what we do today. It was kind of a meandering path to get here, certainly, but uh but we're here and we've been fortunate uh to help quite a few people in the process.
SPEAKER_01:Yeah. I mean, what I love about your background as a broker, because we don't often see this in many professions, actually, is you have the chops, if you will, of actually having done it. Like you owned a pool business, you've owned an HVAC business, you've been a financial planner. So you kind of like got the whole gamut of setting the table for a broker. Was that by design, or did that just kind of happen? 100% no.
SPEAKER_02:No, it wasn't done by design. It was a meandering path of what am I doing with my life many times. Um, and I think, but I but I think it helps, right? I I think having sat in my client's shoes from a buyer's perspective, I've bought businesses from a seller's perspective. I think it changes it. In addition to the money side of being a broker, I preach consistently my clients, the money is the easy part, right? It's everything else that comes with it. And I think without being there, it would be hard for me to empathize or understand what is buyer sellers going through. And so I think that gives me an added advantage.
SPEAKER_01:Yeah, that's good stuff. So, where I want to start with this is you've built your own businesses, and I'd love to just start out learning about what was your kind of ethos, if you will, or way of building a business. Like what did you stand for? Whether that be how you had your financials or your finances, whether it be leadership, is there anything that stands out that you followed when you were building your own businesses? I think taking care of people, right?
SPEAKER_02:At the end of the day, it doesn't matter what business you're in, on some level, it's a people business. And so I think taking care of people first from the customer side. And then as my businesses grew, it became taking care of them from a staffing standpoint, uh, because I think they're so they're so tied together. And so really everything I've built has always been people first, and then everything else kind of takes care of itself.
SPEAKER_01:Yeah. How did you was that something where you matured as a leader to understand how to treat people? Or do you think that's something you were always really good at from the get-go?
SPEAKER_02:It's kind of crazy. I I grew up, I started working when I was 12 years old, washing dishes in a meat market. Wow. And uh worked, ended up working all through high school and through college, learning how to cut meat. And the guy who who ran that business was an incredible business mind. It was a neighborhood meat market. But really, the the answer was always yes to a customer. It was find some way to make it happen. And and learning that from a young age really stuck with me. I think too often business owners lose sight of who the customer is and who pays their bills. So I didn't realize that early on in business, but you know, looking back at growing up through those businesses um really helped develop me into that process. And and if you take care of the customer, once again, everything else takes care of itself. And then from the employee side, I've always been slow to hire because I really view bringing on an employee as an obligation, right? Now, if somebody's coming to work for you, that you've got a responsibility to make sure they can get paid and make sure they can pay their family bills and make sure they can take care of stuff at home. And I think I see too often people are quick to hire, and then, well, if it doesn't work out, you just let people go. Well, that's an impact on somebody's life, not just on theirs, but their husbands or their wives or their children's. And that that's something that's always made me nervous that to have to come in and say, hey, you've got to go someplace else. I I can't fulfill the obligation I made to you. And so so I think that's been that's been on the employee side. You know, the first part was the customer side, but then the employee side as well.
SPEAKER_01:Yeah. How did you deal with then, Pat, when it came to employees that just weren't living up to their level of expectation? Were you said slow to hire, were you quick to fire? No, I should have been.
SPEAKER_02:No, that's that's an expensive lesson that we can go on and on about. No, and I shouldn't. I I should be, you know, and I've tried to, as I've gotten older, try to be better out of that. I did and I just don't have a I don't do a good job taking the emotion out, right? You work with somebody every day and you always want them to be better, and you always think, well, they're gonna get better or we'll be able to fix this, and oftentimes that that doesn't happen. And so that's I'm not the person to ask advice on that one, unfortunately, because I haven't figured out that solution.
SPEAKER_01:It's funny because you know, different industries, I think when you manage people, there's different expectations and their volatility might be different. When you're talking in the trades, you get pretty wide range of different types of workers. And so sometimes having to deal with those tough problems, and when you don't, they kind of build up. I know that happens within my own practice where it's kind of hard. Sometimes you want to give that person multiple chances, and sometimes it's at the at the cost of good customer service, even if you have a really, you know, someone that's really not performing up to certain standards. So I empathize with you. I think that's a common one.
SPEAKER_02:Yeah, and I'm gonna look back, anybody that we ended up letting go, we should have let go a lot sooner. Yeah. And so once they're gone, you rip the band-aid off. It was wow, I should have done that a long time ago. You know, I mean things get better. So, so yeah, that's that's not my strong point, unfortunately.
SPEAKER_01:I need to get better at that. Before I jump to the next topic, I do want to talk about how did you approach finances when you were running your own business? Were you like a dashboard guy? You're running live metrics every week, were you pretty loose and you just kind of knew them in your head? What was your way of dealing with the number side of the business?
SPEAKER_02:So a combination of both, I think. I like I'm a big fan of simplicity, right? And so looking at a 20-page spreadsheet to figure out what's going on is not good for me. I'll take the financial planning business. We operated based on the percentage of the assets, and we knew what the assets had to be in order for us to pay our revenue. And on the pool side, it was per call and what we needed to generate per call and what we were charging. And then there's going to be some incidentals outside of that, and we understood that. And then, and then on the brokerage side, or next would have been brokerage and then and then heating and air, and then kind of back to brokerage. So, so, you know, on the heating and air side, I went into it as a newbie, not knowing anything about the trade. And so, you know, we we gave away things for the first number of years until I really understood what my costs were and what was all involved in that. And and um, so there was I call it paying for an education, right? I think if you're in business and you lose enough money on something, you stop doing it, right? You you learn that I'm gonna stop doing that. And I and I think you could go and pay for an education someplace and and pay somebody money and let them teach you, and and or you can just go do it and figure it out. And I'm more much more of a kind of a doer and figure it out. So I think success leads clues. So I like to, you know, find somebody who's doing it better than I am and steal a lot of their ideas, but until you incorporate them to your own business, you don't know really what the numbers really are. And so, so it's a long-winded answer to answer your question of you know, we doing it, and there was certain key metrics that I just tracked that I had to know about. And then it was okay, now once a month or once a quarter, once you know, years, we're making these bigger plans and looking at them how it all ties in together. I know does that answer your question at all?
SPEAKER_01:It's great. What I'd love to like just take that one step further for the listeners out in the audience that are business owners. What would you recommend in terms of them running their own businesses? Is that is that still to this day kind of that same style where it's some is in your head, some is key metrics. What would you recommend a typical business owner, say one to 10 million in there? What should they be doing?
SPEAKER_02:You know, it's it's challenging for me to answer that because I meet so many people who are so much smarter than I am. You're so humble. But they can they can look at numbers and put out answers and understand stuff. To me, it's so much easier for me. Once again, I like to keep things simple as I can to just have a basic understanding of it. I know a lot of people who run a lot of great, we use heating and air as the example, that run a lot of great heating and air companies, and they could never fix an air conditioner. They don't understand anything about it. And I meet a lot of owners that are able to make the decisions they make because they understand so much about the trade. So I think everybody's a little bit unique in what works best for them. For me, it's a combination of both. Having a having a working knowledge of something, I don't need to be the best at it, but having a working knowledge of it and the numbers and how they tie into the business. Because when I first bought a heating and air company, use this as an example. My first technician, if he left and said, hey, I and was gone four hours and comes back and said, Hey, I fixed her capacitor. Well, that first day I wouldn't have known if four hours was a good time or a bad time. Now I understand, wow, it should have been a two-minute job. You know what I mean? So I think understanding the business side of it has been helpful in me, understanding the pricing and number side.
SPEAKER_01:Yeah, that's good stuff. Okay, I got it. And then just kind of switching gears here. So bigger isn't always better. And I know we've talked a little bit about your pool business. And I think part of your strategy was get big, big, big. Can we talk about that? Like, because I think all of us are conditioned to think bigger is better. Like the more revenue, the more locations, whatever it is, pick your poison. It doesn't always mean that, at least in your case. Can you talk about that a little bit? Yeah, absolutely.
SPEAKER_02:And that was that was uh kind of our growth, our our monstrous grow, grow, grow, grow, grow. And I felt we did a great job taking care of customers. And by default, just more people called us, the referrals in the industry, we were professional, we were on time, we were clean cub, you know, all these things that often isn't in the cool business. And so, so we were able to grow. People were coming to us selling us their small businesses, and we were buying them, and it was 20 minutes away, and then 30 minutes away, and then an hour and a half away, and we were using the same pricing. And so bigger wasn't better. And and windshield time became a true factor that we didn't factor into it. And then not so much just on the job. So we would we would take on another area, we'd raise our prices to cover us to get to that area, but it didn't count incidentals, right? If the technician was there and everything was getting fixed and then they came back, then it was an hour, an hour and a half away, but they were able to clean 15, 20 pools, whatever that number was when they were going there, it was profitable. But when the customer called back and said, Hey, when your guy or girl was here yesterday, this wasn't done right, or this isn't working now, or this happened, and I'd either have to pay someone or myself drive an hour and a half each way, we're losing money, right? I couldn't tell the customer, it's your fault that I'm so far away. I'm gonna charge you more for it. That was all in theory built into our pricing model, and then it wasn't. So getting bigger became an issue. If a truck broke down an hour away, I had to send somebody there with a truck and a person. And now, you know, how do I fix that? How do I put that into pricing? And so, so it was a it was a huge learning curve for us that bigger wasn't necessarily better, and we had to design a better system to service that.
SPEAKER_01:And I also would file this under, I think it's the number one thing when new clients reach out to me is growth eats cash. Like as soon as you start getting into a growth mode, you know, they're out of cash and they don't know why. Do you have some thoughts or tips, if you will? Like if you had to do a do-over on that, what would have been your do-over? Would it have been just being more aware of routes and pricing? Or how could people avoid that whole or at least prepare for that growth eats cash type of thing?
SPEAKER_02:Yeah, and I think it's two separate things. So one, I didn't know growth was so expensive. That's the first one. And I see that so much now in the businesses that I work with that man, we're doing we're growing, but we're not making any money whatsoever. And we want to sell it. Well, well, a buyer's gonna pay based on your net income. And if you have no net income, what what are they paying you for? And so, so that's part of it. The other part was certainly on the route-based system. You know, I I had never owned a route-based company before, and and it was just more. Somebody said, Hey, can you can you do this pool too? Yeah, absolutely. Hey, can you do this one three days a week? Absolutely. The answer was always yes, just taking on more. And it didn't always lead to higher, higher profits. And so part of it was once again, how far away we were located. So it was finding a technician that was closer that, and then it was managing from afar, where you know, before it was everybody comes back to the shop. And so I saw everyone's truck, I knew what was in it, I knew it was clean, I knew what was going on. And now if I'm gonna trust people to be afar, that was a different, that was a different educational process for me. And I needed to grow as a manager and as a person and as a business owner. And I'm a I'm a horrible control freak. And so that's not a good thing for me. And that's ultimately what led to us selling it was we were so big in so many different areas, we created a disaster. And it was much easier to sell those areas off and let somebody locally handle them and manage them. And they were super profitable if you were there close. But if you were an hour away or an hour and a half away, all of a sudden it's up, you know, your margins and gas during that period of time. Gas spiked for a while, and now you've got all these trucks on the road uh heading in all these different directions. And now to make up for a mistake somewhere, you're driving an extra three hours. Well, there weren't there weren't any margins you made that week. And so it was a combination. It was it was route by design, it was pricing by design, and it was also back into growth is super expensive. And I think the growth is expensive stayed with me more, and I see I see more people making that mistake in the trades today than any of them when it comes to that side of the business.
SPEAKER_01:Yeah, it's funny too, because I echo what you say in terms of there's a lot of people that'll come, business owners that'll come that just really know their numbers, they're really super savvy, but they get blindsided by that growth part of eat the growth that's cash. And you know, I had someone come to me not too long ago and bought a business that had like$700,000 of EBITDA. So it's relatively small, but he added a service division right away, he added a GM right away, and now his EBITDA was down to like half that, and it barely covered the debt service, and now he wasn't hitting his covet's on covenant on his credit line or on his SBA relative to his credit line. So he's all these problems, and yet this is someone that knows his numbers really well, but totally got blindsided. And I see that actually happen a lot.
SPEAKER_02:Yeah, I think you know, for a lot of people, you go to a lot of events, right, in the industry, and I'm at all of them, all the trade show, and somebody gets up on stage and says, you know, you're gonna grow from 5 million to 10 million, and here's all you need to do, and they forget the other part of the course, right? There's a lot that goes into that. Who you need to be running a company doing$3 million in sales is different than who you need to be running one at 10 million. And um and it's very expensive to get from that three million to 10 million, in addition to what you have to do differently and who you have to be differently. There's a lot of money spent across that group.
SPEAKER_01:Yeah. What would you say for the folks that are kind of stuck at that three and four million level, does anything stand out for you of what will push them forward to get to the 10 million? Do you see a recurring theme of what's bottlenecking them?
SPEAKER_02:Yeah. Um, so I I see it typically at a million, three million, five million, and then ten. And the million is the owner won't get out of the van. Right. They're the best technician, best salesperson, best installer. They do all the work. And so every Google review you see has their name in it, and they just won't get out of their own way. That's the million. At three million, what I often see is a step backwards, right? They're super profitable getting up to three million. And now at three million, they need to bring in some layers of management. And those layers, when you're growing from one to three, every hire generates revenue, right? You're hiring a new tech, you're hiring a new installer, you're hiring a new plumber if you're in the plumbing trade. And so those people, when they leave the shop, they come back with more money than they left with. So every one of those hires is easy to make. Now you get to three million, and now you start to invest in management. And management doesn't always add any money to the bottom line. It ends up being an expense. And so for most of them, they wrestle one with giving up some of the control. And so they have to be a different type of leader. And number two, their numbers go backwards often for that period until they get everybody in there and everybody working. And either one, they give away too much of the control to potentially somebody who's not great at it or isn't as good as they said they were. And two, they start saying, Well, why am I doing this? I'm making less money than I was just doing it myself, kind of thing. So those two things at that three, and then similar at the five. You at five million, I find you you need to have a sales system in place and sales people and processes and those kind of things. Cause now you've got now you've got a machine you've got to feed, right? Typically up to that three million dollar level, it's often repeat, referral, and a little bit of marketing, right? When they that five million, then it becomes that you've got a market and the phone needs to ring and you need to find somebody new to sell something to, and confidence in the people that are selling it to them, right? So profitability plays into there, marketing plays into there, and a lot can go wrong on the marketing side. I mean, with a lot of people that, hey, our Google leads just shut off, and they're still spending a lot of money for it and not getting it, or they're not tracking the conversions, and so they've got a good salesperson and they're feeding him or her leads and they're not converting. Well, now what's happening? And so, so there's a lot to get that can go wrong at those two steps.
SPEAKER_01:Yeah. How often do you have people coming? Do you business owners coming to you going, hey, I want to sell my business? And you go, but you're not ready. Like what percentage does that happen where it's just not really marketable? Huge. Really?
SPEAKER_02:Huge. Yeah. Yeah. I think we probably look at two to four sets of tax returns a week, and I list two companies a month. Wow. Either they didn't like my answer of where valuation went, which is a lot, right? It doesn't do me any good to list a company that's not going to sell, right? It doesn't help them, it doesn't help me, uh, it doesn't help the market. And so I have to have a lot of uncomfortable conversations with people saying, hey, here's where it's worth. And and some get mad, some get sad, and there's all sorts of different emotions around there.
SPEAKER_01:But but yeah, that happens, it happens a ton. Yeah, I mean, that's their baby. Let's be honest. I mean, that's you know, I've been there myself, so I know uh it becomes very, very emotional. And do you usually, when you turn them away, is it's kind of like, hey, these are the things you gotta work on, or how does that end usually? Is it these are the things I would work on if it was my business type of thing, or is it just it just this is marketable?
SPEAKER_02:So a combination, and it's funny you say baby. So I have a YouTube channel. Uh you and I talked about it. One of my most watched videos is one I have on there called Your Baby's Ugly. And and it's it's done to to to kind of be funny, but it's real. It's a conversation I have daily that, hey, what you've built is wrong and buyer's not going to pay for it, or where you are in the journey, a buyer's not going to pay for. So oftentimes when people get to me, they're done, right? For whatever reason, when they when they get to my office or on my phone or on a Zoom meeting, they're done, right? They they're not they're not looking for advice on how to grow it. They're saying, I want to take my chips off the table. What do I do? So those conversations sometimes are sad. You know, they go to a seminar or a trade show or an event, or they heard somebody at the supply house say, oh, so-and-so sold their business for a 10-time multiple, right? But they never heard they were doing, you know, million dollars in net income or they're doing$12 million in sales or, you know, whatever the business mix was. So, and I tell people, listen, if you didn't, if you didn't see the check, it's a lie, right? Nobody brags about the bad deal they got. So nobody gets up on stage and says, hey, don't do what I do. I only got X amount of dollars. All they talk about is multiples. Well, if you're not making any money, I can give you a 20-time multiple and it doesn't matter, right? At the end of the day, to me, what's important is a check that you put in the bank. And so focusing on that is should be the most important. But we have a conversation, they give us numbers, we do an analysis of the business, we have a phone call and say, hey, in today's market, here's where it's going to sell. Some of them say that's not enough. It's not going to work. What do I need to do? And I'll say I'd focus on X, Y, and Z. And typically, there's four things I preach, especially when it comes to heating and air, for sellers. One, get yourself out of the van, right? If nobody calls me and says I want to buy a job where I'm in the field for 14 hours a day and then go home and do paperwork for six hours, right? That's not somebody's dream. So getting yourself out of the van, the second thing is a business built on service repair and replacement and having maintenance agreements with your customers so that it's repeat revenue buyers love. It makes them feel warm and fuzzy, and a customer paying for their own loyalty is huge. The third thing is clean books and records. So many people, so many of the calls I have every week are they'll they'll we'll have a phone call. We're doing$3 million in sales. I see you're making around$450,000 a year. Yep, absolutely. Great. Send me the I'll say, hey, it's gonna be worth somewhere around this. Send me the numbers, we'll look at them exactly. They send me their tax returns, and it's like we're talking about two different businesses. They're showing that they're breaking even. And so we'll have a phone call and I'll say, hey, it's worth$500,000 or whatever the figure is. And they're like, Wait, well, you said it was gonna be worth a few million. Well, yeah, you said you were making$450,000. Well, I am, but no, you're not. I'm looking at the numbers and you're not. Well, every business owner, you know, hides some things. Well, cleaner books and records make it way easier to command top dollars. So that's that's the third thing we preach. And then the fourth is staying away from new construction. That's what I normally get the biggest pushback on. I'm not saying you can't make money in new construction. Most people don't, but I'm not saying that everybody doesn't. But buyers are scared to death of it. And so if you're looking at maximizing the value of your business, that's one area to stay away from. So get out of the van, service and repair, clean books and records, and staying away from new construction. I preach that continuously. Now, some people say, Great, I'm gonna go do it. And others say I'm done.
SPEAKER_01:I don't want to do it, and and they'll sell it anyways. Two things I want to add to that. Uh, Matt Posada was on my podcast, Call Dad, and he has got to be the best uh case study for transforming a business from almost a hundred percent new construction to a hundred percent residential. And just the story that he told, and I'm sure he's done it on other podcasts, was just awesome because that's hard to do to go from, you know, he bought the business thinking it was 50-50, but it was actually all new construction. And he, oh my gosh, I got a problem. How do I change this? And he actually did it over several years where it was turned into all just cash on delivery business. Yeah, and and Matt's a super smart guy.
SPEAKER_02:Yeah, yeah, yeah. You know, what he's been able to do, I mean, he owns all sorts of other businesses. I mean, the guy is the guy is brilliant, right? And so and so so he sets the bar pretty high. You know what I mean? I mean, he he's able to look at numbers and understand things and do things at levels many people can't. Yeah, I agree. But yeah, he is the absolute case. And hey, there's a smart guy who bought a business that wasn't what he thought it was, right? And he's yeah, yeah, that's that was really my takeaway. Good point. Yeah, and he he so if it happens to a smart guy, it can happen to you when you're buying a business and making sure that you know, um, that it really is what what they say it is and why. And and a lot of that has to do with the numbers, right? When I I have a lot of people that'll send me deals to look at and say, hey, you know, take a look at this deal, and I'm like, oh, I'll ask, you know, how much what percentage construction, or how often is the owner in the field, that kind of stuff. We'll ask questions around that. Oh, the owner's never in the field. But they're somehow, you know, they're doing a million dollars in sales and they're making 30% margins. And it's like, well, that's just not mathematically possible. And they've they've got to be it's gotta be something else going on. I'll call the owner, ask him how many days a week is he in the truck. Oh, he calls me back. Well, he's in it every day, but he's not really running many calls. Well, so now you've got to replace an owner, you've got to replace a technician. So now it changes the numbers drastically, kind of thing. And so, yeah, uh, understanding the numbers is super helpful in turning things like that around.
SPEAKER_01:And I want to touch on that too. I see this happen a lot. Owners sometimes think they're hiring, they think they've got the checkbox in terms of the person doing their finances and they think it's all taken care of. The sad thing is, I think seven out of ten times it's not really being done very well and it's very sloppy, or it's very behind, or it's things are crazy on the balance sheet. So I do think it owners should stand back and actually look at their numbers. Cause I think sometimes they just feel like, okay, it's a checkbox. I've got it done, I've got someone taken care of. And the other thing on to your point is I there's this misnomer out in the marketplace that adbacks are okay. Like, okay, well, I just, I just, you know, I know I put I'm putting my house payment through the business, but but we could just we can explain that. And what I always say is, do you really want to buy a business from someone that's doing a bunch of crazy tax stuff? Like, I'm not sure that's who I want to buy a business from if they've got to explain what their profit really is. That just would scare me. Or at least it would throw up a red flag. I there's gonna be some that are normal, but sometimes it's just crazy stuff. Two points on that. Great points.
SPEAKER_02:One, I tell sellers or buyers if you're cheating on your taxes and risking going to jail, if I'm buying your business and you lie to me, I've got no recourse, right? You're you're willing to risk going to jail, and you've already told me that, you should tell me you're cheating on your taxes. So it would make me as a buyer very, very nervous that what else are you cheating on? What else are you lying about? And I've got no recourse in the transaction. So now I've been self-employed for 25 plus years, probably. I've been creative with my accounting. So I'm I'm not saying that I don't understand that. I'm saying if the goal is to sell, that's not the answer. And here's the flip side of that probably 50% of the buyers in the marketplace right now are using SBA financing. SBA financing is backed by the federal government. Do you want to give a buyer all of your financials and your list of how you cheated the government to go into a federally backed loan and say, hey, I want to buy this business, it's really making a lot more money than he or she says it is. And here's proof because they've been cheating on their taxes. It's not gonna happen. You're not gonna want them doing that. The government's not gonna loan on it, and it just opens you up to a bigger liability. So, so it's not the answer. If the ultimate goal is to sell your business, you need to have clean books and records, and it's gonna make you way more money in a selling price, anyways. It really is. If I could go to a buyer and give them a tax return and say, here, here's all their numbers, here's their profit, here's everything, I'm gonna be able to get a higher premium for that business than if I hand them a spreadsheet of all their grocery bills and house payments and ex-girlfriends' condos and all this other stuff that they've been running through the business, it's much, much harder to get that deal done.
SPEAKER_01:Yeah, yeah, that's good stuff. Hey, on the same note, in terms of acquisition, what are your thoughts around using acquisition as a way of growing a business? So just like you did with the pool business, is that something that if someone came to you and say, Hey, I want to get to 10 million, I'm stuck at 5 million, would you say spend more time in setting up a marketing system? Or if they said, Hey, I've got some dough, I wouldn't mind you know acquiring businesses, would you say that's a way to go? What's your thoughts around that?
SPEAKER_02:Doesn't it sound weird coming from somebody who sells business? Businesses. I think most people are not in a position to buy a business. I think most people think that buying a business is just a magic wand that fixes all of their problems. And if your business is not in good shape, buying another one is going to make your headache bigger. Right? The phone ringing more when you haven't figured out how to handle flow volume is not great. If you're still staff training in place, bringing on 10 more staff members is can potentially be a bad thing. I think people try to hire to buy away their problems in an acquisition, and that's not the answer. Now, once you've got your systems in place and your ducks in a row and things are running well, absolutely, I think acquisition can be incredible, can catapult you ahead. But you need to understand the business first. I see so many people looking, they're doing a million dollars in sales and trying to buy a company doing$3 million in sales. Well, you're about to take over that company culture, right? So all those people that are coming to your company, there's more of them than there are of you. And you're going to adopt their culture. What if it's not good? What if it's not in place? What if the training's not there? What if the checks and balances are not in place? There's a lot of risk in doing that. So that's my out-of-the-gate answer, right? I think you need to be careful and make sure you got your own house in order before you do. But once you have your house in order, absolutely. I think it's an incredible way. And I already mentioned SBA financing. You can buy a business today, finance it over 10 years with if you're already in the industry, most of the time, you can do it with no money out of pocket. So you could magnify cash flow tremendously, get the vehicles, get the branding, get the people, get all those things, but it's not without risk. And so understanding that, the other part of that, the downside, I'll say, is depending on when you're going to sell, right? So many people think, well, I'm going to sell in the next year or two. I'm going to go buy this business. My numbers are going to double and everything's going to be fantastic. Well, oftentimes it's not the case. When you when there's integration being done, sometimes the numbers slow down a little bit. Why are you getting all the ducts in the people and the processes in place? So sometimes it goes backwards a little bit. So if you're looking to sell short term under three years, I probably wouldn't go buy a company because it you may not get that money back fast enough. But if you've got a longer time horizon, I think it's an incredible opportunity if you've got your systems in place.
SPEAKER_01:Yeah, that's good stuff. I had uh John Wilson on my podcast of Wilson Companies, and this is a little more extreme, but he bought four companies in a very short amount of time and they were all turnarounds. So now he had four QuickBook files he was trying to integrate. He had culture issues of all these people coming in. He had routes, he had all these different things going on, and he said it was overwhelming. And almost his accounting department in particular got so out of control they fell, I don't know if they fell behind or lost invoices, but it was to the tune of$800,000. And he started getting all these lawsuits. Uh so it was like a really down period for him because he just kind of moved a little fast. I mean, you know, young guy aggressive, and now he's he's a great move. I mean, he's now a$30 million company and probably gonna be$100 million someday. But it's that, like you said, it there's a certain amount of time for that integration to happen. And anybody that's gone through one knows like it's a way harder than you think it'll be, and more stuff comes up than you don't even anticipate. So those are all that's really a valid point. It's just a really great point, I should say, just to think about the timeline of that integration before you do it, because you may not, if you're gonna sell in three years, you're not gonna get anything out of it anyway, probably.
SPEAKER_02:Yeah, you may not, yeah, depending on when you put out pocket and the integration, the expenses, and so understanding your time horizon and understanding who you are as a leader, right? It's a different person running a million-dollar company than running a$10 million company, and you need to make sure you're ready to do that.
SPEAKER_01:If someone came to you and let's say they just had a five million dollar company and it seemed like it was a little bit in disarray, would you say to them, hey, I'm not so sure you're ready for an acquisition?
SPEAKER_02:Yes, absolutely. Yeah, and and I have a lot of people that that call me and say, Hey, I'm gonna buy this company. And I'll look at the company and the company they're buying is kind of in disarray too. And I'm and I'm thinking, you don't have your ducks in a row. And now you're gonna take on these other headaches. It could be a disaster. I mean, it could ruin you, right? At the end of the day, you're taking on debt, you're pledging things, or using your cash and not really looking at it fully. I think people get enamored by the everybody's buying, so we need to buy something without really taking the time to understand it and to be ready for it and and check all the boxes for themselves. Once again, when you've checked the boxes for yourself and you've got a well-running business, then yeah, then you can bring it in. It becomes even it can catapult you ahead. But if if you're not in the right spot, it could hurt you.
SPEAKER_01:Yeah. And I don't want to gloss over because I think I kind of did. Doing what you did as a leader at a one million dollar company is gonna might be way or is gonna be way different at five million and way different at 10. So you really have to self-assess too. I kind of glossed over that. That's a huge point.
SPEAKER_02:Yeah, and it's an education process, right? You know, you've got to grow as that person gets there. And I've seen some people who were able to grow quickly from one to 10. And that was their skip set, and they were very good at it. Not everybody's that way. And so making sure that you're in a position to do it or can surround yourself with people that can is important.
SPEAKER_01:Yeah. Okay, I want to talk about recurring revenue, maintenance agreements in particular. On the surface, kind of a panacea, great opportunity. Everybody should have them. You even said it. Where are they? Where do you think companies don't think about the liability related to them or where maintenance agreements or recurring revenue could go wrong?
SPEAKER_02:Yeah, a couple ways. One, the first part is let's talk about selling, right? If you have a thousand maintenance agreements and you charge$200 a person for two visits a year, and you've done one of those visits, well, now that new owner is going to take on that liability of having to service those maintenance agreements. So they're gonna typically expect$100 per agreement credit. So people accept an asking price, and now they have this huge maintenance program and could be thousands, and now it's gonna reduce their purchase price, which they never thought about, is the first thing. Because once again, somebody's got to do the work and get paid for it. Now the new owner's gonna do that. Second thing, I see people do a lot of these, they think necessarily long-term maintenance agreements. So back to an accounting thing, I see people they'll sell a five-year maintenance agreement and they'll get paid up front, and they'll count all of that revenue up front when they receive the money. And now when a buyer, a smart buyer, is going through due diligence and they are looking at what's the really ongoing revenue. Well, they took five years of income in one year, and there's four years of work there that has to be backed out because instead of putting it as a liability, they counted it as all as income. And so potentially their numbers could be skewed, and it could be a lot if you sell thousands of them in five years. So, so there's there's a liability there that not understanding accounting and not understanding how to really calculate that income. And now, you know, let's assume it's$300,000, just using that as an example. And now we've got five years of that from a purchase price standpoint. It could be a huge reduction in purchase price.
SPEAKER_01:So there's another liability there. Yeah. I also think at an operational level, I don't think we look at maintenance agreements often enough in terms of are they doing what we want them to do? Are they are they creating a sticky relationship? Are we making the profit that we expect on them? Are we overcommitting in terms of what we're doing in the maintenance agreement? I think that's another thing. I've seen a couple come to me and I'm like, hey, I'm not sure this makes sense in terms of your profitability and they're doing what you think they're doing. And I think that's another thing. It's a little bit different than from the buying angle or selling angle, but I think it also does tie into profitability and the operations of the company that tends to get glossed over.
SPEAKER_02:Yeah, well, and I think from an operational standpoint, I see a lot of people who who sell tons of maintenance agreements. Well, then they can't get to them, right? They're running out of time, and we had a weather change, and so it's gone from summer to winter, and and the phone's ringing off the hook, and they still have hundreds of them that they have to go do. So they're having you have to give somewhere, right? There's only so many hours in a day. And so you've got this obligation to the customer that you told them you're gonna come take care of this maintenance. And so I see people have structured them differently where it's kind of on the customer to call, and there's some other you know, avenues away from that. But but at the same point in time, if you've got 300 of them to go do, and now it's 95 degrees outside, and and you're getting no cool calls coming in. You know, are you gonna tell the you tell the customer it's calling, saying the air conditioner's not working, I can't get to you because I've got this maintenance that I was paid$100 on that we've got to come out and do. And and so it creates it creates a problem there, but then it also creates now. I see people that are on our technicians, hurry up and get out there and get it done. Just go get it taken care of. Well, that doesn't deliver the true value of the maintenance agreement and spending time with the customer and looking for other opportunities and doing those other types of things. So it absolutely has not only an impact financially, but operationally.
SPEAKER_01:Yeah, that's a good point. So last thing I want to talk about is you said that one to ten million dollar company is where the mo has the best opportunities. Can we talk about that a little bit? Why is that kind of a sweet spot, if you will, in terms of a company size?
SPEAKER_02:Yeah, and so so I work in that end end of the market. So that's where my preference is, obviously. You know, the bigger the company is, the easier it is to sell, typically. You know, if you're doing 10, 20, 30, 40 million dollars, people are beating a path to your door. So I look at it in twofold. One, if you're a buyer, so look at that one million to up to two and a half million dollar in sales range from a buyer's perspective, I think that has the most low-hanging fruit, right? Typically the owner's out of the van, so it's not just a chuck and a truck where all the relationships just belong to the owner. They've raised their prices some because there's other people in the field, so they're having to compensate for that. So the customer is not the cheapest customer in the world any longer. And typically that business is run by a great technician, not a great business owner. So there's a lot of low-hanging fruits. They don't believe in maintenance agreements. If they do, they don't do them well. They don't have any sales system in place, they don't market to any of their customers. There's no marketing going on at all. So, so there's a lot of opportunities on that, say two and a half million down and below. Starts getting up from there, it starts becoming super attractive to private equity. You know, when when private equity first started getting in the space, all of them would call me and say it has to be$10 million or more in sales. Well, now they've moved down markets, they've gobbled up all those bigger companies. As a result, it's helped raise the sale prices of the smaller companies as well. And there's a lot of them, right? You look across the industry as a whole, there's a lot more companies doing$2 million in sales than doing$50 million in sales. And so I think there's an opportunity from a scale standpoint from an acquisition. So I think once you get above that million and a half, you have a real business to sell. So that's where it becomes attractive. Underneath that, it's super hard to get sold because nobody's looking to buy a job. And as you move up that scaling size, it becomes more and more attractive.
SPEAKER_01:Does that answer your question? Yeah, yeah. Do you think in terms of advice to folks out in the audience, anything they should be doing if they're at, let's say, two or three million, what would you say? Because it sounds now uh now I'm viable, I'm I'm sellable, but maybe there's another step for them before they sell. What what would generally you that advice be?
SPEAKER_02:So I think it really the advice would depend on what they're looking for, right? I mean everybody preaches bigger is better, but it's not always, right? There's a there's a lot of people don't enjoy running a bigger company, don't have the skill set to run a bigger company. And I see a lot of people at five million who are netting more money than a company at 10 million. Patents a lot. Running leaner, more profitable. So you have to ask yourself if I'm gonna run this for the next five to ten years, does it make sense for me to be smaller and make more money, make a million dollars plus a year? Or does it make sense to grow, which is expensive, to grow to 10 million where I'm still gonna make a million dollars a year? What's the ultimate goal? If the ultimate goal is to sell, getting bigger while maintaining profitability is gonna be the answer. If it's hey, I don't want to have all the headaches, I like to be a smaller business, then maybe staying smaller is the answer. You have to decide what's right for you. I'm not saying that not everybody's meant to build a$20 or$30 million. At the end of the day, they just don't enjoy it. And whether we want to admit it or not, growth is expensive from money, but it's also expensive from time, right? You know, but is being home more important with your family or your kids more important than an extra zero on the sale price. And I have a lot of people, I saw a lot of companies that are making$250,000,$300,000 in net income a year. And I'll have a buyer come up and say, Well, gosh, why aren't they growing it? Well, that guy's been making$250,000 a year, most making more than most people in the country. He hasn't been working very hard. He's been taking care of his family his entire life. Who am I to say he's not doing it right? Right? He's had a great life. Why why would I argue about that? Every growth is not for everyone. And so I think sometimes we get we get so enamored and caught up in this company went to 20 million, this one to 50 million. You have to decide what's right for you and then work backwards from there, in my opinion.
SPEAKER_01:And I think that self-evaluation of saying, can I be a$10 million leader? Can I be a$5 million leader? Is this the right spot for me? Because I think we do fall into that. We're just always supposed to be bigger. And I think that that self-evaluation can be a little hard to decide, hey, I'm good at$5 million. I've got everything under control. I know where everybody's at. I feel comfortable. I think there's just a natural and it's hard to turn away business too, especially if you're getting more coming in the door. You just always say yes. I know I've been there. And so there's just a lot a lot of dynamics there. Yeah, absolutely.
SPEAKER_02:I think knowing what's important to you, and and can you be the$10 million leader? And do you want to be the$10 million? I I see a lot of people who don't. I've seen people sell their$10 million company to move to another area and start it, and it's them and a couple people because they enjoy the business, they like dealing with customers, they like that, and they don't want all the headaches that come with it. So I think I think finding out what's right for you first and then working backwards from there. Because either way is doable, right? You can become a$10 million company if you want to. You can stay a million dollar company. Whatever you have to find what's right for you.
SPEAKER_01:Yeah. And and like you said, if you're optimized at almost any one of those levels, you're gonna make a good living. Yeah, yeah. Good stuff. Okay, hey, last thing I want to wrap up on here is do you have like a mantra or something you've kind of lived by? I have a quote that, and I've did this for years.
SPEAKER_02:I I was fortunate to own businesses my entire adult life, and I was always able to take my kids to school. So every morning dropping my kids off at school, I would always say, Life is a result of the choices you make. Make good choices, you'll have a good life. And I and I believe that. I think um I think what we choose to do on a daily, weekly, monthly basis, um, and who we are as a person can dictate what your life looks like. So that would probably be it, I would, I would say.
SPEAKER_01:That's a good one. I like that. Hey, so your your links, I've got businessmodification group.com. That's your business website. Then, of course, you're on LinkedIn. I'll put that in the uh show note. But if you if you just look up Patrick Lang, it'll be almost, I believe it'll be the first hit. And then Instagram, your handle is the Patrick Lang with an E. And then your YouTube is Business Modification Group, correct?
SPEAKER_02:Yeah, it is search Patrick Lang YouTube or Business Modification Group YouTube, it'll come up either. We probably have 70 or 80 videos on there about buying and selling different companies, uh, primarily in the trades, heating and air, plumbing and electric. But yeah, and and if you know, that's a that's a great place, I think, for people just to get general information. But connect with me. I'm pretty active on social media and so happy to talk, chat, uh, you know, give any advice that I can, help out in any way. Don't hesitate to reach out. I'd love an opportunity to help if I can.
SPEAKER_01:Yeah, one of my clients reached out to you, or you may even reach out to my client. I'm not sure which way it worked. I think he reached out to you, but you said you were so kind. You met with him, uh, gave him some coaching, gave him some tips, and he walked away. And this is about a year ago. I had, I really honestly didn't know of you too well. I knew of you, but not uh to the personal level I know now. And he was just gushing about how kind you were and couldn't wait to work with you in the future when it when you know he gets to the point that he wants to sell.
SPEAKER_02:That's I appreciate you sharing that. Yeah. I mean, I I try to, right? Because the reality is most people don't know who to ask. That's it with my my industry, the brokerage side of the world, most people don't know who to ask questions. They don't want to ask their competitors, right? They don't want to ask their the supply houses because they'll tell everybody. And so as a result, we try to give as much information as we can. So in my videos, most of them are standing in my backyard. They're certainly not professionally produced. It's my cell phone recording me standing in my backyard. I started with a selfie stick and I was shaking like this that I had to get a tripod for$99. That's the big investment to my video career. But but most people don't know who to ask. And so someone will ask me a question, I'll write it down and think, oh, next time I go do you know a video, I need to do a video about that, you know, because I do it all day long. And and sometimes you get numb to some of the questions and don't think about it. So I try to do that. But yeah, absolutely. I have a completely open door policy. If somebody has questions, call me, email me, text me. I'm happy to answer anything I can, at least pointing in what I think is the right direction for them. So I appreciate you taking time to say that.
SPEAKER_01:Yeah. And it seems like this may be you're having the most fun in your career. And I'm taking some big liberties here, but you seem to enjoy this so much. I do. I love what I do.
SPEAKER_02:I'm I am so fortunate. There's a lot of people. I so crazy. I talked to my son about it the other day. I remember a time in my life when I looked at the clock on the wall and think, you know, is it ever going to end? Right. And now I'll start my day at five or six in the morning. And next thing it's like, oh my gosh, start at seven o'clock at night. Man, I got so much I want to get done. I I'm fortunate. I am truly blessed to be able to do something that I love. My youngest son works with me here now. And uh, so eventually he'll be he'll be the guy on camera taking over for me on my succession planning. But uh yeah, I'm fortunate. I'm I really am. I get to help a lot of people and have a lot of fun doing it.
SPEAKER_01:That's so cool. Hey, well, Pat, thanks so much for being on the show. I I this is everything I expected it to be, other than I felt like we needed eight more hours to cover things.
SPEAKER_02:Thank you so much for having me. I had a great time, and hopefully your listeners or viewers get something out of it and get some value out of it. I really, I really appreciate you inviting me on. I'm flattered that you did, and and I'm excited to be here. Awesome.
SPEAKER_01:Thanks again. Thank you. Okay, that was a great one. Here's what I want you to take away from this episode. When it comes time to sell, buyers don't care about a good year. They care about steady profit that keeps coming in. That means service agreements that stick, books that make sense, and a business that doesn't fall apart if you're not there every day. And if you're growing, don't forget, growth takes cash. Adding people, trucks, or even buying another company all cost money before they pay off. If you don't plan for that, you might look profitable on paper, but still be tight on cash in real life. If you want to talk through where your business stands, whether it's preparing for growth or getting ready for a future sale, just book a quick intro call at cfointrocall.com or feel free to visit cfomadeasy.com. As always, thanks for listening, and I can't wait for you to listen to next week's episode.
