How he sold his renovation business
Edmonton contractor sold his business for close to $500,000. The buyer got excellent value and has already started to move the business to even greater heights. The key to selling a renovation business is to make sure it can run without you, using proper systems.
November 27, 2012 by Steve Payne
By Mike Draper
Does your renovation business provide you with a pension? Probably not, right? So how do you make sure that, one day, you have enough money to retire?
Most renovation companies I see make barely enough money to support the contractor today, never mind stockpiling money for retirement.
One solution to this problem is, of course, to sell your business one day.
But if you haven’t set your business up to work without you, you won’t have much to sell. But if you have implemented the right systems, delegated, and built an organization that works without you, you will have a valuable asset that you can sell.
At Renovantage, our definition of a successful business is: A commercial, profitable enterprise that works without you.
Let’s look at how a successful contractor recently sold his business: not exactly to retire, but to move to another city and enter a new phase of his life.
About two years ago I was hired by a contractor in Edmonton to help him get his business life back under control. Navid Tirmizi was working six days a week, 12 -14 hours per day. His wife, Victoria, was also involved in the business; their firm, Houseworks Renovations, was their life. However, they both knew that they couldn’t continue operating this way. There were three reasons why.
First, the hours were crazy and Navid and Victoria wanted more from their firm then to have to tend to it six days a week. They knew that their business should be providing them with the life that they deserved, not the business driving them to work more.
Second, they knew that in order to grow from where they were, they couldn’t spend even more time on the business because they were already working too many hours. In fact, they actually needed to reduce their work hours.
Third, the Tirmizis wanted to move their family from Edmonton to Calgary, yet couldn’t see how they could do that when the business required that they be local to their clients.
With all this in mind, we looked at three potential solutions: One, they could hire a general manager; two, they could commute from Calgary to Edmonton during the week; and, three, they could sell the business.
Identifying the problem
What we quickly realized was that none of these three options was possible with the way the business was being run. We couldn’t hire a GM because the entire business was in the heads of the owners. Commuting from Calgary to Edmonton would be a nightmare – might as well stay in Edmonton. And, who would buy a business where the business was all about the owner?
At that point the problem was obvious. They had built a commercial, profitable enterprise but it didn’t work without them. I believe that 95 per cent of all renovation companies have the exact same problem.
Now that we had identified the problem with the company, we knew that for any of the three options to be successful, we had to focus our efforts on building a company that was not so dependent on the owners. We had to build some systems so that the company could start to take care of itself. We had to release the owners from being slaves to the business.
People talk about systems all the time. But the effort to put them in place – and the belief that they will really work – is too often lacking. This thinking is the reason most renovation companies never get sold. They are either passed onto the next generation or simply shut down when the owner has had enough. At least when the business is passed on, there is some value that changes hands. When a business is shut down, it is a real shame. Think about it – a business has been around for 30 years, is well known, and it is simply shut down? Crazy! All because the business never learned to take care of itself and its owner.
Where do you start?
So where do you start after you make the decision to wean your company off your own micromanagement and began to make it run independently?
Navid and Victoria have now sold their business for almost $500,000, but they were once like many of you: hitched permanently to the business, seven days a week.
As we began to work with the Tirmizis, we found lots and lots of areas of the business that could either be eliminated or made more efficient.
Navid was already off the tools and not spending any time swinging a hammer, so we had a good starting platform. He had hired some good crews, most of them as employees, who were very capable of getting the work done. He had spent a lot of time training them. He would also hire specific subtrades such as electricians and plumbers as needed.
Where Navid was caught up was that he was doing estimating, sales, project management, site supervising, human resources, design, finances, marketing, and more. It was all just too much. It meant working crazy hours. Considering all of this, we looked at what Navid and Victoria should continue to work on and what they needed to get help with. Navid was very strong at selling and Victoria was very strong at design. These two functions were what had made Houseworks so successful. The rest was more about the day-to-day work that needed to be done to deliver the finished product.
The first major process we worked on was their selling system. We broke their sales process down into about 20 steps – right from the first phone call from a prospect to the sales-to-production handoff meeting. The goal here was to set a standard for all new sales opportunities because leads were starting to fall through the cracks and not get followed up on quickly enough. Each sales lead was being handled differently and it was becoming too hard to keep track of each opportunity. (If you would like a copy of a sales process, email me at email@example.com and I will send you back an example).
Too much time on site
The second major area of concern was the amount of time Navid was spending on job sites. Site supervisor is a very critical role in the construction process and it is extremely important in maintaining quality standards. So it was a tough decision for Navid to let someone else manage the quality of the on site work. After all, this is what clients had come to expect from Navid. However, we knew that this role had to change from Navid to someone else. It was the one area that forced Navid to be too much in the day-to-day. So we put an ad for a site supervisor in the paper and online. The hiring process began and soon there were lots of good candidates applying.
Delegating the bookkeeping
The next major area to delegate was the bookkeeping. Houseworks had gone through a number of bookkeepers over the years. They had all done a fairly good job of entering information and keeping things up to date. The trouble was that they couldn’t provide enough time to really take over the full bookkeeping needs of the company. We needed to have someone who could help with job costing, accounts payable and receivable, bank reconciliation, etc. We wanted to be able to implement a system whereby invoices received by noon on Thursday would be approved and paid on Friday. We wanted to stop Navid having to write cheques every day and then spend precious time meeting with subtrades to give them money. It all had to be systemized so that everyone knew exactly when their invoices needed to be in and when they could expect to be paid.
All of this meant we needed a full time bookkeeper – one that could come in on a regular basis and could take responsibility for helping to run the financial part of the business. In March 2012, that person was hired. It was also in March that Navid had his first person interested in buying his business. More on that in a moment.
In April 2012, I set up a conference call with Mike McCartney, general manager of Eyecon Contracting in Newmarket, Ontario, so that Navid could explore what a renovation company could be like with a general manager running the business, relieving him of the day-to-day issues. What Navid learned from Mike was that the general manager needed to have the same passion as the owner and be willing to treat the business as though it were his own. Mike also felt that for any good GM there had to be a “carrot” at the end of the journey.
Moving the family
The moving of the Tirmizi family from Edmonton to Calgary was decided in July of 2012, when their Edmonton home was sold and a house in Calgary purchased. Navid and Victoria were now committed to selling their business.
Reducing the business’s day-to-day demand on Navid’s time was now a priority. This was immediately accomplished by the hiring of a project manager. The PM’s role was to take control of the project schedules for the many jobs that were on the go at the same time.
Shaun Kerr approached Navid as having interest in buying the company in July of 2012. With close to $2-million in annual revenues and 19 active and pending projects, Houseworks had real value to a new owner. The company’s brand name, assets and goodwill had substantial value. Once it was clear that Shaun would be a good fit to continue the longstanding tradition of Houseworks, Navid brought Shaun in to work in the business. It was this move that helped Shaun to truly assess what value he would receive in taking over the company. It also gave Shaun the opportunity to meet with Houseworks’ clients to help ensure them that during the ownership transition their projects would be well looked after.
In September 2012, Shaun and Navid reached an agreement for the change in ownership and the transfer of assets that would be included in the deal. Every effort was made to ensure that the transition would be as seamless as possible for employees and clients.
After the transfer
At the end of October I traveled to Edmonton to meet with Navid and Shaun to see how the transition was going. Although some loose ends still needed to be tied up, the process had gone very well. The company was operating well with Shaun at the helm. A couple of new employees had been brought in to continue the process of automating parts of the business. Shaun is implementing more technology into the business so that he has even tighter controls over the financial aspect of everything from labour costs to material costs on a job-by-job basis. His goal is to be able to look at the financial strength of his company at any time, by simply going to his computer and running a report.
Houseworks has successfully made the transition from one owner to the next and their clients are as thrilled about their renovations as they have ever been.
Near the end of my visit to Edmonton, Navid and I were sitting in the Houseworks office watching Shaun and his staff at work. Navid leaned over to me and said, “It feels a bit strange sitting here. It’s all moving forward. It’s all running without my help.” It was then that we all knew that Navid and his family could move to Calgary with complete peace of mind: Houseworks was doing what it should.