One often-overlooked method of growing a trade business is mergers and acquisitions. Jim Kaloutas from Kaloutas Painters, a successful commercial painting and industrial flooring contractor in Boston, implemented this concept with great success. Will get back to Jim and what happened for him in a moment, but first…let’s answer a big question.
Aren’t mergers and acquisitions just for national BIG brands?
This is a common misconception. A merger is simply when two separate companies join forces to create a new, bigger company. An acquisition (also referred to as a takeover) is when one company buys another company and the buyer retains its own identity. These transactions are usually done to expand a company’s impact and market reach and to increase shareholder value.
Do things differently, sooner
Do you have an exit strategy? Have you considered the thought of selling your business one day? During the selling process, buyers look at the value of the business as a whole — the potential in its current systems and what could be adjusted for even more growth. Not every buying conversation turns into a deal, but it often results in recommendations to the business owner on what to improve.
Recommendations on what to do differently can include:
1. Implementing accountability — measure your staff’s performance and/or sales on a regular basis.
2. Get good at getting more of the great customers and fewer of the not-so-great customers.
3. Raise your prices. Review your prices in comparison with market trends.
4. Employ talented and skilled staff sooner, and invest in their training.
5. Educate yourself.
6. Train your closest team members as soon as possible so that you’re not the only person knowing everything that’s going on.
7. Go into commercial contracting sooner, but with the right infrastructure, information and employees in place.
8. Challenge your limiting beliefs, and prepare for real growth.
Growth brings complexity and struggle
When your contracting business really starts growing, it becomes more complex. You’ll be forced to learn at a different speed and higher capacity. Your mindset will determine the outcome. Welcome the struggles; they are excellent teachers. Discomfort is a sure sign of growth.
The book Mindset by Carol Dweck discusses the difference between having a fixed mindset and a growth mindset. If you have a fixed mindset, there’s no room for change, growth or excitement. Struggles seem like failures and can take you down. But if you have a growth mindset, you can thrive off challenges that come with growth.
How to see better and further — expand your view
Investing in a business coach is extremely effective in helping you shift your mindset into the right gear for growth. Their objectivity expands your perspective.
Other benefits include:
· Showing you your blind spots
· Helpful suggestions that you wouldn’t have thought of, like going to visit your customers, introducing yourself and building relationships
· Accountability in setting SMART and scary goals to push you forward
· Helping you figure out what your business values are
· Recommending helpful books and information tailored to your industry goals
· Developing yourself so that you can provide more value for your customers and your employees.
Think of it this way — no professional athletes compete without a coach to help them.
Marketing systems, processes, and efficient sales
As mentioned earlier, you must know how to get more of the right clients for your contracting business. How? Figure out what’s working and what’s not. Testing your approaches and measuring the results will show you how. From there, set up proper marketing channels.
Next, look at your sales process. The buyer wants to get the best value for the money spent, and they will be looking at your sales system. Is the owner doing the sales or is there a sales team? How effective is the sales team? What do the metrics look like — monthly numbers and leads closed? Do you have an efficient process for marketing, generating good leads, selling and closing deals? Without this, you have nothing worth selling.
Avoid the shiny appeal of diversification
Diversification is not an easy ticket to growth. Some contractors decide to buy real estate and start flipping houses. The problem is that it doesn’t solve the problem of not knowing how to grow their core business. The lost time and money causes slower growth and would’ve been better spent on coaching to help fast-track their main business.
How long does it take to make a business sellable?
The short answer is it takes at least five years. To make a business sellable for a worthy price, you need time to fine tune the business operations.
Here’s the 5-year (or 10-year) plan to making your business sellable:
1. Optimize all the processes and systems.
2. Have high potential employees strategically placed.
3. Create the ability to get the right customers consistently.
4. Set the business up to run without you.
5. Have 3 years of excellent financials to prove the business is solid and steady.
The truth is, we all will get older and eventually become unable to keep doing everything we’re doing now. Moreover, you don’t want to watch someone else take over your business (that you’ve poured your blood, sweat, and tears into for years) at a low rate. They may employ you in working to make its potential explode after it’s no longer yours. You deserve to get what your work and leadership is worth. Once the business can run on its own, you can set up additional avenues that add even more value. Whatever your approach, if you consider selling, be prepared five years in advance.
Consider the future of contracting today
Don’t be like the local printing company that, after many years, couldn’t keep up with industry changes. They weren’t ready or able to sell and had to liquidate. In every coaching conversation, educating yourself is a common theme. Eventually, the contracting industry will change and technology will change building methods and materials. But, people will still need to build new buildings and maintain old ones. If you want to stay ahead of these changes, keep learning and developing the mindset of an entrepreneur.
Are you an entrepreneur, manager or skilled worker?
Each business needs three key role players — the entrepreneur (visionary), the manager (keeps business going), and the skilled person who does the work. Which one are you? If you’re a skilled person, partner with an entrepreneur who can see the bigger picture. And get a manager to make sure it all gets done. Of the three, the entrepreneur is the one who sets the vision everyone aims for. Without it, there’s no clarity, direction or a plan to achieve specific goals.
You need someone to ask the important questions: What will we do differently one year from now? What services/products will we add and/or remove? What will our numbers look like?
If it’s not you, that’s okay. A personality test can help you figure out who and what you are and work with it to get support for the tasks you’re not good at.
What to do if you don’t want to sell
Consider an employee stock ownership plan. This method rewards employees who have been loyal and who helped the company grow and inspires them to take it even further.
Benefits of creating a sellable business
1. A sellable business is a valuable business that is running and growing optimally in a measurable way.
2. It doesn’t need the owner to be hands-on all the time to be efficient, profitable and growing.
3. Multiple opportunities open up because value creates appeal.
4. You have the time to explore ways to add more value.
5. Financially, you could avoid liquidation when the industry changes or when a crisis hits because you’re prepared.
You’ll remember we started this article talking about Jim Kaloutas and I want to give you an idea of how mergers and acquisitions can work to build your business. Jim started the company doing residential contracting with his father, and it wasn’t until they switched to serving commercial customers that growth exploded.
A few years later, after investing in a coach and gaining more wisdom and experience, they set a goal of reaching 10 million dollars and did much of that through “takeovers.” Once they hit that, the next goal has been much more audacious — become a 100 million dollar company. And guess what, they’re a quarter of the way there now!
Would you like even more helpful input on creating a sellable business? Click here to listen to the full podcast episode featuring Randy Stanbury, CIO, and Founder of 4 Level Coach and Jim Kaloutas of Kaloutas Painters for even more great tips and examples.