Big Deal Small Business: Transition Update
May 16, 2022 | Issue #67
I think I’m officially on more of a 1 post/month cadence now, just given how my personal bandwidth has ebbed & flowed.
For new readers, I bought a small business a few months ago through a self-funded search. This is a much smaller business than most traditional searches as I’ve only got ~10 employees who all report to me (no middle manager layer). It’s a pretty classic home services business (guys in trucks).
General Business Update:
We’re a couple months in and the business has more or less been in-line with diligence expectations. No massive skeletons in the closet or hidden bombs discovered (yet), which is all you can really hope for in any acquisition.
The sellers have been fully involved in the transition process - that was always the plan, but you never know for sure how people will act once a big check hits their bank accounts.
We have had some employee churn, but no key employees or massive shocks so far.
The business itself is performing roughly in-line with 2021 levels, which is good news as March & April are historically two of our best months. While there is still a long way to go to keep the business steady with 2021, the pressure to hit max productivity day in/day out is a bit lighter now, just in time for me to focus on improving business systems.
As far as I can tell (and the seller can tell), the seasonal uptick in March/April is driven by pent-up demand from the winter being released as the weather improves.
But I also think it was partially self-inflicted by the former owners running out of steam by the time they hit summer and not maintaining productivity at those springtime levels. They would push hard on the crew front early on, but by the summer the paperwork & office work would start to catch up to them.
Remains to be seen if that’s the correct read, but I’m cautiously optimistic that separating out the crews from the office (as we have done post-acquisition) allows the pace to be maintained through the summer at the crew level.
Revenue Growth & Getting on the Front Foot:
Outside of productivity management, we have started a round of price increases. Due to our backlog, we won’t see the impact until late June at the earliest; we are also fairly capacity constrained, so for now price is our primary growth driver until I’m ready to take on more capacity.
That said, we do have a couple levers to pull:
I’m starting to create some deliberate openings in our backlog – this allows us to accommodate rush jobs (with a rush charge premium) if those leads come in the door. We’re not worried about filling the slot eventually with a normal job given our backlog, but it allows to mark up a couple jobs per month by 20-50%. And it makes that customer happy as they can’t find anyone to do their job on such short notice.
There are a few 3-day/week guys that I’m testing out with occasional 4-day weeks. There are some logistical reasons not to just flip the switch immediately (equipment maintenance & estimating schedules), but even adding 1-2 extra days a month can drive 3-5% revenue growth.
What’s Next
The next challenge is the retirement of the seller, which will happen in the coming weeks. We have the team in place on paper to handle the business once the seller is gone, but easier said than done.
We have been reasonably stabilized the past few weeks, but my expectation is we enter a new 3-6 week period of transition before hopefully re-finding our sea legs in midsummer.
All things considered, I’m really pleased with how well our team has tackled the transition, and I’m very thankful for the grace they’ve extended me as I learn about an industry in which I’m a total newbie.
Looking a bit further down the pike, I’ve got three major goals for my first year of ownership:
Move us onto a CRM (more on that to come next month or two)
Sustain demand & work through the winter months (historically we lay off part of the staff every winter)
Put the pieces in place to launch another crew next year
Everyday generates a new set of unexpected problems & crises, so of course planning can futile at times. But at a minimum I know where the ship is pointed…remains to be seen how long it takes us to get there, and the shape of the path our journey ends up taking.
I will keep you all posted!
As always, you can reach me by hitting reply to this email or DMing me on Twitter.
Thank you,
Guesswork Investing