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Columns

Barking Up The Wrong Tree
Frank Blau

By Frank Blau
May 30, 2001
It's OK to operate as a one-man shop - just don't expect to sell the business.

My March article "What's Wrong With This Ad?" generated quite a bit of calls and e-mails from readers who operate small shops. They recognized themselves as potentially being in the same dilemma as the contractor who was trying to sell a 30-year-old plumbing business for $30,000.

My message in the article was how sad it was for someone to work so hard for so long for so little reward in the end. Many of the people writing me wanted to know what they could do with their small businesses to make it saleable when they are ready to retire. My answer has two components.

First, if you want to build a business that somebody wants to buy, you need to grow it to a reasonable size. You need to build an organization with a recognized name in the market that can operate without the owner tending to every little detail.

I don't care how successful and profitable a one-man operation may be, that business's entire value is tied up in the skills and the business relationships of the owner. Once the owner decides to quit, there's little of value worth buying. People overestimate how much a customer list and company name is worth on the open market. "John's Plumbing" may have built up an intensely loyal clientele over the years, but it won't take them long to find out that John is no longer with the firm. They will not automatically continue to do business with his successor.

Blessed Are The Small

Does this mean it's wrong to stay small? Absolutely not. People sometimes criticize me for emphasizing aggressive marketing and growth, but that's misreading my message. I have never told anyone they must grow big. There are many advantages to operating as a one-man firm. You don't have the headaches that come with managing employees. You can work as hard as you wish or take as many breaks you wish. Nobody can tell you what to do or argue with your decisions. Some people are temperamentally suited to remain a single-person operation.

However, if this is the career path you choose to follow, understand the ramifications of your decision. No matter how good you get, you'll never be able to get top dollar for your "company."

Don't expect consolidators to come knocking at your door. Don't even expect to get $30,000 for your business, as the contractor in that ad was pathetically trying to do. About all you can expect when it's time to cash in is to peddle your truck, equipment, tools and inventory for pennies on the dollar compared to what you paid for all of it. Most of the time you're looking at four figures worth of income. Maybe someone will pay you a few thousand more for your customer list and company name.

Perhaps it will all add up to between $10,000-$20,000. That's not bad, if you think of it as a retirement bonus. Not bad compared with the wristwatches or other chintzy retirement gifts large corporations typically offer to long-term employees. But it's not so good if you are counting on that money to help finance your retirement.

Investing Toward Retirement

This brings me to the second part of my response. If you do wish to remain small, you must build a retirement nest egg throughout your active business life, not at the end.

It's no different than when a doctor, dentist or lawyer closes up a sole practice. They aren't able to sell those practices for very much, either. Except you don't often see doctors, dentists or lawyers struggling to make ends meet when they decide to call it quits. That's because they have charged enough money throughout their careers to set some aside in a retirement plan.

If you do so over a period of decades, you'll be able to watch with delight the "eighth wonder of the world." That's what I call the magic of compounded interest. Put a few thousand dollars aside each year starting in your 20s or 30s, and watch them grow to hundreds of thousands of dollars for you to live off in retirement. Count on social security checks to be the dessert, not be the main course.

The great scandal of our industry is how few small shop operators end up this way. Far more plentiful are stories like the one told by the lady who wrote the following letter:

    "I read your short article 'What's Wrong With This Ad?' and couldn't help but notice the striking similarities between the business in the article and the one my husband owns and runs. I wonder if this would be him in 30 years when he's ready to retire. We have not been able to save anything toward retirement at this point . . .

    "We are struggling to make ends meet with the income from the business, so I feel compelled to go back to work when our youngest child enters first grade next year, rather than continue to rob our savings every time things get slow.

    "What advice can you give to my husband other than the suggestion I made to go to work for someone else?"



Advice

Regular readers know what the answer is. This contractor, and so many others like him, must build enough into their selling prices to support a family and set aside money for retirement. When you are self-employed, there is no corporate sugar daddy to take care of you. In fact, you are the sugar daddy not only for yourself, but for everyone on your payroll.

Putting aside money for retirement is even more urgent for people in the trades than it is for a doctor, lawyer or other white collar professional. Those folks can work well into their 60s and even 70s without slowing down very much. However, the plumber who works as a one-man shop almost always ends up with an aching back and other ailments by the time he reaches his 50s, if not sooner. Most trade workers need to retire by their mid-50s. Instead, I've seen too many of them continuing to work even into their 70s and 80s because they can't afford to quit.

Yet the pervasive mentality of this industry is that if you charge enough to provide for retirement, you are ripping off the public. I say, if you don't provide decent wages, benefits and a retirement program, you are ripping off your family and the people who depend on you for their livelihood.

I won't tell you how much to charge. Do the arithmetic and determine that for yourself. But don't be shocked to find out that you cannot afford to put anything aside for retirement by charging the "going rate" for PHC services in your area.

The choice is yours. Follow the crowd and do your customers a favor by shortchanging your family and employees. Or try to do right by everyone with a value-based pricing strategy that enables you to serve your customers without cutting corners, and provides you and your faithful associates with the lifestyle and comfortable retirement your deserve.

    "Thank you so much for calling me yesterday and helping us get on the road to healing," wrote one lady to whom I gave this advice. "I will do all I can to follow your 'medication' as directed. I would love to have my husband back, as well as my children having their daddy. I want to enjoy our lives together with my children and have the company work for us, not against us."

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Frank Blau can be reached at Frank J. Blau Jr. & Associates, 12221 W. Fairview, Milwaukee, WI 53226. 1-800-FLAT RATE. Fax: 414/258-3307. Web site: www.blauplumbing.com

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