Is it really possible to use your painting company as a vehicle for retirement? Can you truly sell it for top dollar? Can you cash out with equity when you decide to exit the painting industry?
I’m here to tell you that you absolutely can, because I have done it myself, and I’m going to explain it in a very simple way. Albert Einstein said that if you cannot explain it to a six year old, you probably don’t understand it yourself. We’re going to walk through seven simple steps. I’ve made notes, so you know that we’re going to get into detail, but before we get into these seven steps, I think it’s important for you to know the state of our industry as it relates to transitioning out of a painting company or heading into retirement.
The majority of people never ever sell their painting businesses. When they say they’re getting out of the business, they don’t sell it like a restaurateur would, or a service in a box company, let’s say for example an auto mechanic, or an optometrist, or a dentist, or a manufacturer, or a fabricator. Nope. They just walk away from the thing. And that’s really sad, because imagine spending 10, 20, 30 years doing something, putting your blood, sweat, and tears in it and never getting anything out of it. I mean, that’s just a job. If there’s no equity, there’s no real business. It’s employment masquerading as equity and ownership. I had a professor when I got my MBA that said it in a very poignant way, and I remember this, he said, “Brandon, never ever start a business unless you first know how to sell it.” And this came from experience, because he had done this. When I started my painting business, I gave thought to that on day one and fast forward from 2007, or is it eight, to 2013 I built up a big painting business and I sold it for $440,000 in five years time.
Now, should I have gotten more money for it? Yeah. Could I have done things to increase my income and gotten that price up? Certainly. But until you have worked with hundreds and hundreds of painting contractors, you really don’t know all the tricks and the tips that you would have used, because when you become a librarian of all things business growth related, you learn a lot, so I don’t beat myself up over that too much. But it’s important that you, whether you are 60 years old or 30 years old, give thought to this. In particular, if you’re heading toward retirement, I’m here to tell you it’s not too late. I’ve helped lots of people basically take these seven steps moving into retirement. So here we go.
Step number one, you need to increase your personal income by analyzing and developing effective business systems. Now, oh well that everybody knows that. Well, the thing is a painting business is really rather simple. There are only about, I don’t know, seven to 10 major systems. Some of them are larger than others, but they’re not complicated. They’re easy to identify. We’ve created tools and systems to fix these, things like sales. Okay, you’re closing rate, your average transaction size, and your gross profits are largely controlled by sales. Operations and field management plays a role in that, obviously, but sales controls that. Your reactivation and retention systems, which control the percentage of repeat and referral business, which controls closing rate and average transaction size. What does it control? It influences much like sales. Those are important things. Things like a safe labor bonus program contribute to gross profit, and there are operational systems and hiring and recruitment systems that control your quality of life and your ability to ramp up capacity.
All of that feeds into bottom line income, or what I like to refer to as discretionary owner income. That’s net income, your salary, cars, insurance, health benefits, everything that you kind of roll into the company, whether you put it in your pocket or you take it out as a tax deductible expense. It’s important to increase your personal income if you’re going to retire early, because we’re going to move into step two and that is formalizing all of these systems so that your business does not require hands on involvement or puppeteering of painters. So the first thing we have to do is increase our personal income by figuring out what we need to do, and then step two is taking those systems and formalizing them. I know formalization doesn’t sound like a lot of fun, structure doesn’t sound like a lot of fun, but I promise you the more discipline and structure that you have in your business, the more likely you are to be personally successful. It’s very counterintuitive. It doesn’t sound right. Well, you’re telling me if I have more regimented structure in my business, there’s more freedom. That doesn’t sound love freedom. Yeah, it is. If you don’t have that, then your business controls your every waking hour and that’s no way to be. Plus, typically people that are in that situation have poor earning numbers, and you don’t want to be there.
Step number three is you need to save for emergencies, budget, and get out of debt. Okay? This is probably not a popular commonly held strategy in the painting industry, but getting out of debt’s important. You don’t want to have debt in a painting business. Number one, there’s no reason for it. This is a cashflow business. All you need are vans, and ladders, and sprayers, and that can be paid for as you go. You can buy those things used, you can buy those things in a number of ways. Those things do not need to be purchased with debt. Number two, you don’t need to be purchasing things in your life with debt, either like cars, and furniture, and clothing, or vacations. I believe it’s okay to take on a little bit of debt when you buy a house, a little bit of debt when you purchase a building to house your painting business in, preferably one that you can rent out in addition to having your business in there, that’s okay, but that even needs to be a temporary thing. Okay?
Get out of debt, and you need to save for emergencies because emergencies are going to come. You cannot simply spend your way to affluence, because one day things are not going to go so well. I’ve watched tons of contractors have a good season, kind of like the economy we’re in now, and they just spend themselves into all kinds of trouble. If it has a payment, it has a real price, and you cannot factor for the peace of mind that you get from being out of debt. That’s where I am currently.
Number four, invest in stocks and real estate. Once you increase your income, formalize your systems, identify what you need to do, get out of debt, you’re going to have a ton of money leftover. I mean, once you are out of debt, I mean, your monthly bills aren’t very much. I mean there’s health insurance, there are utility bills, cost of living, maybe your kids are in a private school or you’re sending them to college or whatever it is, clothing, going out to eat, et cetera. But that’s it.
And so the money you would’ve paid to a house payment, and a car payment, and a business lease, or a mortgage, I mean all that is paid for, and now you can take all of that money and do what with it? Max out your IRA, put funds into your children’s college fund or saving plan or whatever it is. We get those to where they’re probably maxed out in the market, and then take the remainder and do what you probably know how to do best, which is make real estate look better, right? You’ve got people on your teams right now that can take a small rental house or a commercial building that’s small. You could buy that puppy, put a significant down payment on it, fix it up, reconfigure it, rent it out, and really bring up the value of that, plus get rental income out of it. Once those things are paid for, they’re paid for. So that’s what you want to do with that additional income.
Step number five is you need to maximize your personal income three years before selling, at least two years. I know when we’re running a painting business, so often what we’re really trying to do is reduce our taxable income in the eyes of the IRS. However, when you get ready to sell your painting business, not so good because people are going to look at your real income and go, well did he make any money or did he not make any money? And so those last three years you kind of have to minimize what you take out of the business so that you can show that healthy number, because you are going to get paid upon retirement or exit a multiple of that income, plus some goodwill, plus some property, plant, and equipment, which will not be much. I would probably tell you to hang onto your commercial building that you run your painting business off of. I’m in one right now. It clears about 24, $25,000 a year, and I’m here rent free. So that’s a pretty good deal, right?
Step number seven, or six rather, you need to put your business in a box for potential buyers. Now, in many ways, this just goes back to step one and two, right? Formalizing your business systems, but even when you formalize them internally, there’s a lot up here. If you have staff people that are helping you, and you will, there’s a lot up here, and so you need to take that third and final step to really put together a daily, weekly, monthly check list, reporting documents, simple manuals. They need not be long or complicated, tutorial videos, audio videos. They’re real easy to put together and just put those together, and so when somebody comes to look at your business and evaluate it, there are binders, and there are file folders, and there are training tools so that they can plug and play the elements of your business and the systems into action and the business takes care of itself. You weren’t really formalized that, so when people look at it, they don’t just see a bunch of old, broken down vans and ladders, and your promise that they’re going to make some money, okay? They need to be able to see that they can do it themselves.
Number seven, you need to research a good business broker and sell to a real buyer. Let me explain who’s likely going to give you top dollar for your painting business, and these are the people that also buy painting franchises. They are typically former C-level executives, B-level executives that have retired, left corporate America. They’re tired of cube land, whatever it is, they got laid off, downsized, something of that nature. Occasionally, somebody who’s been in a different business, but they are even better than those, because not only do they have the capital to buy a franchise, they have even more capital and what they really want is a going concern that has immediate cash flow, often so that it can pay into their lifestyle. Okay. Maybe they’ve bought a house that’s a little too big, maybe they have payments, whatever it is, and they really need that instant income of 250, 300, $400,000 just to kind of sustain what they’re doing now. And so when you want to find those people, you really almost have to go through a business broker.
Let me explain what typically doesn’t work. Occasionally it does, but it usually doesn’t, and that’s selling something to an employee. I’m going to leave the business. You’re going to transition and own it. Occasionally it works with a family member, but when you sell your painting business, you need to get large amounts of cash upfront. Not the entire payment. Nobody’s going to give you the entire payment in most cases, but if they can’t give you several hundred thousand dollars upfront, then they’re not serious, they don’t have any skin in the game, and they aren’t the type of person that a bank will look at and finance because they don’t have any resources.
And let me ask you this, if someone has not accumulated enough resources personally to purchase your business, do you really trust them to run it? I mean, you really want somebody who’s done something themselves to take over your baby. Not somebody who’s been an employee, because being an employee and being an owner are two different things. Occasionally it does work, but I’m telling you, after working with thousands of painting contractors over the phone and hearing the stories, often it just doesn’t work out. So, you’re much better off finding a broker, selling it to someone who would traditionally buy a franchise but actually has a little bit of additional equity.
Now, to be honest, all this is reasonable. I’ve seen this happen over and over again with people that are trying to exit their painting businesses. This is the path you should take. This is the path I took, minus a few things because I was younger. Some of these things I did not do that I have since done. You should do them, and if you don’t know how to do this, if you’re completely lost, you probably need to change step one to get help. That should be step number one, and if I can ever assist you in any way, by all means, email me, call me. You know how to get in touch with me. I’m pretty easy to find. I can help you make that transition.
A second thing I would say is I would register for the 2020 Painting Profits Summit. You can surround yourself with people that are really successful, that have business systems in place, many of who are making good, good income, have gotten out of debt, and so they are very far along toward the goal of selling their painting business for top dollar. When you surround yourself with them, instead of just any random painter you meet at the paint store coffee pot, you’re a lot more likely to succeed. There’s a link below this video, so that you can register for that or get more information.
I’m Brandon Lewis with Painter’s Weekly and Painter’s Academy telling you, do not spend 10, 20, 30 years on your painting business and have nothing to show for it. You should have high income, high peace of mind, and you should be able to cash out with equity when you head toward retirement. I hope you’ve enjoyed this extensive training. I’m Brandon Lewis. See you next week.