Starting a business is not hard. Buy the tools, make the website, design a logo and print some business cards and you are ready to go. Oh yeah, get a business license. You have to pay taxes. What would you do if you couldn’t pay taxes? But wait, where are the customers? No worries, we’ll get there.
Start by offering your service to your neighbors on apps like Nextdoor. Post on your personal social media to your friends and family notifying them about your business. Ask them to share your post, or at least like it. Most of them won’t buy from you. Hell, if they do, they will probably be your worst customers, if at all. They expect discounts or, even better, to work for free. So much for supporting family and friends.
Alright, so you got started and got a few customers. Over the years you gained a reputation because, unlike others in your trade, you do your work with excellence. You don’t bail on your customers when things go sideways. You make your mistakes right. You don’t take shortcuts. You build trust by being fair to yourself and to them. It’s been ten years since you started. Your business is booming. You gain a lot of skills, maybe get a contractor’s license in your state and can take on bigger jobs. Life is good!
A few more decades have gone by. You find yourself in your sixties now. Your hair is gray, your knees pop, your back hurts just by getting out of bed. It’s time to start thinking about retirement. You saved some cash, invested in an IRA account or maybe put some of it in an S&P 500 index fund. But it’s not enough for retirement. You have one asset though: the business and the reputation you built around it. That’s your retirement ticket. Sell the business, stay on as an adviser for some time and then retire with the wife of your youth, traveling the fifty beautiful United States, kissing grandkids and loving life. There is only one problem!
You have no clue what your business is worth.
You know it brings in a lot of money, some cash, checks, another in electronic payments. No one likes giving their money to the government, so you kept some of the cash payments over the years under your mattress. This made your company look less profitable on the books, and also less valuable for someone looking to buy it.
You also paid yourself everything that was left over after paying your employees and other business expenses. That was the profit, right? Not quite, you mixed personal and business money. Your salary is not profit, that’s the cost of paying the operator. Whatever it costs to pay someone as skilled as you is what someone needs to pay to replace you. What’s left after that, maybe, is profit.
You also built a reputation around your name, not your company. If you leave, your customers want you, not your company name. Everyone calls for Joe, not Joe’s Home Services. Buyers are skeptical they will continue to keep most of your long-term customers. They’re going to leverage that against you to lower the buy price.
The buyer is a business-savvy type. He worked in the corporate world for a while, where every penny is accounted for. He uses terms like revenue, expenses, profit margins, customer lifetime value, and valuations. He’s bringing all the big words to the table. You know what they mean, but you never ran your business like a business. You ran it like it was your own job.
That is the story of most owner-operators in the trades and service business. Some don’t know any better, some don’t care. Some don’t want to pay taxes.
They also never built any real systems. Every estimate, job note, and material list lives in their head or on a napkin in the truck. When they’re not around, no one knows what’s going on, and the whole operation stalls until they show up.
They didn’t keep a customer list either. Every client’s name and phone number is buried somewhere in text messages or old receipts, so when it’s time to follow up or ask for a review, they just shrug and move on to the next job.
And the ones who hid cash to dodge taxes thought they were outsmarting the government, but they were really undercutting themselves, because a business that doesn’t make money on paper isn’t worth much when it’s time to sell.
It doesn’t have to end that way. The smart ones learn early that running a business isn’t just about swinging hammers or fixing things, it’s about keeping track of what happens when you do. They start logging every job, every cost, and every payment. They build systems so the business runs the same even when they take a day off. They keep customer details organized, so calling back a happy client is easier than finding a new one. They know exactly what each job makes after gas, materials, and dump fees, so there are no surprises at tax time.
They treat their business like an asset from day one, not a side hustle. When everything’s tracked, documented, and consistent, the business starts to run smoother, and one day, when they’re ready to step back, it’s actually worth something.