Dan & his wife added adjacent septic services to Gray Brothers and improved operations. Within 2 years, they'd pushed revenues to $3m and margins to 30-35%.
It's difficult for entrepreneurs to start a new pumping businesses, so best to buy out a retiring owner if you can find one.
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Dan had no experience in septic pumping. His wife had worked the back office of Gray Brothers in high school, but she didn’t really know the industry either.
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In 2 short years after acquiring the business, Dan grew Gray Brothers to $3m in annual revenue and expanded margins from 10-15% to over 30%.
Gray Brothers did only septic pumping when Dan acquired it, which means they came to your house and emptied your septic tank by pumping out the sewage and hauling it away.
Previously, if a Gray Brothers’ customer needed their septic tank inspected, they might call Gray Brothers for that service. But since the company didn’t do inspection, they referred the business away.
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Whereas before Gray Brothers had been the low-cost option for septic pumping, Dan repositioned the company at the middle to higher end of the market.
“That’s the barrier to entry. You gotta go and buy this $200, 000 vehicle. Or you get a used one and you buy it for $75, 000, but now you’re putting $25-30k into it in repairs.”
“It’s a good lifestyle business. If you want to make $200k a year, you can do it in this business. And you can do it for the next 40 years.”
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There are around 3, 500 septic companies in the U.S., according to Dan. They vary in size, but the vast majority are mom-and-pops doing between $1 and $2 million.
“Why would you sell at 55? Why not keep it for another few years until you’re 65 and sell it. If you have it operating nicely, why not hold on to it until you’re 80 years old.”
Mom-and-pop septic companies do come on the market from time to time, and when they do they typically transact for your typical 3x SDE.
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“If you’re a young couple coming in, replacing this mom and pop, and saying ‘we want to carry your name and legacy forward, ’
“First time I ever saw a septic tank was the day I started with the company as the new owner, ” says Dan.
That said, a trucking or logistics background would give an acquirer transferable skills. After all, a septic pumping company is essentially a niche trucking company.
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Still, says Dan, “If you don’t know that, nothing’s going to fall apart on day one, especially if it’s a mature business. So you can learn on the job.”An old adage says, “If you’re not growing, you’re dying.” Growing a business in a down economy is challenging, and onsite installers face the added difficulty of a slow housing market.
In such times, most business advisors would suggest owners stick to their core business. For installers, a move into septic tank pumping provides potential for growth within the basic area of expertise. While contractors say pumping may not be a high-profit-margin enterprise, it remains attractive in various ways – chiefly as a steady source of revenue and another way to attract customers for installations and repairs.
Les Harris, owner of Mr. Ed’s Advanced Septic in Grants Pass, Ore., reports a quick boost from pumping: “In the first 18 months, our installing and repairing has gone up 20 percent.” Since the company added a vacuum truck in 2011, it has added about 5 percent in new revenue with two or three pumpouts every day. “Having the pumper truck also gives you first contact with your customer, ” says Harris. “It’s a service we provide that refers work back to us to keep our excavators busy.”
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While the barriers to entry are relatively low, owners need to consider a few key factors before making the move. They include capital costs, the demands of emergency calls, and the need for qualified employees, along with the issue of building a customer base.
“When it’s slow, there is always pumping, ” notes Brian Miller of Brian’s Septic Service in Tallahassee, Fla., a third-generation installation and pumping contractor. Pumping of septic tanks and restaurant grease traps now makes up about 25 percent of his sales. “The profit margin on a pumpout isn’t real good, but it pays off if you can keep busy, ” he says.
He looks at pumping as something he can count on, because even when installation work is slow, septic systems still need regular service: “I have a lot of customers on a routine maintenance schedule. We’ll come out every three to five years, depending on the size of the household.”
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In Gloucester, Mass., Ralph Hobbs gets about 60 percent of his business from pumping and the rest from installation and maintenance. “Pumping is probably not going to produce a great deal of income if you’re just pumping residential, ” says Hobbs. “There is more money in commercial pumping. But that’s difficult to get into because most of the commercial accounts are already with another company.”
He adds that pumping serves as a business builder for the rest of the company: “One of the assets of pumping is that you have a foot in the door for repairs, maintenance or installation of systems. When you show up on a job and there is a problem, you have the opportunity to correct it.”
Harris pondered for a year before expanding into pumping. “We were going to wait a little longer, but one of the local pumpers decided to retire, so the opportunity came up. Within three months, we had the pumper up and running.”
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He finds about 60 percent of pumping calls involve some kind of repair or replacement. “It’s going to make your business grow extensively the first two years, then it’s going to level out, ” he says. “I wasn’t prepared for the expansion that took place. That’s something you have to be ready for.”
Along with more work, Miller says, pumping means emergency calls: “When somebody calls, you have to answer the phone and you have to go. If someone is backing up, they want you there with a pump truck. If you don’t answer the phone, you’re going to miss that call and potentially miss a repair bill or an installation.”
Kenney Lee, owner of Metro Septic in Cartersville, Ga., started his business in 2005 with one vacuum truck. “Now we have three trucks and are planning to add a fourth next fall, ” he says. “They stay pretty busy every day; three to four calls a day per truck, about half that during the slow time in summer.”
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He added septic installation and repair to his business last year and now wished he had done that from the start instead of subcontracting that work. “It’s hard to do one and not the other, ” says Lee. “If it’s not done in-house, you lose control of the quality of the work to someone else.”
He observes that customers don’t want to have to deal with two companies. “I like being the guy they call whatever is going on, ” says Lee. “If it needs to be pumped, we’ll take care of it. If the drainfield needs repair, we’ll take care of it. If they’re having a septic system issue, they call me because they want to get it resolved.
“They don’t want to hear, ‘We don’t do that, you’ll have to talk to somebody else.’ Our customers are a lot happier now that we do everything in-house. Pumping is the front line. The homeowner isn’t going to say, ‘I need fill lines fixed.’ They just know they have problems and want them resolved.”
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Lee also finds that the pumping season runs opposite to repair and installation. That helps keep his company busy and evens out cash flow over the year. “Normally, we do enough pumping in the winter to save up for the summer when it gets slow, ” he says. “Doing installation and repair work this past summer, there was a little bit of a downturn, but it wasn’t near what it used to be. Everything kind of leveled off. It opened my eyes.”
Harris has had the same experience: His pumping work peaks in the rainy winter season. “A lot of the systems that are on the verge of failing will start backing up when the rains come in, ” he says. “We typically don’t do repairs in the middle of winter; we do them in the summer. Last winter, business did not slow down one bit.”
Lee also finds that grease trap pumping can fill valleys in the workload. In his territory, traps have to be pumped every three months. He knows that money will be there, but he can do those jobs on slow days. “You don’t make a lot of money off grease traps, but it pays the bills, and it’s work you can do whenever you can get to it, ” he says. By scheduling grease traps a few weeks before they’re due, he can shuffle them around and still keep customers in compliance. “If you’re busy doing something
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