Want to Build Wealth in the CI Business? Buy Real Estate
If your custom installation company has sales over $1.5 million per year, it’s time to buy a building.
This may be the most important financial decision you’ll make for your company, because the building will be the only hard asset you own.
CI companies, like dental practices, have good cash flow but poor asset value. Unlike a successful retail store, you don’t have a lease in a great traffic area. You don’t have inventory. You don’t have repeat business built up from years of advertising. All you have, essentially, is your reputation, which I’m sure is a fine one, but tough to sell when you’re ready to retire.
Look at the rep firms in your area. They figured it out a few years ago.
Being a rep is like being a dentist. Reps were facing retirement with no way to sell their businesses, so the smart ones decided to create the distribution business—a business of hard assets. The reps who made that move now have inventory, a big location (which many of them own), repeat business and, as we see with AVAD, an ingenious exit strategy.
You need an exit strategy, too. And the best exit strategies include hard assets, because they’re easier to value.
Your best hard asset is your building, so let’s stop leasing now.
How much building can you afford?
The typical CI company has five or six employees for every $1 million in revenue. At $1.5 million, the typical company is in the eight- or nine-employee range, with five people in the field and three or four in the office. Those office people need about 1,000 square feet. The warehouse/staging area is another 1,000 square feet. If you have a demo room or two, add another 1,000 square feet, giving you a 3,000-square-foot facility.
A 3,000-square-foot facility will rent for at least $2,500 per month in any major market.