How Much Is a Plumbing Business Worth in Australia?

What decides the value of a plumbing business?

Three things: how much profit the business can keep earning, how likely it is to keep earning it, and what a buyer would have to pay to replace the people who currently produce it. Every other question in a plumbing valuation is a way of measuring one of those three.

The profit in the tax return is only the starting point. It reflects choices made for tax and convenience: what the owner pays themselves, which vehicles run through the business, whether a family member is on the payroll. A valuer rebuilds it into the earnings a new owner could reasonably expect to keep.

This guide works through that rebuild using an illustrative plumbing business, then shows how the type of work changes the answer. The factors we examine are set out on our page on plumbing business valuations. All figures below are illustrative. They do not describe a real business and they are not benchmarks.

Where does the calculation start?

We start with the profit and loss statements for the last three years or so, reconciled to the tax returns. One year can mislead. A large commercial job, a builder’s insolvency or an unusually mild year for hot water replacements can make a single result unrepresentative.

In our example, the business reported a net profit before tax of $310,000 in the latest year. We add back interest and depreciation to reach earnings before interest, tax, depreciation and amortisation, or EBITDA. That measure shows what the business earns before the way it is financed and the way its fleet happens to be depreciated.

How is the owner on the tools replaced?

The largest adjustment in most plumbing valuations is the owner’s own labour. An owner who works on the tools, quotes the jobs and chases the debtors is doing the work of a plumber, an estimator and an office manager. A buyer has to pay for that work, or do it personally and expect to be paid for doing it.

Owners often draw a modest wage and take the rest as profit. If that profit is left in, part of what looks like a return on the business is really the owner’s pay. In the example the owner is paid $60,000 through the business, and we judge that the work they do is worth $140,000 a year including superannuation. Earnings are reduced by the $80,000 difference.

A second question sits beside the cost: whether the business could operate without the owner at all, for example if they hold the only relevant licence. That is a risk question, and it is dealt with in the multiple, not in the earnings. Our guide to valuing a business with heavy owner dependency covers it.

What other adjustments are made?

Next come the items that would not carry over to a new owner. Some raise earnings and some reduce them.

• Private vehicle costs run through the business, such as fuel and registration on a family car: $12,000 added back.
• A family member paid $48,000 for a bookkeeping role worth $30,000 to a new owner: $18,000 added back.
• A bad debt from a builder’s insolvency, treated as a one-off: $22,000 added back.
• A workshop rented from the owner’s family trust at $36,000 a year against a market rent of $48,000: $12,000 deducted.
• Profit from one large commercial project that will not repeat: $35,000 deducted.

The adjustments run in both directions, and a review that only adds costs back is not independent. We would also ask whether builder insolvency is a recurring cost of doing this kind of work, in which case some allowance for it would stay in the earnings.

How are maintainable earnings turned into a value?

Maintainable EBITDA is capitalised: it is multiplied by a figure that expresses the risk and growth in those earnings, and a higher risk means a lower multiple. For this example we have chosen 3.0 times, for illustration only. A real multiple depends on the risk, growth and evidence of the business in front of us, and we do not offer one here as a market figure. Our guide to EBITDA multiples for trade businesses explains what a multiple represents.

The result is an enterprise value: the value of the operating business, including the vans, tools and equipment needed to earn the profit. Equipment is not added on top. Debt on the vans, surplus assets and the working capital position are dealt with in getting to the value of the shares, as our guide to how trade businesses are valued explains.

Then we cross-check. A buyer paying $885,000 would need three years of the whole maintainable EBITDA, before tax and before any loan repayments, to recover the price, and we ask whether three years is a fair payback for the risks in this business. And $525,000 of the price sits above the tangible assets, so we ask whether the customers, licences, team and reputation are strong enough to support that amount.

How does the mix of work change the value?

Two plumbing businesses can report the same maintainable EBITDA and still be worth different amounts, because the earnings are not equally likely to continue.

A service and maintenance business earns from many small customers and a handful of managed accounts: strata managers, property managers, commercial sites, hot water replacements and recurring compliance work such as backflow testing. No single customer matters much, and a large share of the work repeats without being tendered. The phone rings because of the brand, not because of the owner’s friendship with a site supervisor.

A builder-dependent construction business, particularly one doing rough-in and fit-off for a few project builders, earns from fewer, larger relationships won on price and personal trust. Revenue can be strong in a good year and fall sharply when one builder slows down, changes plumbers or fails. Fixed prices, retentions and slow payment add margin risk.

This is a sensitivity, not a forecast. It shows how much of the profit depends on one relationship, and we reflect that exposure in the risk applied rather than by simply subtracting the customer. The two multiples are chosen for illustration and are not market figures. In a real engagement the gap between them would have to be supported by evidence such as customer history, contract terms and the pipeline.

What else moves the value of a plumbing business?

• Licences. If the owner holds the only licence for gasfitting, drainage or backflow testing, the business may not be able to operate without them. Licensing rules are set by each state, so we describe the facts and leave the interpretation to your adviser.
• Recurring compliance work. A well kept register of devices and test dates is one of the more transferable assets in a plumbing business.
• Staff. Licensed plumbers and apprentices who have stayed are hard to replace, and heavy use of subcontractors gives less control over quality and customer relationships.
• Fleet. A fleet that is due for replacement means spending a buyer must fund. Our guide on whether equipment adds to business value explains how this is treated.
• Systems. Job management data on job counts, average value and lead sources is evidence a valuer can test, and it helps a business run without its founder.

None of these changes the method. They change the earnings we adopt and the risk we apply to them, and the report should say which.

How do you get a figure for your own plumbing business?

A rule of thumb or an online calculator produces a number without the reasoning. For a sale, a shareholder buy-out, a restructure or a capital gains tax question, the reasoning matters as much as the number, because an accountant, buyer or lawyer will want to test it.

An independent valuation sets out each adjustment and the evidence behind it. Whether a valuation suits a particular tax purpose is a question for your accountant or tax adviser. If you are preparing for a sale, our pages on business sale and capital gains tax valuations explain what the report needs to address. You can read about how we value, check pricing, or start online.