The Road to Retirement

When it comes to financing the golden years, one savvy New England pumper says contractors can’t rely solely on the sale of equipment and a customer list to support a comfortable lifestyle

As Ralph “Bud” Hobbs Jr. nears retirement, he has more questions than answers about what his next steps will be. But, even at 65, he’s still got time to think about it, he says.

Always a hard worker, Hobbs plans to hold onto his business, Cape Ann Septic Service, for the foreseeable future. In the meantime, he is diligently planning and preparing for the day he sells his Gloucester, Mass., company.

Like anyone nearing retirement, having enough money to live comfortably is top of mind. Hobbs wants to secure his financial future as he looks to retirement — but, he has no illusions that an eventual sale of his business alone will cover his living expenses.

“Even with a good (pumping) business, it’s hard to retire off of it,” he says.

Hobbs has taken a non-traditional route into the liquid waste industry, but has used a varied business background to build a profitable and diverse little company of one. From septic pumping to real estate inspections, onsite system repairs to full installations, Hobbs has steadily added services to the tiny sole proprietorship he bought 15 years ago.

And while Hobbs always has an eye on the next profit center for his business, he’s also staring point blank at a looming retirement decision. Though he derives a lot of enjoyment by the hardworking pumper lifestyle, he knows some day in the not-too-distant future, he’ll be preparing to sell the business.

He knows many retirement-age pumpers are asking themselves the same questions he is about the end-game for their businesses. And he enjoys sharing his insights into maximizing a pumping business’s value for a future sale.

PREPARE FOR POTENTIAL BUYERS

“A lot of things come into play when you’re selling a business like this,” Hobbs says.

One of those things is that a business is only worth what someone is willing to pay for it, and the value of these businesses is highly subjective. This was evidenced by Hobbs in 2007 when a new and growing larger company offered to buy him out.

“When these people come in to buy your business, they look at the area you’re servicing, and they place a value on what they think they can do for business,” Hobbs says of the larger company, which was “rolling up” independent pumping businesses. “They won’t buy your customer list, because it’s not worth anything because (customers) are not particularly loyal to anything.”

The owner of a pumping business might view a customer list as having high value, Hobbs explains, but when it comes time to sell, a potential buyer might see things differently. There is always the risk a new owner could lose many of those customers because of loyalty or resistance to change.

The potential buyer couldn’t offer the number Hobbs had in mind.

“One of the reasons I haven’t really sold today is that it would be difficult for me to get what I think the business is worth … it’s all about finding the perfect buyer, and that is extremely difficult.”

So for now, Hobbs is exploring other income-producing ventures while he continues to polish up the business in preparation for its eventual sale. He’s approaching this in several ways.

DIVERSIFY TO ADD VALUE

The first is exploring add-on services. Hobbs is currently considering the purchase of a dealership that includes an exclusive territory, which he thinks might be attractive to a potential buyer for his business in the future. The product addresses drainfield rejuvenation. Hobbs sees this service diversification as a win. “At some point, hopefully the value of the business will go up because of that. The dollars generated will be greater, which will add to the value of the business. Maybe at that time I might sell it,” he says.

Hobbs’ real estate investments will also lead to a comfortable retirement, he hopes. Having owned rental properties and developed real estate earlier in life, he felt confident when he purchased land four years ago and developed commercial space — a location for Cape Ann, and five other rental units. Hobbs saved money by serving as general contractor.

“It’s always better to own your own property, and by owning you can build equity in the real estate.” It offsets rent and affords tax deductions you wouldn’t get otherwise, Hobbs explains. “Hopefully, the property will appreciate in value and you can use that as a retirement package when you want to retire.

“It’s an asset to my business because it gives me a place to operate out of and it gives me the security that no one is going to move me out or raise my rent,” he adds.

Buying land or a building requires capital, and pumpers just starting out might not have the finances or experience to buy something. But if at all possible, it’s a wise investment that will pay off in the future, Hobbs suggests.

Will he hold onto his own building even after retirement? Hobbs hasn’t decided. “Once it’s up and running it’s very simple to run — just collecting rents once a month.” He says it requires a maximum time investment of 10 hours a month, and that it might fit nicely into a semi-retired lifestyle.

EQUIPPED TO SELL

While always a good practice, keeping equipment clean, attractive and shiny-new looking offers clear advantages when it comes time to sell, says Hobbs. That’s why he takes special care of his trucks.

“The appearance of your equipment is a major issue because first impressions make a big dent in people’s attitudes toward you and your business,” Hobbs notes. He now owns a 2008 GMC pickup truck; 2000 Sterling vacuum truck with 2006 3,600-gallon steel tank and 500 cfm pump, built by Vacutrux Ltd.; and a 1994 18-foot long P30 Grumman box van used for onsite work. He uses CAT brand jetting pumps, model 45G, powered by Honda motors.

“If your equipment is in good shape, you have a better opportunity of getting a return on it,” says Hobbs. For example, he owned one truck for four years for which he paid $36,000. But, it was repainted and had a new tank installed. He added chrome wheels and vinyl graphic art on the tank. “It looked really impressive — I sold it for $29,000 after 12 years of use.”

He applies the same care to his current fleet. Hobbs washes the Sterling almost every day.

FROM THE GROUND UP

Much of Cape Ann’s current worth can be attributed to Hobbs’ sweat equity, as well as his nose for diversification opportunities. His successes are all his own. But he’ll admit to getting off to a less-than-ideal start.

Hobbs had never been one to shy away from jobs where he had to get his hands dirty. So when fate dealt him an unexpected hand in the early 1990s and he was forced to seek a new career path, the prospect of running a company that involved pumping septic systems didn’t faze him.

After a real estate investment went awry, Hobbs, then 50, needed income, and he needed it fast. So when he was presented with the opportunity to buy a one-man pumping operation, he leapt at the chance — in part, to tap into ready-made cash flow. Or so he thought.

With no industry experience, Hobbs had to quickly apply what he’d learned from various other jobs and seek help where he could.

“It was brand new to me,” Hobbs remembers. “The investment (to buy the business) wasn’t (substantial), which made it easier to get into.” However, the “business” Hobbs purchased turned out to be not much to speak of: miscellaneous equipment — a vacuum truck and some hand tools — and a customer list of about 100 names, most of which, Hobbs quickly found, were dead leads.

Hobbs immediately put the assets he had up for sale and began looking for better quality equipment. He soon found a truck and he was able to sell the original equipment for the exact amount he paid for the business itself. Hobbs now felt confident he had firmer financial footing.

BUILDING THE BUSINESS

Then came the tough part — drumming up business with nothing but an outdated customer list and the drive to succeed. Hobbs quickly pursued an alternative method of reaching potential customers: direct mail. He partnered with a company that organized direct mail marketing for any type of business, and had established customer lists for the surrounding communities.

Hobbs worked with a printer to design a brochure with a logo and listing of services, and had 25,000 printed and mailed to addresses within the neighboring five towns. The $5,000 investment paid off: the phone started ringing. “It immediately brought me business,” Hobbs says. His strategy was to offer high-quality service at a competitive price point. It worked.

“I put the price on the flier, so when it hit the mailbox of the customer, they could see what we provided, our phone number and the price of the service … I had more business than I could really keep up with.”

Hobbs still very much believes in the benefits of advertising. He runs an ad every week in the local newspaper. “I’m visible and consistent. I’ve done it since I got into business.”

ADAPT TO CHANGE

Business was already good when, in April 1995, the course of the septic industry changed forever: Massachusetts’ Department of Environmental Protection began requiring a Title 5 inspection for all residential property sales. This included septic evaluations performed by a state-certified inspector. The requirement set the stage for Hobbs’ business philosophy from then on: change and adapt to meet new and evolving market demand.

Hobbs became a licensed Title 5 inspector in 1996. “That allowed me to be on site at someone’s home doing an inspection of their onsite septic system to allow them to move forward on the closing of their home,” Hobbs explains of the then-new, face-to-face marketing opportunity. “If the system failed, I was also there as a potential contractor to install the new system.”

Hobbs began taking various exams to become a licensed installer in each town within his service area. As both an inspector and installer, Hobbs was on hand when a seller faced the potential deal-breaker of a failed Title 5 inspection. He was able to provide a bid right away, and customers often chose Hobbs’ company for the installation business as well. Installation jobs began to fall into his lap.

“This whole process was almost like a gift from heaven. I bought (the business) and then all these other things happened. I just happened to be in the right place at the right time. It wasn’t something I foresaw; it just happened.”

PRIME LOCATION

About the same time, other environmental concerns drove changes that translated into opportunity for Cape Ann. Gloucester’s unique makeup — the city is essentially an island — was the source of special concern over the common practice of dumping raw sewage into the ocean, contaminating shellfish beds. The state mandated that the city clean up its wastewater treatment sites. Cape Ann was there to help.

“This generated a tremendous amount of business,” Hobbs explains. “Our city was the only one mandated.

“We were doing the pumping, inspections and installations, and when you get a mandate from the state, the town has a specific program and the standards are ratcheted up, and it puts everyone with an onsite system under the microscope. That drove the business substantially.” Hobbs’ youngest son, Keith, now 34, joined the company at that point, and the father-son team worked together to install residential and commercial systems.

A year later, Hobbs’ eldest son, Keven, now 36, joined the company as well. With more available manpower, Hobbs invested in a backhoe and other excavating equipment — everything needed to install the systems.

Hobbs began taking classes to learn about specific systems — mainly advanced systems designed for use near water. There was training on the installation of the systems, and then operation and maintenance once the systems are in place. Four times a year, this type of system must be inspected, checked and a report filed. Being a Class 2 wastewater treatment licensee again fueled Cape Ann’s growth.

As other needs have arisen, Cape Ann has quickly moved to fill in gaps. From failed system rejuvenation to troubleshooting to repairs, Hobbs has steadily allowed his service menu to grow in response to changing market needs.

WHAT’S NEXT?

Six years ago, Hobbs’ sons decided to launch their own venture — AK & K Construction LLP — a construction firm that now works closely with his company as a subcontractor on many jobs. As Hobbs has backed away from performing the physical installations, his sons have been able to step into that capacity. “They do the bulk heavy work, and I just oversee it. I work with the customers, and hire them as a subcontractor. I know what they do and I know it’s going to get done correctly.”

At 65, Hobbs realizes he’s at an age where many in his position would be racing to retirement — but he’s not ready just yet.

“That’s the dilemma I’m trying to figure out — where do I go from here? I still like the business,” Hobbs explains. “I’m thinking maybe I should do it for a few more years.”

Hobbs is worried that he’d miss … well, the work.

“I’ve always worked, and I’ve always worked hard and long.” For Hobbs, long will be a bit longer.



Discussion

Comments on this site are submitted by users and are not endorsed by nor do they reflect the views or opinions of COLE Publishing, Inc. Comments are moderated before being posted.