Doug Johns·February 5, 2024

Buying a Plumbing Business with $2m EBITDA | Doug Johns Interview

Doug Johns, a former military officer and 13-year corporate executive (Campbell Soup, then Precor), bought a Mr. Rooter plumbing franchise in the Portland, OR / Vancouver, WA market in a self-funded search, purchasing an already-large, established business (43 employees, $1.8m EBITDA on $8.8m revenue, founded 1995) from its retiring owner after a nine-month search. Nine quarters in, he returns to Acquiring Minds to give a candid financial and lifestyle progress report: revenue grew to $10.5m (8% CAGR), gross margin held despite repeated price increases, and he generated a 188% cash-on-cash return (80% annualized), even as he stresses that most of that value remains illiquid, tied up in a balance sheet carrying $6.5m of liabilities. He details a complex ROBS financing structure (401(k) initially owning 49% of a C-corp) that he later unwound via a costly share buyback and S-corp conversion, and describes the intense personal and emotional dimensions of owning a customer-facing trades business -- from small-town community integration to being wounded by negative Google reviews and dealing with erratic public encounters. He closes with a sober read on home services in 2024: demand has cooled from its pandemic peak (HVAC shipments down 15%, Google lead costs up 40-50%), and the market has bifurcated into unsophisticated small shops and highly sophisticated, marketing-driven competitors fighting for top Google placement, leaving searchers to compete in a tougher middle tier than the 'easy rollup' narrative suggests.

Deal facts

sde ebitda: EBITDA $1.8m at acquisition (trailing 19% margin); 2023 EBITDA margin 15% on $10.5m revenue
revenue: TTM revenue $8.8m at acquisition; $10.5m in 2023 (8% CAGR since purchase)
financing structure: SBA loan (rate rose from ~6% to ~11%) plus seller note, funded in part via a ROBS (Rollover for Business Startups) structure where a C-corp 401(k) initially owned 49% of the company; later bought back the 401(k)'s shares (~$600k) and converted from C-corp to S-corp
notes: Business founded 1995, had 43 employees at purchase (now 53); Mr. Rooter (Neighborly) franchise resale in Portland, OR / Vancouver, WA; bought from retiring founder/owner and wife after ~20 years of ownership; ~9-month search-to-close process; cash-on-cash return of 188% (80% annualized) over first 9 quarters; carrying $6.5m of liabilities (loan + vehicle financing); estimates ~5 years before comfortable exit liquidity

Why this business

Doug and his wife had loosely discussed buying a business for years and, after leaving a 13-year corporate career at Precor (and earlier Campbell Soup) following an acquisition of Precor, searched Google for 'how do you buy a business,' found Walker Deibel's book and the HBR Guide, and pursued a self-funded search. He deliberately sought the largest business he could responsibly operate, concluding that home services (and plumbing specifically) offered recession resistance because the work is a necessity, not a luxury purchase -- 'somebody's going to have to do it, it's not optional.' The Mr. Rooter franchise resale offered an already-scaled, profitable business ($1.8m EBITDA) with strong existing culture and financials from a 20-year owner-operator.

What's working

Maintained gross margin (up 0.2 points) despite raising prices roughly 8 times in nine quarters, with close rates unchanged, by having the confidence to pass through inflation
Franchise peer group of other Mr. Rooter owners shares monthly benchmarking data (close rates, P&L) enabling continuous improvement and shared best practices
Franchise Disclosure Document (FDD) and franchisee networking allowed him to validate the seller's rapidly rising gross margin before buying, giving him underwriting confidence
Sophisticated, data-driven digital marketing (Target ROAS bidding, feeding CRM conversion data back into Google's algorithm) that outcompetes less sophisticated local rivals for top-3 Google placement
Robust, Fortune-500-style hiring process (Predictive Index assessments, multiple interview rounds, paid candidate-generation spend on Indeed) turned hiring from a feared bottleneck into a strength
Deep integration into the local small town and business community (branded shirt daily, sponsorships, local restaurant regular) builds trust and reputation
188% cash-on-cash return (80% annualized) over first nine quarters, with revenue growing 8% CAGR while holding margins in a difficult 2023 for home services

What's hard

Net income is misleadingly low on paper (2% of revenue, 14 points below the prior owner) due to D&A and SBA/seller-note interest, making the real economics hard to see from the income statement alone
Despite strong cash generation, most of the value remains illiquid/on paper: he'd need to write a ~$1 million check today to sell and walk away clean given balance-sheet liabilities and accrued PTO
SBA loan rate jumped from about 6% to 11%, a real shock to debt service
The 2023 home services market slowed sharply post-pandemic-boom (HVAC unit shipments down 15%, Home Depot same-store sales down 4%, Google lead costs up 40-50%), even though his own numbers stayed healthy
Losing the bookkeeper for four months forced his wife into an unplanned full-time bookkeeping role on top of her existing duties, exposing thin bench strength at a ~50-person company
Emotionally taxing customer-facing dynamics: negative Google reviews (e.g., a customer who felt overcharged for an hour-long drain job) hit personally even when not directed at him by name; occasional confrontations including an employee pushed on stairs by an angry customer and a staged-accident insurance scam attempt
ROBS structure created real constraints -- C-corp tax treatment, inability to do related-party real estate deals, and 401(k) ownership percentage locking up cash -- that required a complex, costly buyback and S-corp conversion to resolve
Full ownership means total accountability with no organizational buffer, and the business is genuinely a 'life consuming job' at 60 hours a week even with a management layer, which he says is not suited for the 'dilettante or the weak of heart'
The middle of the market (where searchers buy) is squeezed between highly sophisticated PE-backed/scaled competitors dominating top-3 Google search results and small unsophisticated shops that can't grow past a few people -- doubling a business of his size is far harder than the 'send some letters and roll up' playbook of a few years ago

Notable quotes

We love business ownership and we sleep fine, but we also strongly advise the curious that this highwire act is not suited for the dilettante or the weak of heart. For those who are capable, committed business leaders and fully comprehend the model, however, ETA is the ultimate life hack that grants access to what feels like a secret career and lifestyle hiding in plain sight.

If I sold the business today for the same multiple, I'd have to write a million dollar check to walk away free and clear.

This is currently a 50 person operation that runs like a 10 person shop, and we need to start running like a 100 person business.

Make no mistake, there's money out here, right, and that's the core of this whole ETA... this is the secret good America hack, this is where the money is, you know, it's in business ownership.