Welcome Back!

Thank you for joining us for our first newsletter in 2024! 🎉

But we’re going to be honest, we’re still getting back to a regular schedule since the holiday break… hopefully this 3rd cup of coffee does the trick because we have a lot to cover. 

So let’s keep this momentum rolling and get right to it.👇

INDUSTRY BREAKDOWN

Are Solar Installation Companies Worth the Hype? 🤔

Solar Installation sounds super impressive, but is a career in the industry a hidden gem or red flag?

In this breakdown, we’ll share what makes them so interesting + a few live deals you can analyze yourself! 

Industry Trends

Here’s a crazy chart - the price of solar energy dropped 90% from 2009 to 2020. Like a Walmart Rollback, this discount has made solar a cost effective alternative for consumers and, in some geographic areas, an ROI positive way to supplement their home’s power usage.   

The result is that 39% of Americans considered installing solar panels before the US Government put forward a 30% tax credit in 2022. 

Sure, all this hype and industry reports are cool and all, but if you're reading this, chances are you're an entrepreneur. Meaning, you're likely more curious about whether getting into solar installation is a solid business move or not. So let’s talk about the money!

The Finances 

The first thing that pops out about solar installation - low margins. The average net profit for the industry is 5.7% with a majority of overhead coming from wages (21.5%) & cost of goods (41.5%). 

Turns out that when you’re installing physical goods, it takes physical product and skilled labour, both of these items are getting more expensive in a post-COVID world.

Buy or Bust? 

Solar companies have a lot of economic tailwinds right now, so buying a company in the space could be a golden opportunity. But heads up - this sector is buyer beware. You need to be diligent about possible future regulatory changes and how they could impact your business - because don’t want to get burnt 😎 (sorry we had to). 

Check out these Solar Installation deals:

1. Solar Residential & Commercial Installation Business - $1,800,000

2. Solar Company Dominating in California 500K Down SBA - $7,090,019

3. Turn-Key Solar Design and Installation Business - $6,000,000

Interested in a particular industry? Reply to this email with the industry you are curious about and keep your eyes peeled in upcoming issues. 👀 

DEAL REVIEW

Residential and Commercial Solar Installation

This week’s deal is a Residential and Commercial Solar Installation Company located in Central Texas. 

Deal Facts 🔥

Green Flags 🟢

• Industry Tailwinds: the solar industry grew by a CAGR of 20.5% in 2023 alone.  

• Revenue Mix: the revenue model is not dependent on a single source of revenue by offering a mix of installation, electrical, and maintenance services for both commercial and residential clientele.   

• Management Team: as mentioned on the public listing - there is a strong base of employees in-place, requiring minimal oversight. This indicates the owner doesn’t often need to roll-up-their sleeves and complete on-site work (a big 👍 for most owners).  

• Revenue Growth: the business has experienced strong revenue growth (and profits) over the last 3 years. 

Red Flags 🔴

• Industry Risk: while the business has benefitted greatly from positive industry trends (such as the tax credit referenced above) - it also poses a potential business risk if negative regulatory changes (such as the removal of the tax credit) were to occur. We recommend diving into the most recent legislation to better understand the tax credit, how long the program is in-place, etc. as a part of your diligence.   

• Profit Margins: because the business sells physical goods (solar panels) with high-skill labour, the net profit margins are a bit tight (~10%). This isn’t a bad thing if a majority of the expenses are variable costs (will decrease proportionally with revenue) rather than fixed. This is worth exploring more in the CIM.  

• Reason for Selling: the owner is looking to pursue new opportunities, which isn’t necessarily a bad thing. Worth asking a few clarification questions to understand what they mean by this. 

Overall Deal Spiciness: 🌶🌶🌶*

*Deal Spiciness is a completely subjective rating without a quantitative grading system. Depending on the buyer, a spicy deal may indicate a good thing or a bad thing. Basically, do your own due diligence.  

Watch Our Video Breakdown 

For a more in-depth analysis, check out this video deep dive of the deal by our Founder, Morgan Tate:

Want to learn more about this deal? Reply to this email with a “send me more details” and we will connect you with the broker!

SMB TWEET HIGHLIGHT

Buying vs. Building a business - the biggest decision for entrepreneurs. There are pros and cons on both sides, but let’s break it down.

With an established business you can see the financial and operational history of the company (and more importantly, you can see where and how it can be scaled). Whereas when starting a business from the ground up, you truly have no idea if this is going to be the best or worst decision of your career. You may have the passion and drive, but not every business can be amazon…

We know that reading one tweet is not going sway your opinion on if you should buy or build a business… so we thought we would throw in a blog for you to read as well! 😇

Chinook Business Advisory recently released a blog about this exact topic which might give you a little bit more insight. 👇

GOOD READS

Recommended Reading 📚

Below is a list of articles and books we recommend for buyers or operators of small businesses!

1. If you’re about to enter due diligence for the first time - we highly recommend checking out Permanent Equity’s due diligence checklist

2. 12 Great Questions To Ask When Buying A Business

3. The Power of Anti-Goals (this is a great read if you’re still working on your New Year’s resolutions!)