We don’t often talk about franchise acquisitions here at A&E, but this is a good example of one that went right:

Zac Smith was a mechanical engineer.

After 4 years into the corporate grind, jumping jobs, and working his way up… he looked to the future and decided he wanted something more for himself and his family. Wealth was part of it, but it was really about flexibility and a life he built himself were the rest.

He spent about a year looking at franchise, private businesses, or even the idea of starting something. As an engineer, he built the spreadsheets and ran the numbers, but he struggled to quit the “safety.”

Then he came across a CertaPro Painters franchise for sale in North Carolina. He got to know the culture and the model, felt he could wrap his head around it, and decided there was never going to be a perfect time.

He bought an existing territory with 3 employees & under $1 million in revenue. Established, smaller, and already profitable. He paid about 3× SDE. The business was running roughly 25% net profit margins.

The purchase price was in the high hundreds of thousands. He put 10% down in cash and the seller took a note for about 10% of the price. The rest was an SBA loan, for which he signed the personal guarantee.

That was not an easy decision because his net worth at the time was small, so on paper it was a big risk. He got more comfortable as he did diligence with other franchisees and understood the model, and he also knew that not taking the leap would be a regret he would carry.

Three years later the company was on track for $3 million in revenue and $600,000 in profit. He sold it for $1.5 million, all cash at closing with no seller note and no earn-out. Compare the cash he put in with the cash he took out, and he roughly 10×’d his money. He told the story on Built to Sell Radio.

When he bought the business, gross margin was 42–43%. That is after labor and paint. On a $1,000 job he was keeping about $420. By his last year he had it at about 50%.

He did it with both price and cost, but pricing was the bigger lever.

CertaPro is not trying to sell against the “Chuck in a Truck” contractor... They are selling professionalism: a professional crew that shows up, communicates well and instills confidence that the job will be done. A homeowner who has been burned by a cheap bid will pay for the crew that shows up on time and an accurate estimate

Smith saw room to charge more without losing the close rate, and it turned out he was right. He also negotiated better deals for materials.

Then he walked away from the customers who only cared about price. Those jobs keep a crew busy, but they also keep hold back the margin. “Busy and broke” is the default in home services.

The last move was the mix. More of the revenue came from customers who send work again without a new marketing spend. A one-off residential job has to be sold every time, but a customer who calls you back for the next room, the next house, the next referral, does not. Repeat work is the quiet multiple.

Smith would tell the employees: “We are a sales and marketing company. Painting is what we happen to do.”

If the business is painting, the value is in the brushes, the trucks, and the crew. Those are replaceable.

But if the business is sales and marketing, the value is in the pipeline, the close rate, the price, and the customers who come back. Those are harder to replicate, and they’re what a buyer is really buying when they write a check for a service company.

The trade is often the product, and the real business is the system that finds the customer, prices the work, and gets them to say yes again.

By year 3, the company was on a $3 million revenue run rate and a $600,000 profit run rate.

Two things made the exit work:

When the wire hit, he booked a trip to Aruba with his wife.

The full conversation is on Built to Sell Radio, episode 565.

Thanks for reading Acquiring & Exiting

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