Private Equity & Acquisition Entrepreneurship Archives

There are many types of boring businesses, but many are not actually good businesses. HVAC and plumbing companies have high margins but low recurring revenue (and everybody trying to buy a business already knows they have high margins so there is lots of competition to buy them). Landscaping businesses often have recurring revenue but have low margins. They also struggle to keep good workers because there is little barrier to entry. Laundromats have high margins but have low returns on capital (i.e. for the same amount of money invested, a laundromat will usually generate a lot less profit than a plumbing business). In this article, I provide a few examples of businesses that have recurring revenue, high profit margins, AND have many fewer people looking to buy them (because fewer people even know about them). 1. Seed Testing Lab Every year, commercial vegetable seed sellers spend hundreds of millions of dollars to have their seeds tested and certified as meeting purity and germination standards. Some seed testing is conducted by university-affiliated laboratories, but there are also a number of for-profit businesses that operate seed testing and certification labs. Some labs focus on specific regions or crop types while others offer national testing services across a wide variety of crop types. There are also a number of different testing services that are offered by different labs including germination rates, purity, and screening for various plant diseases. 2. Torque Wrench Calibration Services Imagine making millions of dollars to calibrate torque wrenches. There are a number of companies that do exactly that. Large aerospace, airline, and manufacturing companies sign long-term contracts worth up to tens of millions of dollars with companies that test and certify their torque wrench tools to ensure that bolts don't get under- or over-tightened. Example customers that pay for torque wrench calibration services include: Boeing Airbus Lockheed Martin Ford General Motors Shell (the oil company) Medtronic Caterpillar John Deere Amtrak There are a number of industries that have to prove that every fastener satisfies a specific torque specification, and companies in those industries hire torque calibration companies to recalibrate and certify their tools on a recurring basis. Below are some industries with examples of the torque-related quality standards they have to satisfy: IndustryExample Quality StandardAerospace & defense manufacturers (OEMs) and maintenance/repair companies (MROs)AS9100, FAA Part 145Automotive manufacturers & suppliersIATF 16949, ISO/TS 9001Oil & gas companiesAPI 4F/6A, ISO 17025Electrical power generation companiesIEC 61400, OSHAMedical device manufacturersISO 13485Heavy equipment manufacturersISO 9001, OSHARailway and railway maintenance companiesFRA 49 CFR, AAR M-100Structural steep fabrication facilitiesAWS D1.x, AISC QC 3. Act 60 Consulting Firms (with an Upsell) Puerto Rico offers extremely generous tax incentives to businesses and business owners that relocate to the island. However, in order to claim the tax incentives, the business owner needs to file an Act 60 application with the government of Puerto Rico. There are niche consulting firms that help business owners navigate the Act 60 application process in conjunction with attorneys and CPAs. Some business owners also need to obtain something called a "Transfer Pricing Study" which is another service that Act 60 consultants help coordinate. Act 60 consulting services are high-ticket but non-recurring. However, it is easy to upsell an Act 60 consulting client on Puerto Rico accounting services which are niche, recurring and can be high margin. 4. Linen Cleaning & Rentals Hospitals, spas, and restaurants all commonly outsource the cleaning of their linens (e.g. their sheets, tablecloths, reusable napkins, and towels). They will pay for a subscription to have a company regularly pick up their used linens, clean them, and then drop them off again. Sometimes, the linens will actually be owned by the linen company as well so that the customer is essentially just renting the linens. Linen cleaning & rentals is a highly recurring blue collar subscription revenue business. Awhile back, I did some consulting for a single-location spa that paid around $9,000 per month for their linen rentals! If you specialize in linens for hospitals where there are stricter compliance rules for cleanliness, you can charge even higher rates. 5. Fire Safety Inspector There are a number of laws and regulations that mandate recurring fire safety inspections. Multi-family apartment complexes, office buildings, hospitals, nursing homes, and many other commercial and industrial facilities are required by law, by OSHA, or by insurance companies to have regular fire safety inspections. Inspections can cover anything from sprinkler systems to fire extinguishers to fire-rated doors. 6. Dielectric Bucket Truck Testing Trucks with bucket truck lifts (the type used to repair electric utility poles and lines) must be re-tested regularly to ensure their electrical insulation has not degraded. This testing is mandated by ANSI and OSHA rules. Testing typically costs at least $500, and a single tech with a van and testing equipment can test many bucket trucks in a single day.

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Category: Private Equity & Acquisition Entrepreneurship