This blog shares the insights of Michael Mekhitarian, director of Studor Australia Pty Ltd. Michael is a highly experienced certified practising accountant (CPA), he sits on the board of several companies and is the president of the Parramatta Chamber of Commerce. Michael, Jim and Paul are the directors of the Parramatta based accounting firm ATB Partners, which was founded over 20 years ago. The successful firm is well known for its highly sought after tax consultants, financial advisors and business mentors. ATB Partners specialises in providing advice to clients in retail, wholesale, manufacturing, professional services, franchise and construction. Please visit www.atb.net.au for more information.
The plumbing industry is integral to the Australian economy. The reason for this is that pipes are used in every building in Australia. The services offered by the plumbing industry include the installation, repair and maintenance of pipes.
There are 50,250 plumbers in Australia and another 30,000 people that are employed within the industry across a variety of roles. The plumbing industry is highly fragmented with 25,250 businesses in Australia. There are many small contractors; 51% of businesses have no employees and 48% have between one and 19 employees. The average revenue is $514,851 and the average profit is $67,327. Profits accounts for 12.7% of revenue.
The industry is highly regulated with strict product and installation compliance requirements. Most plumbers focus on a narrow geographic area or a specialised service. There are some larger players in the market, however, their focus is on long term maintenance. Facilities management firms are expected to grow in the future as large long-term contracts across many trades are expected to increase.
The industry has experienced variable demand conditions since the early 2000s. There has been solid growth over the past 5 years despite poor demand from most building markets. Industry revenue has increased annually by an average by 0.9% over the past 5 years to total $13 billion in revenue for this year. Demand from commercial building construction is expected to increase by 1.1% and new housing which is predicted to decrease by 1.7% this year. The low interest rates currently set by the Reserve Bank of Australia are expected to stimulate household spending and business expenditure.
In the past the global financial crisis has resulted in a decrease in demand from business and consumers. However, federal government economy stimulus resulted in an increased demand for plumbing services. The first home owner’s grant, the education construction stimulus and the solar hot-water systems government rebates have all resulted in steady growth for the industry. Regardless of government stimulus, the number of plumbing businesses contracted during 2012-13 by 3.4%. The withdrawal of government stimulus has had a negative impact on the industry.
Natural disaster relief provided by plumbers to the residents affected by the 2010-2011 Queensland floods provided a boost for the industry.
The market demand for plumbers is made up of 40% residential building companies, 30% non-residential builders and property managers, 20% households and residential property managers. The geographical distribution of plumbers mirrors the population and construction areas.
Lower barriers to entry make it easy for new players to enter and leave the market. Competitive conditions have led to a decrease in margins. There is a skilled labour shortage with many businesses finding it hard to find additional skilled labour as many plumbers start their own businesses quickly after finishing their apprenticeships. Threats to the industry are easy to assemble plumbing fixtures that may restrict industry revenue growth.
To be successful in this industry you must have good cash management, an excellent reputation, offer a large range of services, have contacts within key markets and an ability to provide competitive tenders.
Revenue from plumbing activities is derived from the following activities: Water plumbing 30%, sanitary plumbing 24%, gas fitting 21.5%, mechanical plumbing 14.5%, drainage and roofing plumbing 10%.