Josh Key·December 19, 2024

Plumbing Acquisition Gone Wrong | Josh Key Interview

Josh Key, a career medical device and B2B sales professional from Flint, Michigan living in the DFW Metroplex, discovered the idea of buying a business independently during COVID when his travel-heavy W2 job conflicted with family life. He found a Fort Worth commercial plumbing company on BizBuySell — five employees, $1.1-$1.25m revenue, ~35% SDE margins — and negotiated a $1.4m purchase price ($1.6m total including a credit line), funded with a 10% equity injection from his 401k, a 10% seller note, and an SBA loan. A last-minute SBA requirement for a licensed master plumber on the capital stack forced him to bring in a 50/50 business partner — an older church acquaintance with a plumbing license but a history of legal trouble Josh never discovered — without doing any background check, using a thin Rocket Lawyer operating agreement, and relying on the partner's attorney who turned out not to be licensed in Texas. The partnership fractured almost immediately: the partner made threats, brought a gun to the office, co-mingled his personal business finances with company funds, ran off employees and contractors, and ultimately drove the business into the ground over two years. Josh filed Chapter 7 bankruptcy in 2023, is now on the SBA blacklist, and lost roughly $180k in 401k funds plus $50k in legal fees. He remains optimistic, plans to re-enter ETA through creative deal structures (no SBA), and candidly shares the episode as a cautionary tale on partner due diligence, operating agreement quality, and the danger of 50/50 splits.

Deal facts

purchase price: $1.6m (including $100k line of credit and $100k working capital; base negotiated price $1.4m)
multiple: Slightly over 4x most recent year SDE
sde ebitda: ~$380k-$437k SDE (35% margins on $1.1-$1.25m revenue, most recent year)
revenue: ~$1.1m-$1.25m (trending up from $700k over three years)
financing structure: SBA loan + 10% seller note + ~10% equity from personal 401k withdrawal (~$160k equity, $180k total drawn from 401k)
notes: Stock sale; business founded 2011; five employees plus seller at close; seller asked $1.8m, negotiated to $1.4m base; closed December 2020; seller stayed on post-close

Why this business

Josh was looking for a business to replace and exceed his W2 income of $300k, ideally something with hard assets he could borrow against. He started in construction broadly, was drawn to plumbing after finding solid financials on BizBuySell, and confirmed he didn't need to be a licensed plumber to buy and run it. He liked that it was an essential service, had strong margins pre-COVID cost inflation, and saw clear expansion opportunity — adding service work, more trucks, and eventually layering in HVAC and electrical to build a platform across the DFW Metroplex.

What's working

The underlying plumbing business was solid — trending revenue from $700k to $1.25m over three years, ~35% SDE margins, commercial new-build focus with service upside
Strong seller relationship and seller willingness to stay on post-close and help with transition
Loyal, experienced crew including two master plumbers who Josh says he would 'go into battle with at any juncture'
Josh's sales and relationship-building background was well-suited to growing the commercial contractor network
The initial thesis — non-plumber can run a plumbing business by hiring the right technical people — was validated in retrospect; Josh believes he would have figured it out without the partner disaster

What's hard

The SBA threw a last-minute curveball requiring a licensed master plumber on the capital stack, forcing Josh to find a partner he barely knew
Partner insisted on 50/50 equity split (rejected Josh's 60/40 offer), which left no tie-breaking vote and created a deadlock from day one
No proper background check on the partner revealed a prior assault accusation and other legal issues that were consistent with later behavior
Operating agreement was drafted via LegalZoom/Rocket Lawyer and was extremely thin; the partner's attorney was not licensed in Texas
Partner brought a gun to the office, verbally abused Josh and employees, ran off contractors and plumbers, co-mingled his own company's expenses with the business, and opened new bank accounts Josh couldn't access
Partner never fully wound down his own competing business as agreed, and used company accounts and employees for his own jobs
Business was run into the ground during the two years the partner controlled it (2021-2022): debt not serviced, new unauthorized loans taken, lawsuits accumulated
Josh had to file Chapter 7 bankruptcy to protect his home; is now on the SBA blacklist and cannot use SBA financing for future deals
Spent ~$50k in legal fees trying to exit the partnership — far more than proper upfront counsel would have cost
Key customer concentration and key-man risk in the original business were noted risks that went unaddressed due to the partnership collapse
Josh left his W2 job prematurely to go all-in, then had to return to it while the business was being destroyed

Notable quotes

Trust but verify. It can feel super great about the situation and the prospects but hey let's do our due diligence.

Pressure busts pipes, right — to use a bad pun in plumbing for a plumbing company. And he — I don't know how you diligence that — is trying to figure out how he handles pressure other than talking to other people, ex-employers.

I should have just done a simple background check on him. And just looked at it. Yeah. And then I could have asked him maybe he could have explained some of the things that came up on his background checks.

I probably fought too long trying to get my funds back. In hindsight I should have walked away from the $180,000, just called it $200,000 and just started, went back to, you know, the drawing board.