Roofing Business
Roofing Business Valuation & Worth
What is a Roofing Business Worth?
Valuing a roofing business correctly is an integral first step when you are thinking about whether or not it is a good time to sell.
Although the valuation of a roofing company is not difficult to calculate, the ramifications are far-reaching. There are two major elements to consider with a roofing valuation: cash flow, and the specific multiple of the cash flow that the prospective buyer is willing to pay. If you want to know “How much is my roofing business worth,” digging into the cash flow and the multiples will get you your answer.
Roofing Business
Free Cash Flow
When taking stock of your roofing business, cash flow is king. Of course there are many variables that are part of the roofing business valuation, but at the end of the day, your cash flow is the most important matter. You will want to understand the SDE (Seller’s Discretionary Earnings), add-backs, EBITDA and the adjusted EBITDA, but keep your eyes focused on the cash flow to find out all you need to know about how to value a roofing business. Some owners worry about tax liabilities or other variables, but the cash flow is hands-down the most important element.
“How much is my roofing business worth?” is definitely a frequently-asked question. Take a look at the add-backs and recurring items in order to answer it.
Recurring items
- Owner compensation
- Money for other family members
- Insurance coverage (medical) for owner or family
- Insurance, gas, monthly payment for vehicles for owner or family
- Car expenses of owner and family members, such as insurance, gas, and monthly payment
- Entertainment, travel, and meals not 100% related to business
- Any phone charges
- Club dues (country, golf, etc.)
Non-recurring items
REVENUE ITEMS
- PPP or EIDL loans
- Sale of asset
EXPENSE ITEMS
- Bad debt expenses
- Legal fees, consulting fees, accounting fees
- Major improvements or repairs
- Business purchases
- Insurance claim losses that are unreimbursed
- Other major expenses
Multiply the Value
The valuation of a roofing business is calculated from the cash flow, and what multiple of the cash flow that the buyer is willing to pay. With a roofing business valuation, the buyer will pay two times, four times, six times, etc. of the given cash flow.
FIRST RULE OF MULTIPLES
When calculating your roofing business worth, the adjusted cash flow is related to the size. Understandably, the higher the cash flow, the higher the multiples.
- Under $500k free cash flow – 2x-4x / Valuation range $500k – $2m
- $500k-$1m free cash flow – 3x-5x / Valuation range $1.5m – $5m
- $1m-$2.5m free cash flow – 4x-6x / Valuation range $4m – $15m
- $2.5-$10m free cash flow – 6x-10x / Valuation range $15m – $100m
- $10m-$25m free cash flow- 10x-20x / Valuation range $100m – $250m
- $25m+ free cash flow – 25x+ / Valuation range $600m+
Cash flow is related to how long it will take to pay off the purchase price of the business. If a buyer purchases it for two times the cash flow, it will take two years, four times the cash flow will take four years, and so on. Buyers are willing to pay a higher multiple when a business is more stable. Larger businesses tend to be less volatile because of their variety of revenue streams, their larger base of customers, and a wider geographic reach. Having more cash flow increases the multiple.
SECOND RULE OF MULTIPLES
There are secondary variables that affect the roofing valuation as well. But don’t let the word secondary fool you. These elements are quite impactful when it comes to a sale and your roofing business valuation.
- Amount of new construction (Aim for 20%, and lower is better)
- Amount of maintenance contracts (Aim for 20%, and higher is better)
- Revenue growth (Aim for more than 20%, and higher year by year)
- Marketing reputation management (number of Google reviews and average star rating)
- Lead generation program (consistent and repeatable lead generation flow is better)
- Size of technician crew (more technicians is better – aim for 10)
- Internal workflow technology integration (ServiceTitan or HouseCall Pro is great)
- Business independent of owner involvement (Aim for the owner being able to leave on vacation and turn phone off, and less day-to-day involvement is better.)
So, how much is my roofing business worth?
Multiply the free cash flow by the multiples to determine your roofing valuation.
Take it one step further to consider a few more important elements. T
he prospective buyer will want to purchase anything needed to run the business, such as your trucks and equipment.
Also, the sale will be conducted debt free, which means you need to have the company in the clear before it is sold. You will also need to establish an agreed upon amount of capital in the business before you close. And don’t forget that fees will definitely eat up some of your profits. Expect to net 70-75% of the sale price.
WE ARE HERE TO HELP
Valuing Your Roofing Business
The valuation of your roofing company is based on cash flow. But in order to have time to manage your business’s cash flow, you need some help with making a sale. Brentwood Growth has the experience and expertise to show you your roofing business worth, and to find a buyer who is willing to pay out the full value of your business.
Contact us today to experience our seller side loyalty and see the wide array of investors that are interested in a roofing business like yours.
Do You Know What Your Business is Worth?
Why Work With
Brentwood Growth
Access to Buyers
Over 400 private equity firms and consolidators that are actively looking to purchase.
Confidentiality
Ensure the sale of your business remains confidential to avoid disruptions for you.
Industry Expertise
More than 20 acquisitions with transactions from $80 million with an average of $4 million.
Valuation
Learn the value of your business and receive support with pricing to the market.
Negotiation
As your mediator, we work with you and the buyers to make sure both parties are satisfied.
Experience
Lead by a team with 75+ years of experience. Our experience ensures a smooth experience.