What private equity looks for in a trade business.
Nine specific things get checked before an offer is made. Most are improvable within a year, and each one is worth real money on your multiple.
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Nine things buyers check, in the order they check them
Acquirers are not evaluating whether you run a good company. They are evaluating whether your earnings continue after you leave, and whether the story survives a quality-of-earnings review. Those two questions produce a consistent checklist.
1. Does the business run without you?
The first and largest factor. If you dispatch the trucks, price the jobs, close the large sales, and hold the key vendor and referral relationships, then a buyer is not acquiring a business, they are acquiring your calendar. A service manager who runs the field, a competent office manager, and a salesperson who is not you is commonly worth a full turn. It is also the item owners can fix fastest, often inside a year.
2. What share of revenue is recurring or contracted?
Active maintenance agreements, membership plans, and commercial service contracts. Buyers want the count, the renewal rate, the average annual value, and whether agreements transfer on a change of ownership. A company with 30 percent of its customer base on agreements is a fundamentally different asset from one with 5 percent.
3. Replacement and service versus new construction
Replacement and service revenue is recurring, higher margin, and recession resistant. New construction is builder-dependent, thinner, and cyclical. Buyers routinely apply a lower multiple to the construction share, so a business at 80 percent service outprices one at 45 percent with identical earnings.
4. Will the financials survive quality of earnings?
This is where deals die. Buyers hire an accounting firm to test your numbers. Accrual-basis statements, job-level costing, a clean general ledger, reconciled bank accounts, and documented add-backs get through it. Cash-basis books, personal expenses scattered through the accounts, and undocumented add-backs produce reduced numbers and reduced trust, and reduced trust costs more than the numbers do.
5. Route density and geography
Calls per truck per day, average drive time between calls, and how tightly revenue clusters by zip code. Drive time is the largest controllable cost in the trades. A business dominant in a tight territory is worth more than one thinly spread across a wide one, even at higher revenue.
6. Concentration risk
Any single customer, builder, property manager, or referral source above roughly 20 percent of revenue is a discount, because losing it after close changes the economics. This includes concentration you may not think of as concentration, such as one home warranty company or one large HOA relationship.
7. Technician retention and bench depth
Headcount by role, tenure, certifications, turnover rate, and pay structure versus market. The technician shortage is the binding constraint on growth in every trade, so a stable crew is a genuine asset. High turnover signals culture or pay problems the buyer will have to fund.
8. Licensing and legal transfer
Whether the qualifying license is held by you personally or by an employee who is staying, plus open litigation, warranty claims, worker classification exposure, and insurance history. Unresolved licensing is one of the most common causes of a delayed close.
9. Growth story and market coverage
Buyers pay for a credible path to growth: an under-penetrated maintenance base, a service line you have not built, adjacent territory within drive time, or a second trade you could add. They also weigh how many acquirers are already active in your metro, since competition for your business affects your price as much as your business does.
| Profile | Typical EBITDA multiple | Notes |
|---|---|---|
| Service manager running the field without you | +0.5x to +1x | Roughly $500K to $1M of value. Usually the highest-return change available. |
| Maintenance agreements from 10% to 30% of the base | +0.5x to +1x | Contracted recurring revenue is the line buyers most want to see grow. |
| Cash-basis to accrual with job costing | +0.25x to +0.5x | Protects the price you already have by surviving quality of earnings cleanly. |
| Construction share cut from 40% to 15% | +0.5x to +1x | Shifts the mix to the revenue buyers underwrite at a premium. |
| Top customer reduced from 30% to under 15% | +0.25x to +0.5x | Removes a concentration discount and an escrow argument. |
The order to do this in
Management depth first, because it takes longest and is worth the most. Financial cleanup second, because it protects everything else and takes about two quarters. Maintenance agreement growth third, since it compounds. Mix and concentration last, as they follow from sales discipline over several quarters. An owner who works this list for twelve to eighteen months typically changes their outcome by more than a year of revenue growth would.
Preparation questions.
What is the single most important thing to fix before selling?
Management depth. If the business cannot run for a month without you, every buyer discounts for the risk that the value walks out with you. Promoting or hiring a service manager who dispatches, prices, and handles escalations is commonly worth half a turn to a full turn, and it is the change most owners can make within a year.
How long before selling should I start preparing?
Twelve to eighteen months for the full list. Financial cleanup alone takes two quarters to produce comparable statements a buyer can rely on. Owners who begin preparing after receiving an offer are negotiating from the position they happen to be in rather than the one they could have built.
Do I need audited financial statements?
Not for most transactions below roughly $3M of EBITDA. What you need is accrual-basis statements, job-level costing, reconciled accounts, and documented add-backs, which is what a quality-of-earnings review tests. Platform-scale transactions above $5M of EBITDA more often involve review or audit-level financials.
Will buyers care that I have a lot of new construction work?
Yes, and they will price it lower. Construction revenue is builder-dependent, thinner margin, cyclical, and ties up cash in retainage. It is not disqualifying, but the construction share is typically underwritten at a lower multiple than service revenue, so shifting mix over several quarters raises your blended number.
Is it worth spending money on these improvements before I sell?
Usually many times over. On a business with $1M of adjusted EBITDA, a single turn is $1,000,000, and hiring a service manager or converting to accrual accounting costs a fraction of that. The caution is timing: changes need two to four quarters of results behind them before a buyer credits them, so this is preparation rather than a last-minute fix.
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