Ask a contractor what his business is worth and you’ll usually get a version of the same inventory: eight trucks, a shop, a crew that’s been with him nine years, and a backlog into next spring. It’s an honest answer. It’s just answering a different question than the one a buyer is asking.
A buyer isn’t pricing what you own. He’s pricing the cash the business produces after paying somebody to do everything you currently do for free.
That single distinction explains most of the gap between what owners expect and what offers come in at.
Owner Math vs Buyer Math
Owner math adds things up: assets, revenue, reputation, years in business, the relationships that took two decades to build.
Buyer math starts with earnings and then subtracts risk. Every question a buyer asks — about your customer mix, your crew, your systems, your books — is a question about one thing: what breaks when the current owner leaves?
Two contracting businesses with identical revenue can be worth dramatically different amounts. The difference is almost never the trucks.
The Two Numbers Buyers Actually Use
SDE — Seller’s Discretionary Earnings. Used for smaller owner-operated businesses. It’s net profit, plus the owner’s salary, plus personal expenses running through the company, plus one-time items. The logic: a single buyer stepping into your role wants to know the total benefit available to one working owner.
EBITDA. Used as businesses get larger and more managed. Earnings before interest, taxes, depreciation, and amortization — with a market-rate manager’s salary subtracted, because the buyer isn’t planning to run crews himself.
That subtraction is where a lot of owners get surprised. If the business only works because you’re in it fifty hours a week and paying yourself modestly, replacing you costs real money, and it comes straight off the number.
Commonly quoted industry ranges put smaller owner-operated trades businesses in the low single-digit multiples of SDE, with larger, well-systemized service companies — especially those with recurring maintenance revenue — commanding higher multiples of EBITDA (industry range; actual multiples vary widely by size, market, service mix, and deal terms). The range isn’t the useful part. What moves you inside it is.
What Moves the Multiple Up
Recurring revenue. A book of service agreements is contracted, predictable cash that renews without a bidding process. This is the single biggest separator between an HVAC company that sells at the top of the range and one that doesn’t.
Independence from the owner. If pricing, key customer relationships, and problem-solving live in your head, the buyer isn’t purchasing a business — he’s purchasing a job with your name on the truck. Documented processes, a real estimator, and a manager who runs the schedule are worth more than another crew.
A diversified customer base. One GC at 40 percent of revenue is a concentration risk. If that relationship is personal to you, it’s a concentration risk that may not survive closing.
Books a stranger can verify. Job-level costing, clean separation of personal and business expenses, and reliable historicals. Every unexplainable line becomes a discount, because a buyer prices uncertainty conservatively.
Crew stability and licensing that transfers. Retention history, apprenticeship pipeline, and a clear answer on how licensing and bonding carry over in your state.
Backlog with margin in it. Signed work is an asset only if it’s profitable. A full schedule of underpriced jobs is a liability the buyer inherits.
What Moves It Down
- Revenue that only exists because the owner personally sells and prices every job
- Personal expenses tangled through the P&L that can’t be cleanly added back
- No job costing, so nobody can prove which work is actually profitable
- Deferred maintenance on fleet and equipment
- Key-person risk on one irreplaceable field lead
- Unresolved warranty, lien, or worker-classification exposure
Every one of these is fixable. Almost none of them are fixable in the ninety days before a sale, which is the reason for the next section.
Value Is Built Three Years Out, Not at Closing
Buyers usually want three years of clean financials. That means the work that raises your number has to start roughly three years before you want to hand over the keys.
Year one — make the numbers true. Separate personal spending. Get job costing in place so profitability is provable by job, crew, and service line. Fix the pricing that job costing exposes.
Year two — get yourself out of the middle. Hand off estimating. Document how jobs get priced, scheduled, and closed out. Move key customer relationships to your team so they belong to the company, not to you.
Year three — build the recurring layer and clean up the file. Grow service agreements. Resolve open legal, licensing, and classification issues. Make sure the story your financials tell matches the story you’ll be telling a buyer.
Do that and you’re not just worth more — you also own a business that’s genuinely better to run, which matters, because most owners who go through this decide to keep it a few more years.
The Test That Cuts Through All of It
Take two consecutive weeks off. Real weeks — phone off, no check-ins.
If the business runs, you own an asset and the valuation conversation is about multiples. If it doesn’t, you own a job, and the valuation conversation is about what someone will pay to buy your job from you. That’s the whole test, and it costs nothing to run.
Where to Start
Exit readiness is Level 6 of the free Contractor Growth Assessment — but the levels underneath it (clean books, real margins, tax strategy, systems, team) are what set the number when you get there. Five minutes tells you which one is your ceiling right now.
Take the free Contractor Growth Assessment →
General information only, not a valuation or investment advice. Actual value depends on your financials, market, and deal structure.
