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How to Sell Your Roofing Business

how to sell your roofing business When you’re ready to exit the roofing industry and enjoy your retirement or start another business, you can sell your business to outside parties. Most roofing businesses are passed onto family or simply close up, but if you don’t have family interested in the business, there’s no reason to leave money on the table. A buyer can give you a large payout and keep your company running for the foreseeable future.

However, research from the U.S. Chamber of Commerce found that very few contracting businesses go to market sell. The number is less than ten percent, half the rate of sale of your average business that hits the market.

This low rate of sale isn’t because roofing businesses aren’t valuable. Instead, failures to sell are usually because roofers did not prepare their business for sale, didn’t understand its value, or didn’t connect with the right buyer. If you can prepare better, you stand a higher chance of selling your roofing business.

So, how do you sell your roofing business? The secret is mainly in preparing it for sale, years in advance. The sooner you can start this process, the better positioned you’ll be when it comes time to sell.

Know What Makes a Business Desirable

What makes a business desirable? It is not just about valuation, although we will cover that later. There are plenty of other factors, including intangibles, that you should consider. Just like when you’re selling a home, you need to know what a buyer is looking for as much as the home’s estimated value. This gives you an opportunity to make changes and to talk up the parts of your business that will most attract buyers.

High Cash Flow

The cash flow of your business is probably the most overlooked metric in selling contracting companies. Valuation is important, but cash flow represents the health and stability of the business. That’s why you’ll see cash flow listed just after valuation on ads for roofing businesses. Cash flow represents your ability to buy supplies, pay for advertising, and do all of the things that your buyer will need to when they take over.

Recurring Customers and Contracts

Your business’ overall revenue is important. However, it’s also important that the revenue is generated from return customers, ideally those on contract. Maintenance service plans are an excellent sign to buyers because they are guaranteed work moving forward. Customers that return of their own volition are good too, as they signal that the business is trustworthy and can keep making profit even after you step down.

What About Assets?

Your assets do add to your business’s value; however, the assets are not as important at securing buyer interest as you may think. If the business is profitable overall, then the buyer can always procure more equipment. So, buyers are typically not going to be swayed if your business has a large volume of equipment or specialty equipment. The equipment is not helpful if the revenue for the business dries up.

Although, a business with equipment that is seriously out of date could be a negative factor. Buyers will know that beyond the investment in purchasing the business, they will also soon have to replace equipment, and that can strain their finances. You may need to replace old equipment, but buying brand new equipment when it isn’t necessary isn’t a good idea either.

Understand Your Business’ Value

It is also important to understand the hard numbers of how to value your business. But there are a few ways to do this. You can get a professional valuation, which is probably the wisest as a buyer will also accept their findings. You can also estimate it yourself in a few different ways:

  • EBITDA: The total of your earnings before interest, tax, depreciation and amortization.
  • Cash flow: One to three times your cash flow may also be considered your business’ value. You need to have a strong rationale for your multiple.
  • Assets: The sum of your assets, both tangible and intangible. A maintenance contract is an asset. So is cash, accounts receivable, inventory of nails and shingles and working capital.

When you are calculating the business’ value, be sure to also consider its debt.

How to Increase Value in your Roofing Business

The next step is to change your business to make it more valuable and desirable from a buyer’s perspective.

Work on Contracts and Retention

Increasing your business’s maintenance contracts will significantly increase its value, so focusing on selling them. You can also focus on business reputation and generating repeat business. While brand value is hard to quantify, buyers do respect it and will pay more for it.

Start Preparing for Succession

Buyers need to know that the business will stand on its own feet without you, or it’s not worth buying. As much as you can, you need to make the business run independently of you. Empower team leaders and managers, create systems that your employees can follow without you. When possible, identify managers who can take over and work for the buyer once you step down.

Focus on staff who might also be a detriment when it comes time to sell the business. Staff members that make more than their labor is really worth and are entitled to large severance payments can be seen as liabilities to buyers. Consider hiring an outside account, receptionist, or other support staff to reduce costs and make your business more profitable.

Expand Your Service Area

Getting more customers is key to higher revenue and thus a higher business valuation. It may be that you have avoided expanding your service area because you don’t personally want to drive that far or handle that many teams. But, making an effort to expand in your last few years can help make the business much more valuable to a buyer. Buyers will not want to pay for the possibility of expanding the business, even if it could be done easily. Show them how first, and you may reap the rewards.

Create a Plan for the New Owners

Sometimes the most powerful way to sell your business is to create a business plan that can help guide the new buyer moving forward. With this plan, you can also project earnings, which can help make the value of your business more tangible to the buyer.

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