Many business owners acquire the title of a business owner not simply by starting a business from scratch but by buying an already existing company and growing it. Many entrepreneurs buy and sell multiple businesses during their careers. However, one of the biggest questions they face is what kind of business they should buy.
The construction industry is one in which hundreds of small businesses are created every year, with many businesses being bought and sold as well. If you are considering buying a construction business, it might be beneficial to buy a roofing business.
Read ahead to learn more about why buying a roofing business is a good idea, get some insights into how to value a roofing business, and what needs to be done when you sell your roofing business.
Is Buying a Roofing Business a Good Idea?
Many industries are experiencing growth during difficult economic times, and the construction industry is one such industry. As the world comes out of difficult economic times following the height of the Covid-19 pandemic, certain industries and businesses have shown incredible recession resilience, including roofing businesses.
Not only are roofing businesses recession resilient, but they usually have an established customer base in the area they operate in and provide a service that all homeowners require at one point or another. Roofing businesses do not rely on market trends or changes in fashion and styles. While it is true that different styles of roofs might be more in demand at times than others, the basic product and service are something that never goes out of demand. Every homeowner needs a sturdy and stable roof on their home, after all. And roof repairs will always be a priority for homeowners, especially when compared to other non-urgent expenses like getting cosmetic renovations done inside the home.
Finding a roofing company for sale is also very simple if you get in touch with a merger and acquisition firm that specializes in the construction industry and has relevant contacts.
However, one thing to consider when buying a roofing company is what type of company you want to buy. The roofing business is divided into two main parts: residential roofing and commercial roofing. Of course, residential and commercial roofing businesses have significant potential for customers, expansion, growth, and revenue. Some roofing businesses even manage to offer both residential and commercial roofing combined.
Overall, the best and quickest way to become a roofing contractor is to buy an existing roofing company rather than starting one from scratch. This gives you all the benefits of an already existing customer base, good management teams, trained and skilled roofing technicians, and a business that has a reputation in the area. Once you buy a roofing business, you can focus all your energy on growth and expansion.
If you are looking for a metal roofing business for sale or other kinds of roofing business for sale in Ontario, you can get in touch with N3 Business Advisors.
Understand How a Roofing Business is Valued
As the demand for roofing services grows and more and more roofing businesses are being bought and sold, it is important to understand how a roofing business is valued. A business valuation can play a significant role in the successful sale of that business.
When it comes to the value of a roofing business, valuation experts would consider many different factors before determining the real selling value. Some of these factors include the mix of residential and commercial work that the business does, how the business’s management is structured, the cash flows of the business, various roofing software the business uses, and so on.
To value a roofing business and obtain a proper business valuation is absolutely essential if you want to buy or sell a business at a fair market value. This is usually a selling price that both the buyer and seller can agree to, and that lends confidence to the buyer and seller to move forward with the sale.
Valuation experts can use different valuation multiples to determine a roofing business’s fair market value. Most commonly, there are three main valuation multiples that can be used to value roofing businesses and other businesses in the construction industry. These multiples are the SDE (seller’s discretionary earnings) multiple, the revenue multiple, and the EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple.
The SDE Multiple
Seller’s discretionary earnings are a common cash flow figure used when determining the value of a business. The amount is found by accounting for all of the business’s operating profits and adding in any expenses the new owner might not incur. When using the SDE multiple to value a roofing business, valuation experts many a times use an average SDE multiple ranging from 2x to 4x and apply that multiple to the seller’s discretionary earnings for a 12-month period.
SDE x Multiple = Business Value
So, for example if a roofing business makes $550,000 SDE, and the multiple used is 3.88x, then the value of the business is determined to be $2,134,000 ($550,000 x 3.88x).
The EBITDA Multiple
The EBITDA essentially measures what a business’s return on investment will be over time according to the business’s earnings before interest, taxes, depreciation, and amortization are subtracted from them. When using the EBITDA multiple to value a roofing business, valuation experts usually use an average EBITDA multiple ranging from 2.5x to 4.5x and apply that multiple to the seller’s earnings.
EBITDA X Multiple = Business Value
If we keep the business earnings the same as from the SDE multiple – $550,000 – and use a multiple of 2.47x, then the value of the business can be determined at $1,358,500 ($550,000 x 2.47x).
The Revenue Multiple
The revenue multiple is not used to determine the value of a roofing business in many instances because simply considering the revenue of a business does not take into account other important factors like business operation and other associated costs. However, if the revenue multiple is used, valuation experts usually use an average revenue multiple ranging from 0.33x to 0.51x and apply that multiple to the business’s revenue.
Revenue X Multiple = Business Value
If the roofing business’s revenue for a certain period of time is $550,000 and a multiple of 0.33x is used, then the value of the business can be determined at $181,500 ($550,000 x 0.33x).
Valuation experts will consider many factors relating to a roofing business before deciding which valuation multiple would be the most applicable. A valuation process is part of the due diligence when buying or selling a business and is carried out very thoroughly so that all parties involved in the sale of a business are satisfied.
Get in touch with N3 Business Advisors for professional valuation experts with construction industry experience.
How to Be Prepared When It Comes Time to Sell Your Roofing Business
After owning and running a roofing business for a certain period of time, many business entrepreneurs and owners decide to sell their businesses and move on to other ventures. If you are looking to sell your roofing business, it might be a good idea to get in touch with business advisors that can help you prepare your business for sale and list it on the market. N3 Business Advisors can help you in that regard.
Most business advisors would recommend that owners put in the work to properly prepare their businesses for sale so that they can maximize the value of their business and get the best possible deal. So, before you sell your roofing business, here are some of how you can prepare for the sale:
Work on Expanding Your Customer Base and Diversifying Revenue Streams
A strong and diverse customer base is extremely important for the growth and success of a roofing business. Not only should a roofing business have a significant amount of customers to work with, but the contracts that the business has also need to be considered. It is considered too high risk for a roofing business to have just a few customers with very large contracts. Instead, work to diversify your business’s customer base so that there is less risk if some contracts end or don’t pan out. This can also be a great way to diversify your business’s revenue streams and can help you sell your roofing business.
Keep Your Equipment Well Maintained
Roofing businesses rely heavily on buying new materials for every project as well as using different heavy equipment for their services, installations, and repair work. Because the equipment is such a significant asset for a roofing business, it is important to maintain the equipment properly and in the best condition.
Work on Training Your Roofing Technicians and Offer Opportunities for Qualifications
Potential buyers for your roofing business will be much more attracted to your business if your roofing technicians are already well-trained and qualified. With an excellent staff on board, you can also position a much higher asking price for your business. So, before you sell your roofing business, take the time to properly train your roofing technicians and offer them opportunities to pursue further qualifications in the field. Not only will this increase the appeal of your business when it comes time to sell, but it will help you increase customer satisfaction in the meantime and build a stronger reputation for your business.
Prepare Your Finances for Due Diligence and Valuation Processes
While buyers often prefer to carry out their own due diligence and valuation processes, it can be a big help if you have your finances prepared for those processes and can increase buyer confidence in your business. Before selling your roofing business, you should ideally have financial statements and tax records from at least the last five years ready for potential buyers to see. You may benefit from bringing in outside accountants and financial experts to help you with this process in case your finances are not ready to be reviewed by potential buyers.
N3 Business Advisors – Roofing Businesses for Sale Near Me
Are you interested in roofing businesses for sale? Or looking to buy a roofing business and make it your own? Then N3 Business Advisors can help you. We are mergers and acquisitions experts in the construction industry and help to facilitate the sales of construction businesses in BC, Alberta, Winnipeg or any other province within Canada.
No matter what business goal you want to achieve, be it business growth, preparing your business for sale, valuing your business, or merging with or acquiring another business, our experienced, qualified, and dedicated team is ready to assist you. We can also help you find roofing businesses for sale in Canada or value your roofing business.
Reach out to us now, and you can schedule a confidential consultation with our team. Call us at 647 967 4222 or visit our website if you have any questions or concerns.
N3 Business Advisors is based in Ontario, with our office at 55 Village Centre Place, Suite 200, Mississauga, ON L4Z 1V9.
