How buyers value a trades business

There are three numbers in it and two adjustments. Any broker who makes this sound complicated is selling you the explanation. Here is the whole method, including the multiples we use and the parts we deliberately leave out.

Step one, the earnings a buyer is buying

Not revenue. Buyers price the profit that is left before the owner takes anything out, which in a business this size is called seller’s discretionary earnings. Start with the profit on your return, then add back what a new owner would not spend.

Your own wage and draws

A buyer will pay someone to do your job, or do it themselves. Either way it is their decision, not a cost of the business, so it goes back in.

Your family on the payroll

Only where the role would not be replaced. A spouse who genuinely runs dispatch is a real cost and stays out.

The truck that is really yours

Personal vehicle, personal phone, personal travel. Add back what the business paid for that a new owner would not.

One-off costs that will not repeat

A lawsuit settled, a failed software rollout, the flood in the yard. Documented and genuinely one-off, or a buyer will not allow it.

One rule governs all of it: a buyer allows an add-back you can evidence and refuses one you cannot. If it is not on a statement, a return or an invoice, it is not in the number.

Step two, the multiple for your trade

These are the ranges we apply, before either adjustment. HVAC and mechanical sit at the top because the work is contracted and non-optional. Roofing and landscaping sit lower because more of the revenue has to be won again every season.

Step three, the two adjustments

Size of the earnings

Under $250K of earnings we take 0.3x off the bottom and 0.5x off the top, because the pool of buyers is thinner and more of them are buying a job. Over $1M we add 0.3x and 0.4x, because funded buyers compete for businesses that size.

Years trading

At 15 years or more we add 0.2x to the top: you have traded through a downturn and the customer base has proved it stays. Under 5 years we take 0.2x and 0.3x off, because there is not yet evidence that the revenue repeats.

The whole thing, worked through

A plumbing business in Tennessee, 16 years trading, with $1.9M of revenue, $360K of profit before the owner’s pay, and $140K paid to the owner.

Earnings a buyer prices: $360K
Plumbing multiple, before adjustment: 2.4x–3.9x
Size adjustment: None, earnings are between $250K and $1M
Track record adjustment: Top of range up 0.2x, 16 years trading
Multiple applied: 2.4x–4.1x

$860K–$1.5M

Rounded to the nearest $10K, because a range pretending to be exact to the dollar is a range pretending. Note what did not appear anywhere in that arithmetic: the $1.9M of revenue. It set which of our price bands applies to the buyer, and nothing else.

What is deliberately not in the number

Your pipeline of unsigned quotes. A buyer pays for signed work, not hoped-for work.
Equipment valued separately on top. In a multiple of earnings the trucks are already assumed, because you needed them to earn that profit.
Goodwill as a separate line. It is not added on; it is the reason the multiple is above one.
Revenue growth you expect next year. If it has not happened, the buyer prices what has.
Any adjustment for how much you personally need. Buyers are unmoved by the number you need to retire on.

And the honest limit of all of it: this is a range, not an appraisal. It is the arithmetic a buyer starts from. What you are actually offered depends on the six things below, and on how many buyers know you are for sale.

What moves you inside the range

Revenue that repeats without being sold again

Service agreements, contracted maintenance, retainers. This is the single biggest lever between the bottom and the top of the range.

Whether the phone rings for the business or for you

Calls that come from the name, the reviews and the trucks transfer. Calls that come because it is you do not.

Who holds the licence

If the qualifying licence leaves with you, the buyer has a problem to solve before they can trade. It is answerable, but answer it early.

Customer concentration

One general contractor at a third of revenue is a discount or an earn-out. Spread is worth money.

The crew

Long-tenured, licensed technicians are installed capacity in a market where nobody can hire. A crew that turns over annually is a cost.

Clean books

Three years of returns that agree with the bank statements. Every hour a buyer spends unpicking your numbers comes off their offer.

Run it on your own numbers

Six questions, the same arithmetic, and the range on the next screen. We do not ask for an email address to show it to you, and it costs nothing at any point.

Show me my range

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