Valuing a Restoration and Remediation Business
Let’s face it: the restoration and remediation business is tough, and your daily grind is a lot to keep up with. From panicked customers to soggy carpeting, you have a lot on your plate each day.
If you have been thinking about selling and are wondering “How much is my restoration and remediation business worth,” then now is the time to figure it out.
Although it can sound confusing, there are really only two elements to consider when it comes to the valuation of a restoration and remediation company. The first is the cash flow, and the second is the multiple of that cash flow that a buyer is willing to pay.
Follow the Money
Surely you have heard the phrase “cash is king” and that is definitely an integral factor when you are dealing with how to value a restoration and remediation company. Some people enter a business ownership for the tax help it gives them, or have other ancillary reasons for doing so. You also might be worried about the EBITDA, the adjusted EBITDA, the SDE (Seller’s Discretionary Earnings, or the add-backs. But if you simply focus on the cash flow, you can more easily value your business.
“How much is my restoration and remediation business worth?” is a question you should be asking yourself.
Peruse the following chart so that you have a better understanding of how to answer it.
Regular Expenses
- Owner compensation
- Money for other family members
- Insurance coverage (medical) for owner or family
- Insurance, gas, monthly payment for vehicles for owner or family
- Entertainment, travel, and meals not 100% related to business
- Phone expenses
- Club dues (country, golf, etc.)
Infrequent Revenue and Expenses
REVENUE ITEMS
- PPP or EIDL loans
- Sale of asset
EXPENSE ITEMS
- Expenses from bad debt
- Legal fees, consulting fees, accounting fees
- Major improvements or repairs
- Purchases for the businesses
- Insurance claim losses that are unreimbursed
- Other major expenses
Watching Cash Flow Grow
If you are trying to figure out the valuation of a restoration and remediation business, calculate the cash flow, and then figure out the multiples of the cash flow the buyer is willing to pay. When it comes to your restoration and remediation business, the buyer will pay two times, four times, six times etc. of the expressed cash flow.
First Things First
If you are calculating the restoration and remediation valuation, relate the adjusted cash flow to the size. And obviously this means that the higher the cash flow, the higher the multiples.
- Under $500k free cash flow – 2x-4x / Valuation range $500k – $2m
- $500k-$1m free cash flow – 3x-5x / Valuation range $1.5m – $5m
- $1m-$2.5m free cash flow – 4x-6x / Valuation range $4m – $15m
- $2.5-$10m free cash flow – 6x-10x / Valuation range $15m – $100m
- $10m-$25m free cash flow- 10x-20x / Valuation range $100m – $250m
- $25m+ free cash flow – 25x+ / Valuation range $600m+
It might surprise you to learn that cash flow is also related to how long it will take the buyer to pay off the purchase price. For instance, two times the cash flow will take two years to pay off, four times will take four years, and so on.
Another important tenet is that buyers like stability. They will often pay higher multiples when a business is more stable. There is usually less volatility when the business is larger, because of the increased options for revenue, the chance at a wider geographic reach, and obviously more customers from which to choose. The multiple is increased when the cash flow is.
secondary variables
Consider secondary variables that will affect the restoration and remediation valuation as well. These have a lot of influence on the way your business is viewed.
- New Construction (the lower the better – aim for less than 20%)
- Maintenance Contracts (the more contracts the better – 20% increase is strong)
- Growth of the Revenue (number grows each year- 20% increase is strong)
- Reputation Management via Marketing (based on star rating and Google reviews)
- Generation of Leads (sustainable and frequent lead generation desired)
- Technician Crew (the more crew the better, with more than ten being advisable)
- Integration of Technology for Workflow (ServiceTitan or HouseCall Pro is a plus)
- Ability to Work Independently From Owner (Less owner involvement is good. If the owner can step away for a few weeks it is great. )
How much is my restoration and remediation business worth?
At this point you might be asking “How much is my restoration and remediation business worth?” In order to figure this out, simply multiply the free cash flow by the multiples to determine your restoration and remediation valuation. And don’t forget that your business will need to be debt free when you go to sell it, and that is something you as the owner will need to take care of. Also, establish an agreed upon amount of capital to have in the company’s account so both buyer and seller are satisfied. Finally, realize that there are a lot of taxes and fees that go into the sale of a business and you can expect to net 70-75% of the profits from the sale.
Why Work With Brentwood Growth
Access to Buyers
Over 400 private equity firms and consolidators that are actively looking to purchase.
Confidentiality
Ensure the sale of your business remains confidential to avoid disruptions for you.
Industry Expertise
More than 20 acquisitions with transactions from $80 million with an average of $4 million.
Valuation
Learn the value of your business and receive support with pricing to the market.
Negotiation
As your mediator, we work with you and the buyers to make sure both parties are satisfied.
Experience
Lead by a team with 75+ years of experience. Our experience ensures a smooth experience.
Do You Know What Your Business is Worth?
© 2023 Brentwood Growth Corp. All rights reserved. Website by BeiBay