Most trade businesses sell for a multiple of what the owner takes home each year, after paying the bills but before paying themselves. The multiple goes up or down depending on how much the business depends on you, how steady the work is and how clean the books are. So two plumbing companies with the same sales can sell for very different prices.
A lot of owners have never asked the question at all. They've spent years building something and assume it'll be worth something when they're done, but they've never looked at it the way a buyer would.
What do buyers actually pay for?
Buyers pay for profit they believe will keep coming after you leave. That's the whole game. Anything that makes them more sure the money keeps coming raises the price, and anything that makes them nervous lowers it.
What makes a trade business worth more?
A few things come up over and over:
- It runs without you. If you're the one who answers the phone, prices every job and knows every customer, a buyer is really buying you, and you're leaving.
- The work is steady. Service agreements, maintenance plans and repeat customers are worth more than one big job every few months.
- The customers come from the business. If leads come from a website, a Google profile and reviews the business owns, they keep coming after the sale. If they come from your personal network, they leave with you.
- The books are clean. A buyer has to trust the numbers before they'll pay for them.
- No single customer is too big. If one contractor or property manager is half your work, that's a risk a buyer will price in.
Why it's worth knowing now
The things that raise the price take time to build, usually a few years. Owners who start thinking about it early get to build those things on their own schedule, and owners who wait until they want out usually have to take whatever the business is worth that day.
One thing to try this week
Look at your business the way a buyer would.
- Ask yourself what would happen to the calls and the work if you disappeared for a month.
- Look at where your last twenty customers came from, and how many came from you personally.
- Ask whether your books would make sense to a stranger.
If someone made you an offer today, would you know if it was a fair one?
Common questions
- How are small trade businesses valued?
- Most are valued as a multiple of what the owner takes home each year before paying themselves, and that multiple moves with risk.
- What makes a contractor business worth more?
- Running without the owner, steady repeat work, leads the business owns, clean books and no single customer that's too big.
- Why would two businesses with the same sales sell for different prices?
- Because buyers pay for profit they trust will keep coming. The one that depends less on the owner and has steadier work is worth more.