What is your roofing company really worth?

By The Coffee Shops®. 

The importance of understanding EBITDA when managing your long-term business plan.

Taking a step back from your roofing business, whether that’s in preparation of a sale or just to get you a bit closer to eventual retirement, can be complicated. Not only does it involve training and trusting others to fill roles you have previously taken care of, but it also often comes with the need to assess the organization of your company.

As you look into the logistics of your company, one question often comes up – what is all this actually worth? And knowing the answer to this question is about more than just sating your curiosity, it is an important part of planning for the future, whatever that may look like.  

Evaluating with EBITDA 

Many roofing business owners focus on revenue growth, but revenue alone doesn't tell the whole story. Buyers want to understand how efficiently a company generates profit and cash flow. According to Exit Stage Left Advisors, one of the most common ways buyers evaluate the profitability of a company's core operations is through EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation and Amortization. 

EBITDA helps remove variables such as financing decisions, tax structures and accounting methods so potential buyers can get a clearer picture of operational performance. Having a strong EBITDA evaluation demonstrates: 

• Consistent profitability 
• Efficient operations 
• Strong management practices 
• Sustainable cash flow 
• An attractive acquisition opportunity 

EBITDA doesn’t act alone 

To be clear, EBITDA isn’t the end all or be all of business value. Other factors that impact business valuation include:  

• Diversity of customer accounts 
• Strength of the management team 
• Commercial versus residential revenue mix 
• Geographic market position 
• Service and maintenance programs 
• Safety record and operational systems 
• Dependence on a single owner for sales and operations 

The true value of a company  

According to Exit Stage Left Advisors, ooking at all these marketplace factors in combination with formulas like EBITDA ultimately decides what a business is worth. How can you set your business up for success with this in mind?  

The first step is to start early. Even if you're not looking to sell today, advisors recommend starting the conversation years in advance so you have time to improve profitability, strengthen operations and address issues that could negatively impact value. What might this look like?  

• Improving profit margins 
• Documenting processes and procedures 
• Reducing owner dependence 
• Investing in management development 
• Building recurring service revenue 
• Maintaining clean financial records 

Overall, you want to make sure your company has strong processes, recurring revenue streams and management teams that can operate independently as this both generates interest if you want to sell but also simply builds a stronger company for tomorrow. 

Want a start at valuing your company? Try Exit Stage Left Advisors' free market valuation tool!