Exit Planning: Building a Marketable Home Service Company

73% of home service business owners want to sell their company someday. Only 20-30% of businesses that go to market actually sell.

The gap between wanting to exit and successfully exiting comes down to preparation. Most contractors think about selling when they’re burned out, when health issues force the conversation, or when a broker cold-calls with promises of big payouts. By then, it’s usually too late to fix the problems that make a business unsellable.

What buyers actually pay for

Private equity firms and strategic acquirers have made nearly 800 acquisitions in home services since 2022. They’ve developed a clear playbook for what they want, and they’re willing to pay premiums for businesses that check the right boxes.

EBITDA multiples for home service companies range from 3x to 8x, depending on size, growth rate, and quality of earnings. A $500,000 EBITDA business might sell for $1.5 million or $4 million depending on how it’s structured.

The difference usually comes down to five factors: recurring revenue, owner dependency, customer concentration, documented processes, and clean financials.

Recurring revenue commands premiums

Maintenance agreements and service contracts change the valuation conversation entirely. A roofing company that does $2 million in project work is worth less than an HVAC company doing $2 million with 40% coming from maintenance agreements.

Recurring revenue is predictable. Buyers can model it forward with confidence. They know those customers will generate revenue next year without new sales effort.

The math is straightforward. If you have 500 maintenance customers paying $200/year, that’s $100,000 in predictable annual revenue. At a 5x multiple, those agreements alone are worth $500,000 in enterprise value.

Companies with strong recurring revenue sell for 1-2x higher multiples than project-based businesses in the same industry. A plumbing company with 30% recurring revenue might get 5x EBITDA while a comparable company with no recurring revenue gets 3.5x.

Owner dependency kills deals

Buyers want to acquire a business, not a job. If the company falls apart when the owner takes a two-week vacation, the business isn’t actually sellable.

The question every buyer asks: what happens to revenue if this owner leaves?

If you’re the one answering every service call, meeting with every big customer, and making every hiring decision, the business can’t function without you. That’s a job with employees, not a company.

The contractors who command premium multiples have built businesses where they work less than 10 hours per week on day-to-day operations. They have managers who run the shop, technicians who handle customers without oversight, and systems that keep everything moving.

This takes years to build. Start delegating now, even if it feels inefficient at first.

Customer concentration is a red flag

If your top customer represents more than 15% of revenue, buyers see risk. If your top 5 customers represent more than 40%, that’s a serious problem.

One commercial HVAC contractor had a $3 million business with 60% of revenue coming from two property management companies. When he tried to sell, buyers discounted the business heavily because losing either relationship would be catastrophic.

Diversification matters. A residential business with 2,000 customers where no single customer represents more than 0.5% of revenue is far more valuable than a commercial business with 20 accounts.

If you’re concentrated now, you have time to fix it. Add residential work. Expand into new service areas. Reduce dependency on any single relationship.

The financials that matter

Buyers do diligence. They will find the problems you hoped they wouldn’t notice.

Clean books are non-negotiable

Running personal expenses through the business, mixing cash and credit transactions, or keeping sloppy records might save you money in the short term. It will cost you hundreds of thousands when you try to sell.

Buyers want to see GAAP-compliant financials, ideally reviewed or audited by a CPA. They want three years of clean books minimum. They want to understand exactly what they’re buying.

The adjustments that owners think will help often hurt. “Add-backs” for personal vehicles, family salaries, or one-time expenses get scrutinized heavily. Buyers discount aggressive add-backs because they’ve been burned before.

If your books are messy, hire a bookkeeper now. Get a CPA involved. Clean up the last three years even if it costs money. The alternative is losing the deal or taking a massive haircut on valuation.

Profit margins signal operational quality

Gross margins for home service companies typically run 40-60% depending on the trade. Net margins of 10-20% are healthy. Below 10% raises questions.

Buyers compare your margins to industry benchmarks. If your gross margin is 35% when competitors run 50%, they’ll assume you have pricing problems, efficiency issues, or cost structures that need fixing.

High margins tell buyers the business is well-run. They suggest pricing power, operational efficiency, and room to grow.

Growth trajectory affects multiples

A business growing 15% annually commands higher multiples than one that’s flat or declining. Buyers pay for future potential, not just current performance.

Consistent growth over 3-5 years is more valuable than a single good year. Volatile revenue patterns make buyers nervous because they suggest the business depends on factors outside management control.

If you’re flat, figure out what’s limiting growth before you go to market. Geographic expansion, new service lines, or better marketing can change the trajectory.

Documenting what makes the business work

The contractors who struggle to sell usually have everything in their head. Pricing formulas, supplier relationships, hiring criteria, customer preferences. Nothing written down.

Buyers need to understand how the business operates without the owner. That requires documentation.

Standard operating procedures

Every repeatable process should be written down. How to handle a service call from intake to completion. How to price a job. How to hire and train a new technician. How to handle a customer complaint.

This documentation serves two purposes. It shows buyers the business can run without you, and it actually helps the business run without you while you’re still there.

Organizational charts with clear roles

Who reports to whom? What does each role do? Where are the gaps?

Many contractors have people wearing multiple hats with no clear boundaries. That works when you’re small, but it scares buyers who need to understand the structure they’re acquiring.

Customer and vendor relationships

Document your key relationships. Who are the important customers? What suppliers do you depend on? Are there contracts in place or just handshake deals?

Buyers want to know these relationships will survive the transition. Written contracts help. Long histories help. Concentration in any single relationship hurts.

Timeline for exit preparation

The best exits take 3-5 years to prepare. Trying to sell quickly usually means accepting a lower price or failing to sell at all.

Years 3-5 before sale

Build recurring revenue. Start maintenance agreement programs. Push customers toward annual contracts. Get the percentage of predictable revenue as high as possible.

Reduce owner dependency. Hire your first manager. Delegate decisions you’ve always made yourself. Take a month off and see what breaks.

Clean up financials. Get a good bookkeeper. Start working with a CPA. Make sure the books are GAAP-compliant and defensible.

Years 1-2 before sale

Document everything. Write the SOPs. Create the org chart. Formalize the relationships.

Maximize profitability. Cut unnecessary expenses. Optimize pricing. Show buyers the margins they can expect.

Build the growth story. Create a plan for how the business grows post-acquisition. Buyers pay for potential, and you need to articulate what that potential looks like.

Final year

Engage advisors. Business brokers, M&A attorneys, and CPAs who specialize in exits can make a massive difference. Their fees pay for themselves in higher valuations.

Prepare for diligence. Gather every document buyers might request. Financials, contracts, employee records, customer lists, insurance policies. Having everything ready signals professionalism and reduces deal friction.

Stay focused. The business needs to perform during the sale process. Revenue drops or operational problems during diligence give buyers leverage to renegotiate.

What kills deals

Most failed sales come down to a few common problems.

Unrealistic expectations top the list. Owners often think their business is worth more than the market will pay. A good broker will give you a realistic range before you go to market.

Messy financials come second. Buyers who can’t understand the numbers walk away. Add-backs that seem reasonable to you often look aggressive to buyers who’ve seen sellers try to inflate earnings.

Owner dependency is third. If the buyer can’t see how the business works without you, they can’t pay full price for it.

Customer concentration, key employee risk, and legal or regulatory issues round out the list. Any of these can derail a deal or significantly reduce the price.

Making the business more sellable makes it better to run

Everything that makes a home service company more valuable to buyers also makes it better to own right now.

Recurring revenue creates predictable cash flow. Documented processes let you take vacations. Reduced owner dependency means you’re not working 60-hour weeks. Clean financials give you clarity on performance.

Even if you never sell, building toward exit readiness builds a better business. The metrics buyers care about are the same metrics that indicate a healthy, well-run company.

Start the work now. The owners who get premium exits are the ones who prepared years in advance, not the ones who decided to sell and hoped for the best.