How much your painting business is worth depends on a few different variables. Some of the most significant are the size of your company and the composition of its revenue.
Two painting businesses with identical annual revenue can command significantly different sale prices. Let’s unpack why.
What is You Painting Company Worth?
There’s no single multiple that applies to every painting company. The commonly cited “one times revenue” figure describes a specific type of business, typically one with a heavy share of repeat commercial contracts. It doesn’t necessarily apply to a business built mainly on one-off jobs.
Valuation methods depend on the size and structure of the business:
- Smaller owner-operated businesses: Buyers often value these businesses using a multiple of seller’s discretionary earnings (SDE).
- Established businesses with management and employees in place: Buyers may look at either SDE or EBITDA, depending on how independently the business operates from the owner.
- Larger, more sophisticated operations: EBITDA is more commonly used when the company has a management team, consistent financial reporting, and less reliance on the owner.
The multiple itself can vary significantly depending on profitability, recurring revenue, customer concentration, growth, staffing, and how easily the business can continue operating after a sale.
Top Factors That Affect Painting Business Valuation
When a buyer knows your size, they start digging into the details that push your valuation up or down:
- Revenue Mix: Buyers price a repaint job that is a one-time sale and a contract that may renew year after year very differently. Even if the dollar amount looks the same.
- Staff Retention: W-2 painters who’ve stuck around are a good sign your business can run without you. High 1099 turnover might worry buyers.
- Estimating systems: Using industry software to price and run your jobs is a positive for buyers. If only you can quote a job, buyers will discount for that risk.
- Customer concentration: If one client is a third of your revenue, losing them changes the business overnight. Buyers see that as a risk.
- Defensible earnings: Every add-back needs a receipt. Buyers’ accountants will likely check.
Why Recurring Revenue is So Important
Recurring revenue is critical because it tells a buyer your income is more likely to continue after you leave.
For example, a repaint customer may not need another job for seven or eight years. But, a contract that renews annually could continue even after you sell. Buyers might pay more for that level of certainty.
New construction does the opposite. It generally pays less and swings with the housing market, and the customer belongs to the builder, not to you.
How to Prepare Your Painting Business for Sale
If you’ve got a year or two before you sell, use it. Here’s what to do with the time:
- Review your 1099 workforce. Make sure contractors are properly classified and consider moving important team members to W-2 employment where appropriate.
- Grow your property management contracts. A few new contracts over 18 months can turn you from a “repaint shop” into a business with dependable income.
- Adopt estimating software. Leverage tools that store and organize your pricing and job history.
- Get your books in order. Every add-back needs a receipt.
Of course, none of this happens in a weekend. It doesn’t need to, either. Start with one item on the list, and the rest tend to fall into place as you go.
By the time you’re ready to sell, you’ll have a business that appeals to serious buyers.
Selling Your Painting Company?
Looking to sell your painting company? Don’t go it alone. Our goal is to add to what you’ve spent time and energy building, not to erase it. If you want to learn more about the next step, reach out to our team. We’d love to hear about your business.