Resources

The primary valuation metric for home services businesses. SDE = EBIT + Owner's Total Compensation + Add-backs. It represents the economic benefit available to a full-time owner-operator.

Earnings Before Interest, Taxes, Depreciation, and Amortization. Used for larger businesses. Typically lower than SDE because it excludes owner's compensation.

Revenue from maintenance agreements, service contracts, and repeat customers that is predictable and on-going. Commands higher multiples than one-time project revenue.

A measure of how efficiently a service business's technicians can move through their service area. Higher route density = lower drive time = more billable hours per day.

The percentage of total revenue derived from a single customer or a small group of customers. High concentration is a risk factor that buyers scrutinize and that reduces value.

The percentage of service calls that result in a return visit to address the same issue. High callback rates indicate quality or training problems that affect profitability and reputation.

A legally binding agreement that prohibits a prospective buyer from disclosing or using confidential information obtained during the due diligence process.

A preliminary agreement outlining the basic terms of a proposed transaction. Serves as the foundation for the more detailed Asset Purchase Agreement or Stock Purchase Agreement.

The definitive legal document that governs the sale of a business's assets (equipment, fleet, customer relationships, goodwill, etc.) rather than the equity of the entity itself.

The amount of working capital (cash, accounts receivable, inventory minus current liabilities) that is included in the transaction price and verified at closing.

A contingent payment to the seller based on post-closing performance metrics (revenue, EBITDA, etc.). Used when the buyer and seller disagree on the business's future trajectory.

Representations and Warranties Insurance. A policy that protects the buyer against losses arising from breaches of seller's representations in the purchase agreement.

A portion of the purchase price withheld by the buyer at closing to cover potential claims, adjustments, or other contingencies that may arise post-closing.

A Small Business Administration loan program that provides government-backed financing for business acquisitions. Most home services acquisitions qualify with 10-20% down.

The buyer's comprehensive investigation of a target business, including financial review, operational analysis, legal examination, and physical inspection of assets.