Every CIM leads with the same three numbers: adjusted EBITDA, a multiple, and an asking price. Buyers spend their energy arguing about the multiple. The EBITDA usually gets taken as given.
In the trades that’s backwards. The multiple is a negotiation. The EBITDA is a claim, and in most small trades companies it comes out of books nobody ever kept for a buyer. The owner isn’t hiding anything. He’s never had a reason to keep them any other way.
The math is why it matters. At four times earnings, every $100,000 of EBITDA that isn’t there is $400,000 of price paid for nothing. So before the multiple, rebuild the number. These are the six places it moves most often.
01Revenue that was billed, not earned
On a project business, what the customer has been billed and what the company has earned are two different numbers. A lot of smaller contractors book revenue when they send the invoice. If they billed ahead of the work — invoiced 80% of a job that’s 50% built — the P&L shows revenue and profit on work that hasn’t been done. The cost to finish it hasn’t landed yet. It lands after closing, on the new owner.
The WIP schedule is where that shows. It lists every open job with contract value, cost to date, estimated cost to complete, and billed to date. Compare billed to earned and you get the over- or under-billing on each job. For EBITDA, what matters is the change during the year. If the books recognize revenue as it’s billed and net over-billing grew by $200,000, the year’s revenue and its profit are overstated by about $200,000. That profit was pulled forward from next year, and next year belongs to the buyer.
Ask for
WIP schedules at the last two year-ends and the latest month-end, plus the balance sheet from the same dates. They should tie. If there’s no WIP schedule, the margins in the CIM are an estimate.
02The owner is four jobs, not one salary
The standard add-back goes like this: the owner paid himself $300,000, a general manager would cost less, so add back the difference. Some CIMs add back all of it.
Then look at what the owner does all week. In a trades company he’s often the estimator, the lead salesman, the person the top customers call, the name on the license, and the one who drives out when a job goes sideways. After closing, you’re replacing every one of those jobs, not just his title.
Price the replacements at market — a general manager, an estimator, maybe a service manager, with payroll taxes and benefits — and take that out of the add-back. If the plan is for the buyer to do all of it personally, that can work. Just know the EBITDA then includes the buyer’s own salary.
Ask for
A list of what the owner does in a normal week and who does each piece when he’s on vacation. Then the add-back schedule, line by line.
03Costs the seller carries personally
Trucks titled to the owner. A shop rented from the owner’s real estate company at a friendly rate. Equipment bought personally and never charged to the business. A spouse who runs the office for no salary. Each one keeps a real cost off the P&L, and every one of them shows up the Monday after closing.
The fix is mechanical: market rent on the building, market lease payments on anything that isn’t transferring, and a real wage for every job someone is doing for free.
Ask for
The fixed asset list with whose name is on each title, every lease that involves the owner or a related company, and a list of everyone who works in the business, paid or not.
04Wages that are behind the market
An owner getting ready to sell has every reason to hold the line on wages. EBITDA looks better, and the crew has stuck around this long. But the owner is often the reason they stuck around. When he leaves, a key tech a few dollars an hour under market is either a raise you give in the first ninety days or a truck that’s parked by month four.
Put the raise in the model now, where it lowers the price, instead of after closing, where it lowers your return.
Ask for
The payroll register with tenure and wage by person. Compare field wages against what competitors in the same market are posting for the same jobs.
05Trucks and equipment EBITDA never sees
EBITDA leaves out depreciation. That’s a reasonable shortcut for a software company and a misleading one for a business that runs on trucks, lifts, and machines. Replacing the fleet is a recurring cost of staying in business, whether or not it shows up above the EBITDA line.
Watch for the owner who stopped replacing trucks a couple of years before the sale. EBITDA went up and the fleet got older, and the buyer gets both. Compare capital spending by year against what it takes to keep the fleet where it is today. The shortfall is a cost that was pushed onto you.
Ask for
Capital spending by year for five years, and the fleet list with year, miles or hours, and condition.
06Work that comes back after the job closes
Callbacks and warranty work show up after the job is closed and the revenue is booked. Most small trades companies don’t set money aside for them; the cost lands in whatever year the truck rolls back out. If installs grew fast in the last two years, the callbacks on those installs are coming, and they’ll arrive on the buyer’s watch.
Ask for
The callback or warranty log for two years, with cost per visit if they track it, and the warranty terms the company sells.
What the six look like on one page
Here’s how those adjustments stack up on a made-up company. The numbers are invented to show the mechanics — this is not a real deal — but every line is a kind of adjustment that turns up on real ones.
| Line | Amount |
|---|---|
| Adjusted EBITDA in the CIM | $1,200,000 |
| Net over-billing grew during the year — revenue billed ahead of the work | ($210,000) |
| Owner’s jobs replaced at market: general manager and estimator, net of the owner add-back | ($140,000) |
| Shop rented from the seller, brought to market rent | ($36,000) |
| Four trucks titled to the seller, replaced with market leases | ($42,000) |
| Key techs brought to market wage | ($54,000) |
| Callbacks on the last two years of installs | ($18,000) |
| What the business earns under a new owner | $700,000 |
At a $4.8 million ask, the price is 4.0 times the CIM’s number and 6.9 times what the business earns once someone else owns it.
None of this means walk. Most of these companies are real businesses with real customers and crews. It means the price and structure should be built on $700,000, not $1.2 million — or, if the seller insists on the higher number, on terms that protect you if he’s wrong: part of the price deferred, tied to results, or held back until the numbers prove out.
And even the right EBITDA isn’t cash
One more, because it catches buyers who got everything above right. Retainage — usually 5 to 10 percent of each progress bill, held back until the job is finished — is money the company has earned and can’t spend yet. Over-billed jobs have already collected cash for work you still have to do. And a seasonal company can make its whole year in five months and spend the other seven paying for it.
All three land in the working-capital peg, which decides whether you close on a company or an empty bank account with trucks. It’s question 10 on our checklist.
Before you argue about the multiple
- Tie the WIP schedule to the balance sheet before you trust the revenue.
- Price every job the owner does, not just his salary.
- Put market rent and market lease payments on anything the seller owns.
- Bring key wages to market in the model, not after closing.
- Compare five years of capital spending to what the fleet needs.
- Ask what callbacks cost, and how many installs are still under warranty.
Where we come in
A Deal Screen does this in 48 hours.
Tell us about the deal and we’ll read it the way an operator reads it: red flags, a sanity check on the EBITDA and the price, the questions to send this seller, and a straight go/no-go. $1,250 flat, back within 48 hours of getting the documents.