How home service businesses are valued

Why owners should understand valuation early

Many owners think about value only when a buyer calls. By then the numbers that matter, three years of financial statements, the share of revenue that recurs and how much the business depends on the owner, are already fixed. Understanding how buyers think lets you build value deliberately while you still run the company.

The market is full of small companies. In 2023, 58.3% of US plumbing, heating and air-conditioning contractor establishments had fewer than five employees, and 70.6% of landscaping establishments did^[2]. Buyers can choose among many firms, so the ones that stand out are those that will keep running smoothly after the owner steps back. Longevity also matters: only 34.6% of US private establishments opened in March 2015 were still operating ten years later^[3], and a long, steady record is itself a sign of a durable business.

The two earnings measures buyers use

Seller's discretionary earnings (SDE) is used for smaller, owner-operated companies. It starts with net profit before tax and adds back the owner's entire salary and benefits, interest, depreciation and personal or one-time expenses. It shows what one owner-operator would earn from the business. Buyers of small companies, often individuals who will run the business themselves, think in SDE.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is used for larger companies with a management team. It adds back interest, taxes, depreciation, amortization and genuinely one-time or personal items, but it keeps a market-rate salary for the general manager role. Private equity groups and strategic acquirers think in adjusted EBITDA.

Add-backs: what buyers accept and what they challenge

• Usually accepted: owner's personal vehicle and phone run through the business, a one-time legal settlement, a documented software migration, family members on payroll who do not work in the business.
• Often challenged: 'one-time' costs that recur every year, marketing spend the owner claims was unnecessary, below-market rent paid to an owner who also owns the building.
• Never accepted without proof: cash revenue not recorded in the books. If it is not in the tax returns, it does not exist for the buyer or their lender.
• Sometimes deducted: a below-market wage paid to a key manager, which a buyer will have to raise, or deferred truck replacements, which the buyer will have to fund.

Keep a running add-back schedule with receipts and explanations each year. Reconstructing it at sale time is slower and less convincing.

Multiples: what the public data show

Value is earnings multiplied by a number that reflects risk and growth. Data for large listed US companies show the range by sector: in January 2026, enterprise value was 17.18 times EBITDA for engineering and construction firms with positive earnings, 15.61 times for environmental and waste services, 14.26 times for business and consumer services, 11.61 times for building materials and 8.92 times for homebuilders^[1].

Local home service companies do not trade at those levels. Listed companies are large, diversified and their shares can be sold any day; a local company depends on a small team and a few key people, and its owner cannot sell a share on an exchange. Expect the multiple for a small company to be a fraction of the public figure. The useful lesson from the data is the direction: buyers pay more for steady, recurring service revenue than for project-based work tied to housing cycles.

What raises and lowers the multiple

Lead flow deserves particular attention. Buyers want to see that demand is repeatable and measured: how many calls come in, how many are answered, how many become booked jobs and at what value. Our guide to the service call funnel shows how to measure each stage, and the data become part of what you hand a buyer.

Example: SDE versus EBITDA for one company

Example (fictional): a pest control company has revenue of $2.1 million and net profit before tax of $240,000. The owner pays himself $150,000 including benefits, and the books include $60,000 of depreciation and interest plus $25,000 of documented personal and one-time expenses.

Example SDE: $240,000 + $150,000 + $60,000 + $25,000 = $475,000. That is what a single owner-operator buyer would see as their earnings.

Example adjusted EBITDA: a larger buyer will hire a general manager at $110,000 including benefits, so it adds back the owner's $150,000 but deducts the manager's cost: $240,000 + $150,000 − $110,000 + $60,000 + $25,000 = $365,000. The difference between the two measures is the cost of replacing the owner, which is exactly why owner dependence matters so much.

Example implication: if 60% of revenue comes from recurring quarterly service plans with high renewal, both kinds of buyer will apply a higher multiple than they would to a company doing mostly one-off treatments. The same earnings can produce very different prices.

Preparing two to three years ahead

1. 01

   Clean up the books

   Move to accrual reporting, close every month and separate personal spending completely. Our bookkeeping guide and guide to reading financial statements cover the basics.

2. 02

   Build recurring revenue

   Grow maintenance agreements, route-based service or commercial contracts, and track retention.

3. 03

   Step back from daily operations

   Hire or develop a manager, document processes and let others handle sales and dispatch.

4. 04

   Keep the team

   Retention plans for key techs, written pay plans, and licenses held by more than one person.

5. 05

   Diversify customers and services

   Reduce reliance on any single account. A thoughtful checklist for adding a service line helps here.

6. 06

   Get an independent valuation

   A business appraiser or an adviser who knows your trade can give a baseline and show which levers move it most.

What buyers ask for in due diligence

Once a buyer is serious, they will ask for documents that test every number in your summary. Having them ready shortens the process and protects the price, because gaps found late are used to renegotiate.

• Three years of tax returns, monthly P&Ls and balance sheets, and the current year to date, all reconciling with each other.
• Revenue by service line, by customer and by month, so the buyer can test seasonality and concentration.
• A list of maintenance agreements or recurring accounts with start dates, renewal history and price.
• Payroll records, pay plans, tenure and licenses for each employee, and any employment agreements.
• A fleet and equipment list with age, mileage, condition and any loans or leases attached.
• Call and lead data: volumes by source, answer rates, booking rates and average ticket.
• Insurance policies, claims history, permits, any open warranty obligations and any disputes.

Terms can matter as much as price

Two offers with the same headline price can be worth very different amounts. Cash at closing is worth more than a seller note paid over several years, and both are worth more than an earnout that depends on future results you no longer control. A working capital target, which sets how much receivables and inventory must be left in the business, can move the real price significantly. Ask your adviser to translate every offer into what you actually receive, when, and under what conditions, before comparing them.

Who buys, and how that changes the price

Individual buyers, often using SBA-backed loans, look at SDE and need the business to cover their loan payments and a living. Strategic buyers, other home service companies, value cost savings and route overlap and may pay more for a company next to their own territory. Private equity groups buy a larger platform company and then add smaller ones to it, valuing adjusted EBITDA and growth. Each buyer type values the same company differently. Our guide to private equity in home services explains platform and add-on deals, earnouts and rollover equity.

Demand for the underlying work supports interest in the sector. US households spent an average of $12,472 on home projects in 2025, up from $12,050 in 2024^[4]. Whatever the buyer type, the strongest negotiating position comes from having a business that does not need to be sold, because it runs well and profitably as it is.