Understanding Your Value
These terms determine what your business is worth. Know these before any other conversation.
The total economic benefit your business generates for you as the owner each year — your profit, your salary, and any personal expenses run through the business.
The formula: Net profit + Owner compensation + Add-backs = SDE
SDE is the single number a buyer uses to value your business. Everything else — the trucks, the customers, the reputation — gets captured in the multiple they apply to this number. Getting this number right and documented is the most important preparation you can do before any sale conversation.
Expenses that a buyer would not incur after acquiring your business — personal costs and one-time items that get added back to increase your stated profit.
Common add-backs include: Owner's salary, personal vehicle, cell phone, health insurance premiums, one-time legal fees, owner's family members on payroll, personal meals or travel.
Most owner-operated businesses understate their true profitability because owners legitimately run personal expenses through the company. Add-backs allow you to show a buyer what the business actually generates. This is not hiding income — a good buyer expects to see these and will work through them honestly.
Earnings Before Interest, Taxes, Depreciation and Amortization — a standard profitability measure used for larger companies. For small owner-operated businesses, SDE is almost always the right metric.
EBITDA does not capture your owner's compensation. For a business your size, this creates a dramatically misleading number.
The number a buyer multiplies by your SDE to arrive at a purchase price. For home service businesses in the NYC metro, the standard range is 2.5x to 4x.
The multiple is not fixed — it reflects how attractive your business is to a buyer. Understanding what moves your multiple is the most valuable knowledge you can have before entering a sale.
What moves it up: Recurring contracts, trained crew, geographic territory depth, clean books, commercial accounts, long customer tenure, revenue above $800K.
What moves it down: Owner dependency, revenue concentrated in one or two clients, declining revenue, undocumented cash, aging fleet.
The intangible value of your business above its physical assets — your reputation, customer relationships, name recognition, Google reviews, and years of community trust.
For a home service business, goodwill is often the largest component of the sale price. The trucks and tools have a replacement cost. But the fact that 400 families in Smithtown have called your number for fifteen years — that takes a decade to build and can't be bought on the open market. A buyer who understands this will pay for it. A buyer who only wants the assets will not.
The physical property of the business — vehicles, equipment, tools, inventory, computers, office furniture — valued at fair market value.
Tangible assets are typically included in the sale price and valued separately from the business multiple. Late-model trucks and current diagnostic equipment are worth more than aging ones — but they do not replace the value of a strong customer base and trained crew. A great truck fleet on a business with no recurring customers is not a great business.
The most recent 12 months of financial performance, regardless of where they fall on the calendar year.
Buyers focus on TTM because it's the most current picture of what the business is actually doing right now. If your best year was two years ago and this year is flat, that affects the conversation. If this is your strongest year on record, TTM works in your favor. Know where you stand before you start any discussion.
When a significant percentage of revenue comes from one or two clients. As a rule, if any single customer represents more than 20–25% of revenue, that's a concentration risk.
If that customer leaves after the sale, a large piece of the revenue leaves with them. The more diversified your customer base — dozens of reliable customers rather than two or three big ones — the more defensible your revenue appears to a buyer. Especially relevant for businesses with commercial accounts.
The degree to which the business depends on you personally to function — the most common valuation discount for home service businesses.
A buyer is not buying a job — they're buying a business that can operate without you. If customers call your cell phone directly, if you're the only licensed person, if you're the one who knows where everything is — that gets priced into the offer.
The good news: this is addressable before you sell. Building up a lead technician, standardizing your processes, and stepping back slightly from daily operations — even in the year before a sale — can move your valuation meaningfully.
Starting the Conversation
Terms you'll encounter before any numbers are exchanged.
A legally binding agreement where the buyer commits to keeping everything about your business — financials, customers, employees — strictly confidential.
Any serious buyer signs an NDA before you share financials. At Legacy Trade Holdings, confidentiality is not just a document — it's a practice. Your employees don't find out. Your customers don't find out. Nothing changes until you decide it does.
A business broker markets your business to buyers and takes a commission (typically 8–12% of sale price). A direct buyer acquires without a broker or commission.
On a $700,000 sale, an 8% broker commission is $56,000 that comes directly out of your proceeds. Beyond cost, a broker lists your business publicly — meaning employees, customers, and competitors may learn you're selling. A direct buyer works confidentially with no listing and no commission. The tradeoff is working with one buyer rather than a competitive process.
An accounting analysis verifying that the profits reported are real, sustainable, and not the result of one-time events or accounting maneuvers.
A QoE is not an accusation — it's a verification step. The cleaner your books, the faster and less expensive this process is. Three years of tax returns that tell a consistent, coherent story are your best preparation.
The Offer
Terms in the Letter of Intent and deal structure.
A document from the buyer outlining the proposed deal — price range, deal structure, key terms, and timeline. Most provisions are non-binding, but exclusivity and confidentiality clauses typically are binding.
The LOI is a framework, not the final deal. You are not legally obligated to close once you sign an LOI — but you are typically obligated to stop talking to other buyers during the exclusivity period. Read carefully, especially the exclusivity window length and any representations you're making.
In an asset sale, the buyer purchases specific assets. In a stock sale, the buyer purchases ownership shares, inheriting all assets and liabilities.
The vast majority of small business acquisitions — including home service businesses — are structured as asset sales. This protects the buyer from inheriting unknown liabilities. It has tax implications for you as the seller that your accountant should review before you sign anything.
A portion of the purchase price contingent on the business hitting performance targets after the sale closes — typically over one to three years.
Earnouts sound good in theory but in practice are a frequent source of conflict. Disputes over whether targets were hit — and whether the new owner's management decisions affected performance — are common. They are often used to bridge a valuation gap when buyer and seller can't agree on price.
When you agree to accept a portion of the purchase price over time rather than all at closing — essentially acting as the lender for part of the deal.
Seller financing can make a deal possible and sometimes results in a higher total price. But it creates real risk: if the business struggles under new ownership, your payments may stop. If you accept seller financing, ensure the interest rate reflects the risk, the term is reasonable (3–5 years maximum), and the amount doesn't represent the majority of your proceeds.
A portion of the purchase price (typically 5–10%) held by a neutral third party for 12–18 months after closing to cover any claims from representations made by the seller.
A holdback is standard in most deals — it's not a sign of distrust. If no claims arise, you receive the full amount at the end of the holdback period. Make sure the release conditions are specific and the escrow agent is truly neutral.
The cash and short-term assets needed to run the business day-to-day — current assets minus current liabilities.
Many deals include a working capital requirement — the buyer expects a certain amount of working capital to be included at closing. Make sure you understand exactly what's being included and what the baseline target is before you agree to any working capital provision.
Due Diligence to Close
What happens after the LOI is signed.
The buyer's formal investigation of everything you've represented about the business — financials, legal history, contracts, employees, equipment, licenses.
Due diligence is not an interrogation — it's the buyer verifying what you've told them. The cleaner your records, the faster and less stressful this process is. Typical requests include three years of tax returns, bank statements, a customer list, key contracts, employee records, and equipment documentation.
Formal, legally binding statements you make about the business as part of the purchase agreement — that financials are accurate, there are no hidden liabilities, contracts are in good standing.
Be honest and thorough in everything you disclose. If there's a known issue — a pending matter, a contract up for renewal, equipment that needs replacing — disclose it proactively. Surprises in due diligence kill deals and create liability.
A clause prohibiting you from starting or working for a competing business in the same geography for a defined period after the sale — typically two to five years.
Non-competes are standard and expected. What's not standard: overly broad geographic restrictions, excessively long timeframes, or language that prevents you from working in your trade at all. Read the scope carefully and negotiate anything that feels unreasonable.
A defined period after closing — typically three months to two years — during which you remain involved to transfer knowledge and ensure continuity for employees and customers.
A well-structured transition is one of the best things you can do for your team and your customers. It's not a sign of dependence — it's stewardship. Most owners who've been through a good acquisition say this period gave them peace of mind that the business was in good hands. Compensation for this period should be clearly defined in the purchase agreement.
A provision in the LOI that prohibits you from speaking with other potential buyers — typically for 30 to 90 days — while the buyer completes due diligence.
Exclusivity is reasonable — a buyer investing in due diligence deserves to know you won't accept a competing offer mid-process. But it should be limited and clearly defined. If due diligence drags on past the exclusivity window, you should be free to resume conversations with other interested parties.
Buyer Type Dictionary
Not all buyers are the same. This may be the most important section in the glossary.
A company that acquires businesses to integrate them into an existing operation — typically a competitor or adjacent business in the same industry.
Strategic buyers sometimes pay higher prices because they see specific synergies. But they also tend to consolidate — combining operations, eliminating redundancies, and often rebranding. Your employees, your name, and your way of doing things are most at risk in a strategic acquisition.
An investment firm that raises capital from outside investors and deploys it into acquisitions with a mandate to generate returns — typically by selling acquired businesses within three to seven years.
Private equity firms buy businesses to sell them. The exit is built into the model from day one. Between acquisition and exit, every decision is oriented toward making the business look attractive to the next buyer — which often means cutting costs, standardizing operations, and consolidating brands. Your name, your crew, and the relationships you built may not survive the transition.
A company that acquires businesses to hold and operate them indefinitely — not to flip or consolidate under a platform. This is what Legacy Trade Holdings is.
We don't have outside investors on a three-year return timeline. We acquire businesses because we intend to run them — which means we're invested in protecting what you built rather than extracting value from it. The name stays on the truck. The crew stays. The customer relationships stay. The incentive structure is fundamentally different from private equity.
A strategy where a buyer acquires multiple businesses in the same industry, combines them under one brand, and sells the combined entity at a premium multiple.
Roll-ups can offer attractive headline prices, but the business you've spent twenty years building gets absorbed and loses its identity. Your name comes off the truck. Your customers start dealing with a call center. Your technicians become interchangeable labor.
A vehicle funded by investors to support an individual in finding, acquiring, and operating a single small business — often a first-time business owner.
Search fund buyers are often serious and well-capitalized. The key question is whether they have real experience managing a trades business — crews, licensing, service schedules, seasonal demand. Operational competence matters as much as capital when evaluating any buyer.
Call us at (800) 930-1701 or email contact@legacytradeholdings.com — we'll add it and explain it in plain English.