What is a flooring contractor worth?

A flooring contractor sells product and installs it, so the business is two things at once: a small distributor with inventory and supplier relationships, and a labour operation run through its crews. Two contractors with the same revenue can carry different risks, because the earnings may rest in different places. One owns its relationships with builders and has installers on payroll. The other leans on one supplier’s pricing and a few subcontractors who might leave. Understanding where your earnings come from, and how well you can document it, is the first step to understanding what a buyer will want to examine. This guide is written for an owner asking what the business is worth, and it stays with the mechanisms rather than numbers.

Where the earnings come from

Start by splitting revenue by who pays. Homeowner retail jobs, builder and general-contractor supply-and-install work, and commercial or multi-unit jobs behave differently. For repeat builder contracts, check who holds the relationship, how the work is awarded, and whether a change of ownership needs the builder’s consent. Retail work raises a different question: does the showroom bring people in, or does the owner’s name? Be ready to show revenue and gross margin by channel, not one blended number. Showing margin by channel makes any difference between builder and retail work visible, which one blended figure would hide.

Supplier terms are an asset only if they travel

Ask whether volume pricing or rebate programs contribute to your margin. They are agreements with a supplier. Whether a rebate tier survives a change of ownership is a question for the supplier, and the answer is in the agreement or in a conversation with the supplier’s representative. Terms nobody has confirmed cannot be relied on. If you are the seller, find out early what your suppliers will say, and keep the answers in writing. Also ask your accountant how any rebate paid to you as a lump sum should appear in a recast of earnings.

Crews: employees or contractors changes what is being bought

The Canada Revenue Agency describes an employee as generally working under the direction and control of the person who hired them, while a self-employed worker is free to choose how to carry out the contract and is not under that direction or control. For a flooring business, how installers are classified affects what is being bought, so ask your accountant what it means for your deal. Be ready to explain how installers are classified and whether that matches how the work is actually directed.

Stock and showroom: what gets discounted

The Canada Small Business Financing Program guidelines treat a sale as a going concern when the purchaser will carry on the business with the same assets, and they list equipment, leasehold improvements, inventory and client lists among them. Slow-moving stock, discontinued lines and sample libraries that no longer match what customers ask for are items to check, so have the stock list ready with age and last-sale date for each line.

Recasting earnings, and the owner’s part in them

Treat reported profit as a starting point. Owner pay above or below a market wage, personal costs run through the business, and one-off jobs may all change it, and each adjustment is an add-back that needs paper behind it. BDC notes that owners sometimes have a mistaken perception of their company’s value, and that a buyer may insist on a reduced price if the seller cuts all ties. In a trade where the owner quotes jobs and keeps the builder relationships, a written plan for handing those over is worth preparing before a sale.

Why two similar contractors price differently

Picture two contractors with the same sales. One sells mainly to builders under contracts it can show, has installers on payroll and holds supplier terms confirmed in writing. The other sells mainly to walk-in homeowners, depends on one subcontract crew and has only verbal supplier terms. The risks differ, even where reported profit matches. BDC lists earnings-based valuation methods, which use past results and forecasted cash flow or earnings, as one approach, so how well earnings are documented and how far they depend on the owner personally are worth working on. Customer mix, contract strength and owner dependence are each worth documenting before a sale.

• Revenue and gross margin split by retail, builder and commercial work, with the largest customers named
• Written supplier agreements and rebate statements, plus the supplier’s answer on whether terms continue
• A crew list showing who is an employee, who is a subcontractor and how each is paid
• Stock listing by age, with discontinued lines marked
• A documented recast of earnings, with each adjustment tied to a record