How do I get my roofing company ready to sell?

Most of what a buyer pays for is decided before they ever see your company. This checklist to prepare a roofing company for sale is built for owners doing $1M to $15M a year. Print it, work through it with your office manager and your CPA, and tick items off over the next year or two.

You won't finish every item before a sale, and buyers don't expect you to. Each item you document is one less thing a buyer can use to lower the price or drag out due diligence. This is general information, not legal or tax advice.

How to use this checklist

Start a shared folder today and call it your data room. Every time you finish an item, drop the document in. When a buyer sends a diligence request list, most of it will already be there.

Work through the groups in order if you can. Financials come first, because every other conversation depends on them. How far out you are decides what to focus on:

Contracting Business advises starting work on your exit at least three years before you want to sell. The selling a roofing company timeline shows how the steps line up.

The checklist

Financials

• Three to five years of financial statements and tax returns, and make sure they agree with each other
• Monthly profit and loss statements for at least the last two years
• Accrual-basis books, or a CPA-prepared accrual version alongside your cash books. Lutz notes that buyers often require accrual reporting, especially for commercial work billed on percentage of completion
• Revenue split by type: insurance and storm, retail reroof, commercial, new construction, repair and service
• Job costing reports showing gross margin by job type
• A list of add-backs with proof for each one (use the roofing add-backs checklist and the add-back finder)
• Storm years flagged, with a version of your earnings that strips out the storm bump
• Personal spending moved out of the business going forward
• Accounts receivable aging, including insurance supplements still owed
• Customer deposits and work in progress tracked, so working capital can be measured
• A debt schedule: equipment loans, lines of credit and owner loans, with payoff amounts

Operations

• Written steps for how a job moves from lead to estimate to contract to install to final invoice
• A CRM or job management system with lead source, close rate and job history, not just your phone
• A production schedule and backlog report with signed contract values
• A written safety program, with training records and OSHA logs if you keep them
• Supplier accounts and any pricing agreements listed
• Office processes (permits, material orders, supplement filing) written down so someone else could do them
• A plan for seasonality: how you carry cash through slow months without owner loans

People, crews and subs

• An org chart showing who does what, including you
• A production manager or lead foreman who can run jobs without you
• An estimator or salesperson who can close work without you
• A crew list with roles, tenure and pay
• Subcontractor agreements in writing, with current certificates of insurance for every crew
• Worker classification (W-2 versus 1099) reviewed with your CPA or attorney
• Workers' comp history and experience mod, if you have one
• Key employees identified, and a retention plan discussed with your advisor
• Family members on payroll listed with their real roles and market-rate pay

Legal and licenses

• Formation papers, operating agreement or bylaws, and ownership records
• Contractor licenses listed by state and city, with the qualifying person named on each
• A written answer from each licensing board on what happens on a change of ownership or qualifier
• Manufacturer certifications listed, and whether each is tied to you or to the company
• Insurance policies (general liability, auto, workers' comp, umbrella) and claims history
• Bonding capacity and your surety relationship
• Any lawsuits, liens, disputes or regulatory issues, past and present
• A record of how insurance claims are handled: no deductible waiving, and no assignment of benefits on Florida policies where it is barred
• Shop or yard lease, and whether it can be assigned to a buyer
• If you own the real estate personally, a decision on whether to sell it or lease it to the buyer
• An attorney and CPA chosen before you sign any letter of intent

Customers and contracts

• Revenue by customer for the last three years
• Top 10 customers and each one's share of revenue, counting a GC, property manager or builder as one customer
• Written agreements with GCs, property managers and HOAs where you can get them
• Service and maintenance agreements listed with renewal dates
• Any contracts that need customer consent to transfer to a new owner
• Online reviews checked, with a plan for any problems
• Lead sources documented, especially if most work comes through you personally

Trucks and equipment

• A list of trucks, trailers, lifts, conveyors and tools with year and condition
• Titles in the company's name, or a plan to transfer any in your name
• Fleet maintenance records
• A list of anything that will need replacing in the next two years
• Personal vehicles and equipment separated from business assets
• Leased equipment listed with terms and buyout amounts

Warranties and workmanship

• All manufacturer warranties registered, with a list by job
• Your workmanship warranty terms written down, with how long each runs
• A callback log for the last three years, including the cost of each callback
• Open warranty claims and disputes listed
• Any large or unusual claims explained in writing
• A plan for who covers past warranty work after the sale (your attorney will negotiate this)

Why the license line matters so much

If the roofing license is in your name only, the company may not be able to keep working once you leave. The rules differ by state:

Getting a manager licensed before you sell is one of the clearest fixes on this list. State notes for Texas, Florida, California and Illinois go further.

The items that move the price most

If you only have time for a few, these usually matter most to roofing buyers (the roofing value drivers page ranks them in more detail):

1. Clean, accrual-based financials that match your tax returns
2. Revenue split by type, with storm years flagged. Chisel Industries says storm revenue is valued at 0.5x to 0.7x the retail multiple
3. Someone other than you who sells and runs production. Take the owner dependence test to see where you stand
4. Licenses and certifications that can transfer or be replaced
5. A clear callback and warranty history

To see which of these is costing you the most, get your free estimate. It shows an illustrative range and the top three value drags. It takes about 5 minutes and asks for an email on the last step so we can send your result.

Common mistakes

• Cutting needed spending to pump up this year's profit. Buyers look at three years and will see the dip in maintenance or marketing.
• Starting a big expansion you can't finish before a sale. Half-built branches look like risk.
• Calling a recurring cost "one-time." Storm canvassing every spring is a cost of doing business.
• Telling the whole team. Keep it to the people who need to know.
• Signing a broker agreement or LOI before your attorney reads it.
• Ignoring old claim practices. Covering deductibles is a crime in Texas under Business and Commerce Code 27.02. Stop now and ask an attorney about past jobs.

Questions to ask your CPA, attorney or broker

1. Do my statements need to be compiled, reviewed or audited for the buyers I'm likely to meet?
2. Can you prepare an accrual version of my last three years?
3. Which of my add-backs will hold up, and what proof do I need for each?
4. Are any of my subs at risk of being treated as employees?
5. What happens to my license and qualifier in each state I work in, and how long does a new qualifier take?
6. Which of my contracts and leases need consent to transfer?
7. Should I keep or sell the building, and what rent is market?
8. What retention plan would keep my key people through a sale?

Sources

1. Contracting Business, The 12 Essential Steps for a Profitable Contracting Exit Strategy, Part I
2. Lutz, What Buyers Look For When Purchasing a Roofing Business
3. California CSLB, Change in Personnel
4. Florida Statutes 489.119
5. Illinois Roofing Industry Licensing Act (225 ILCS 335)
6. Roofing Contractors Association of Texas, Licensing program
7. Chisel Industries, How to sell a roofing business
8. Texas Business and Commerce Code 27.02