How to buy a restoration business: where deals come from, what to check, and how to pay for it

Part of the Restoration guide: buying, selling, valuation and who is buying.

This guide is for a first-time buyer who wants to know how to buy a restoration business. That means a company that cleans up after water, fire, smoke, mold and storm damage. By the end you will know where these deals come from, what to check, how to pay for one, and which problems should make you walk away.

Restoration is a good business to own, but it is not simple. The work comes in emergencies. Much of it is paid by insurance companies. A large share of the jobs can come from a few referral sources. A buyer who understands those three facts will pay the right price. A buyer who does not may pay for a business that only works because of the owner's phone list.

What exactly are you buying in a restoration business?

You are buying a way to get called when something goes wrong, and a crew that can respond fast. The trucks and drying equipment matter less than that.

Most restoration companies do some mix of these jobs:

• Water mitigation. Pulling out water and drying the building after a burst pipe, a leak or a flood. This is often the most profitable work.
• Fire and smoke. Cleaning, odor removal and contents cleaning.
• Mold remediation. Removing mold and fixing the cause.
• Reconstruction. Rebuilding drywall, floors and cabinets after mitigation. This brings more revenue, but it works like general contracting and usually earns less per dollar.
• Storm work. Big jobs after hurricanes, hail or freezes. It can be large, but it does not happen every year.

Ask the seller for revenue and gross profit split by each type. Two companies with the same revenue can be very different businesses. One may be mostly mitigation with repeat referrals. The other may be mostly rebuild work from one storm.

Where do restoration businesses for sale come from?

Deals come from two pools, and good buyers work both.

Listed deals. These are businesses on public marketplaces and with business brokers. They are easy to find, but many other buyers see them too. At Acquisitions.com our AI scans 15+ business-for-sale marketplaces every day and screens each listing against the client's buy box. The client only sees the ones that fit.

Off-market deals. These are owners who have not listed but would sell. You reach them through brokers and advisors you know, and through your own letters and calls. Restoration owners often know each other through trade groups and insurance networks, so word of mouth works.

Some restoration companies are franchises of national brands. If you buy one, the franchisor usually has to approve you. It may charge a transfer fee and require training. Read the franchise agreement early. It controls your territory, your fees and what happens when the agreement ends.

Before you look at listings, write a buy box: the location, size, minimum earnings and type of work you want. It lets you say no fast. Our restoration hub explains who else is buying in this sector, so you know who you are competing with.

What should you check in the numbers?

Sign the NDA, then ask for three years of tax returns, profit and loss statements and the job list. Then check these things in order:

1. Owner's earnings. Small restoration companies are usually priced on SDE. That is profit plus the owner's pay and perks. Test every add-back. Our guide to SDE shows how.
2. Revenue by year. One storm year can make a company look twice its normal size. Ask which jobs were storm or catastrophe work and take them out to see the normal year.
3. Accounts receivable. Insurance-paid jobs can take a long time to collect. Ask for an aging report that shows how old each unpaid invoice is. Old invoices may never be paid in full.
4. Gross margin by job type. Mitigation and rebuild should be tracked apart. If the seller cannot split them, the books are weak.
5. Tax returns versus the P&L. They should agree. If they do not, value the business on the tax return.
6. Working capital. Because insurers pay late, the business needs cash to run payroll while it waits. Agree in the letter of intent how much cash and receivables stay with the business.

For a deal of any real size, pay for a quality of earnings report. In restoration, the person doing it should test collections, not just revenue.

How do insurance work and referral sources change the risk?

The biggest question in any restoration deal is simple: who sends the jobs, and will they keep sending them after the owner leaves?

Jobs usually come from a few places:

• Plumbers, insurance agents and property managers who call the owner when a client has a loss.
• Insurance carrier and third-party programs that hand out jobs to approved contractors. They come with price lists and rules.
• Commercial accounts such as apartment owners, hotels or schools, sometimes under a contract.
• Online search and ads, which the company owns and can keep after a sale.

Ask for revenue by referral source for each of the last three years. If one program or one property manager sends more than a quarter of the jobs, that is customer concentration. Our guide to customer concentration shows how to measure it.

Then ask how each source is tied to the business. A carrier program may need to approve the new owner. A plumber may send jobs because he golfs with the seller. Many buyers find that the safest referral sources are the ones written into a contract or held by the company's own marketing. The ones held by the owner's personal friendships are the weakest.

Which licences and certifications matter?

Licences in restoration are held by people and by companies, and many are not transferable. Check each one before closing.

• IICRC certifications. Many insurers and programs expect certified technicians. The IICRC says its Water Damage Restoration Technician certification shows an understanding of "water damage, its effects, and techniques for drying structures." Ask who on the team holds which certifications. Also ask whether they will stay.
• State contractor licences. Reconstruction work usually needs a contractor's licence. Rules differ by state. Check the state licensing board.
• Mold licences. Some states license mold assessment and remediation on their own. Check yours.
• Lead and asbestos rules. Work in older buildings can fall under federal EPA lead-safe rules and state asbestos rules. Ask how the company handles testing.
• Insurance. General liability, pollution liability, workers' comp and vehicle coverage. Ask for the claims history.

If the owner is the only person holding the key licence or certification, plan how to replace them before you sign. Many buyers keep the seller on for a set time or hire a licensed manager before closing. Ask a lawyer how licence rules work in your state.

How do you finance a restoration business with an SBA loan?

Most buyers combine three sources: an SBA loan, a seller note and investor or personal money.

Restoration has one finance trap: working capital. Insurers can be slow to pay, so the business may need a cushion to make payroll in a busy month. Ask your lender to include working capital in the loan or plan to bring it yourself. Do not spend every dollar on the purchase price.

Lenders will look at whether the earnings cover the loan payments with room to spare. They will discount storm years. Show them a normal year.

Acquisitions.com is an advisory firm, not a lender. We introduce buyers to third-party lenders and investors.

What are the red flags when buying a restoration business?

Most problems can be solved with price or structure. A few should make you walk away. Here is how to tell them apart.

Walk away from fraud, unpaid payroll taxes, or open safety problems the seller will not explain. Structure cannot fix honesty problems.

What happens in the first 90 days after closing?

Keep everything that brings in jobs. Call each referral source and each program contact with the seller in the room. Keep the phone number, the website and the trucks' branding. Keep the night and weekend on-call rotation running, since losses do not happen on schedule.

Change little at first. Learn how jobs are estimated, documented and billed. In restoration, clean photo notes and moisture readings are what get insurers to pay. Once you know the business, look at where office time is spent on paperwork. That is where software and AI can save the most. Our guide to AI after an acquisition covers how to do that without upsetting the team.

Over ten years of advising buyers and sellers, I have seen first-year results depend more on the handover than on the price. Write the seller's transition period into the purchase agreement.