Many floor installation companies are receiving excellent valuations and selling at or above fair market value. This guide is for floor installation company owners who are contemplating (or planning) their exit strategy.
About The Floor Installation Industry
The floor installation industry involves the supply and installation of floor tile, carpeting, linoleum, and hardwood flooring. In addition to new installation, this industry also includes restoration, repair, and maintenance services. The most recent floor installation industry numbers and projections are as follows:
- There are approximately 119,000 floor installation companies in the U.S.
- There was a 1.9% annual growth for the floor installation industry from 2018 to 2023
- The floor installation industry generates $27.9 billion in annual revenue
- The annual profit for the floor installation industry is $1.6 billion
- Experts predict a slight increase in annual growth (0.3%) from 2023 to 2028
New construction properties have powered the industry over the past five years. As mortgage rates climb, the floor installation industry may begin to stabilize with minor growth over the next five years. This leads to an ideal time for many owners to sell as valuations are higher than they may be in the coming years.
About The Carpet and Floor Covering Industry
The carpet and floor covering industry has grown substantially over the past five years (3.1% annualized rate). However, it is expected to expect a downturn of -1.4% over the next five years to 2028. Carpet and floor covering companies generally sell for 20% of their annual sales plus inventory.
Business Valuation for Your Floor Installation Company
For a market approach business valuation, your broker will need to determine your earnings before interest, taxes, depreciation, and amortization (EBITDA) and seller’s discretionary earnings (SDE). Of course, other factors such as your location, growth potential, reputation, and reason for selling may also factor into your valuation. Your EBITDA and SDE are applied to the following rule of thumb data for floor installation companies:
- Floor installation companies sold between 1.54 and 2.30 times the Seller’s Discretionary Earnings (SDE)
- Floor installation companies sold between 2.39 and 5.41 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Floor installation companies sold for approximately 0.35 times the annual net sales
6-Stage Sales Process for Floor Installation Companies
Your broker should establish a clear and concise process before you sell your floor installation company. This reduces the risk of setbacks and helps ensure you sell for fair market value. Although a personalized strategy is recommended, the stages of the sales process for floor installation companies typically include:
- The Valuation Stage
- The Preparation Stage
- Find a Buyer Stage
- The Negotiation Stage
- The Due Diligence Stage
- The Closing Stage
The Valuation Stage
We strongly recommend receiving a market approach business valuation (see above) from a professional business broker. This reveals your fair market value (FMV), which is the amount that is considered reasonable to buy your floor installation company.
Your valuation is of the utmost importance as it determines your sales goals and overall strategy. For instance, if you are not entirely satisfied with your current valuation, then it may be a good idea to wait for a more opportune time to sell. In the meantime, you can take steps to improve your valuation. In other instances, the seller may benefit more from going to market right away.
The Preparation Stage
The preparation stage involves setting your exit strategy goals, timeline, and strategy. Additionally, you should also collect all documents that are necessary during the sales process. This helps avoid setbacks and deals that fall through. Notably, you should collect your legal, financial, and operational documents. This includes your tax returns, P&L statements, list of employees, list of your inventory (and its value), and a copy of your insurance policy.
The Find a Buyer Stage
Marketing is often a challenging stage in the sales process, particularly if you attempt selling without professional assistance. This is because it is essential to maintain confidentiality; you are not leveraging public advertising and marketing methods the way you would with other sales. Instead, you will utilize private channels. The good news is your business broker should handle the marketing process for you by utilizing their access to private databases, networks, and contacts, ensuring you are able to maintain confidentiality. Your broker will also assist with the negotiations and contingency planning processes as well (see below).
The Negotiation Stage
The negotiation stage can become an intense process that requires professionalism and experience. A qualified and experienced business broker can help ensure the process goes smoothly and in a manner that allows you to best reach your exit strategy goals. As mentioned, contingencies may also be established during this stage as well. Ultimately, once the terms of the purchase agreement are established, this stage ends with a signed letter of intent (LOI).
The Due Diligence Stage
The due diligence process takes place after a signed letter of intent (LOI) and before the purchase agreement is signed. This is a necessary part of the process and allows the buyer an opportunity to confirm your company’s information that was provided throughout the marketing and negotiations stages. During this process, you (the seller) will need to provide the buyer with access to legal and financial documents (for verification purposes), answers to questions they have, and an opportunity to tour your facility and daily operations (if necessary).
The Closing Stage
The closing stage involves a review of the purchase agreement, attaining final signatures, and the completion of the payment. Additionally, you will need to transfer full ownership of the company to the buyer. This may involve providing access to all facilities and online systems, notifying employees, and updating legal information and insurance policies.
Reach Out to an Experienced Business Broker for Assistance
Are you selling a floor installation company? If so, then contact the business brokerage team at Sigma Mergers and Acquisitions. With over 600 businesses successfully sold and direct experience within the floor installation industry, we can help ensure you receive fair market value for your company.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!