Quality of earnings and valuation for home services and trade businesses

A home services business looks simple on one page of QuickBooks and rarely is. Warranty work that pays less than it costs, technicians on payroll whose hours never bill, service agreements renewed by habit rather than collected, and a season that carries the entire year in two quarters. Each of these moves the earnings a buyer would actually inherit, and none of them is visible without going through the jobs themselves.

What is recurring, and what only looks like it

Buyers pay a premium for recurring revenue, so the first question is what genuinely recurs. A maintenance agreement sold once and never renewed is a one-off sale wearing a subscription's clothes. I separate contracted, auto-renewing agreement revenue from one-off service calls, test renewal rates and cohort retention from the records rather than the owner's recollection, and state plainly how much of the earnings base repeats. That single split usually moves the price more than any multiple negotiation.

The economics of a truck roll

Contribution per job is the unit of truth in the trades. Labour, parts, drive time and the rework a warranty call costs are laid against the revenue of that job type, by service line and crew. Installation may look like the growth engine while repair is the margin; emergency calls may carry the day while duct cleaning loses money quietly. The mix matters because a buyer is underwriting the mix they inherit, not the average.

Seasonality is not a rounding error

HVAC demand follows the weather, and appliance repair follows both the weather and the housing stock. A model that spreads earnings evenly across twelve months misstates the working capital a buyer needs in the slow quarters and the cash the busy ones generate. I model demand, staffing and cash monthly, with the trough visible, and test what happens in a mild summer or a warm winter rather than assuming the average year.

For buyers, sellers and lenders

A quality of earnings review here answers the questions a lender or buyer will ask: what earnings are sustainable, what the add-backs are really worth — owner compensation above market, vehicles, family on payroll — and whether cash conversion supports the debt service. For sellers, the same analysis prepared early means the buyer's adviser confirms your numbers instead of rebuilding them. Where a price needs defending or an estate or partner dispute needs a number, my business valuation work provides the defensible range behind it.