Deal Structure Guide · Kitchen & Bath Remodeling

How to Structure a Kitchen & Bath Remodeling Business Acquisition

From SBA 7(a) loans to earnouts and seller equity rollovers — a practical guide to deal structures for buying a residential remodeling company generating $1M–$5M in revenue.

Kitchen and bath remodeling businesses are among the most acquisition-friendly businesses in the residential home services space. They are SBA-eligible, generate strong EBITDA margins of 15–25%, and trade at 3x–5.5x EBITDA in the lower middle market. However, because revenue is project-based, owner-dependent, and often lumpy, deal structures in this sector rarely involve a simple all-cash close. Buyers and sellers instead use layered financing — combining SBA 7(a) debt, seller notes, and performance-based earnouts — to bridge valuation gaps caused by subcontractor retention risk, revenue concentration, and owner dependency. Understanding which structure fits your situation is the first step to closing a deal that works for both sides.

Find Kitchen & Bath Remodeling Businesses For Sale

SBA 7(a) Loan with Seller Note

The most common structure for acquiring a kitchen and bath remodeling business. The buyer secures an SBA 7(a) loan covering up to 80–90% of the purchase price, contributes 10–20% in equity, and the seller carries a subordinated note to fill any gap between the loan amount and the agreed purchase price. The seller note is typically on standby for 24 months per SBA guidelines.

SBA loan: 75–80% | Buyer equity: 10–15% | Seller note: 5–10%

Pros

Minimizes buyer cash out-of-pocket to 10–20% of purchase price, preserving working capital for post-close operations and project float
SBA loans offer 10-year terms at competitive rates, keeping monthly debt service manageable relative to business cash flow
Seller note signals seller confidence in the business and aligns incentives during the transition period

Cons

SBA underwriting requires 3 years of clean business tax returns and personal financial statements, which can be a bottleneck if seller financials are inconsistent or project-based accounting is messy
Seller note is subordinated and on standby, meaning the seller receives no principal payments in the first 24 months, which some sellers resist
SBA loan approval timelines of 60–90 days can slow deal momentum, particularly for seasonal remodeling businesses with time-sensitive backlogs

Best for: First-time entrepreneurial buyers and owner-operators acquiring a remodeling business with at least 3 years of documented financials, consistent EBITDA, and an asking price under $5M.

Asset Purchase with Revenue or Gross Profit Earnout

The buyer acquires the business assets — client list, project backlog, subcontractor agreements, equipment, and brand — and pays a base price at close with an additional earnout tied to revenue or gross profit achieved over the first 12–24 months post-close. This structure is commonly used when the business is heavily owner-dependent or when revenue quality is difficult to verify at the time of sale.

Base purchase price at close: 70–80% | Earnout over 12–24 months: 20–30%

Pros

Reduces buyer's upfront risk when subcontractor loyalty, referral network continuity, or backlog conversion is uncertain post-close
Aligns seller incentives to support a successful transition since a portion of their proceeds depends on post-close business performance
Allows both parties to agree on a valuation range rather than a single fixed number, bridging gaps caused by inconsistent historical revenue

Cons

Earnout disputes are common if revenue or gross profit definitions, accounting methodologies, or buyer operational decisions affect the metrics used to calculate payment
Sellers often view earnouts skeptically because they must trust the buyer to operate the business in a way that gives the earnout a fair chance of being achieved
Structuring earnouts around project-based revenue is complex — large kitchen and bath projects can shift between periods, creating timing disputes

Best for: Acquisitions where the seller is the primary salesperson or design relationship holder, or where the last 12 months of revenue includes unusual spikes or declines that make a clean trailing twelve months EBITDA calculation unreliable.

Seller Equity Rollover

The seller retains 10–20% ownership in the business post-close, either in the acquiring entity or in a newly formed holding company. This structure is especially attractive to PE-backed roll-up acquirers building a regional home services platform. The seller participates in the upside of the combined business and remains engaged in operations, design relationships, and subcontractor management during the transition.

Cash and debt at close: 80–90% | Seller equity rollover: 10–20%

Pros

Retains the seller's institutional knowledge, subcontractor relationships, and referral network in a structured way that reduces post-close revenue atrophy
Creates a second liquidity event for the seller when the platform is eventually sold or recapitalized, often at a higher multiple than the initial transaction
Signals buyer confidence in the business's long-term growth prospects and reduces the adversarial dynamic common in earnout negotiations

Cons

Sellers seeking a clean exit — particularly retiring owner-operators — often resist retaining equity and the ongoing obligations it implies
Minority equity positions are illiquid and the seller has limited control over when and at what price the second liquidity event will occur
Requires clear shareholder agreements defining seller's role, compensation, decision-making authority, and drag-along or tag-along rights to avoid future disputes

Best for: Acquisitions by PE-backed home services consolidators or regional roll-up platforms where the seller's ongoing involvement in client relationships and subcontractor management is critical to maintaining revenue in the 12–24 months post-close.

Sample Deal Structures

Retiring Owner, Clean Financials, Established Referral Network

$2,100,000

SBA 7(a) loan: $1,680,000 (80%) | Buyer equity: $315,000 (15%) | Seller note: $105,000 (5%)

SBA loan at prevailing rate (WSJ Prime + 2.75%) over 10 years. Seller note at 6% interest over 5 years, on 24-month SBA standby with interest accruing. Seller provides 90-day post-close transition support covering designer referral introductions, subcontractor introductions, and client handoff meetings. No earnout required given clean 3-year financials and diversified referral sources.

Owner-Dependent Business, Revenue Concentration Risk

$1,750,000 base + up to $350,000 earnout

SBA 7(a) loan: $1,400,000 (80% of base) | Buyer equity: $262,500 (15% of base) | Seller note: $87,500 (5% of base) | Earnout: up to $350,000 over 24 months

Earnout calculated as 15% of gross profit above a $900,000 annual threshold for two post-close years. Gross profit defined per closing balance sheet accounting methodology. Seller remains engaged as a paid design consultant at $8,000/month for 18 months to support client relationship continuity. Seller note subordinated per SBA requirements with 24-month standby on principal.

PE Roll-Up Platform Acquiring Regional Remodeler

$3,800,000

Equity from acquiring platform: $2,660,000 (70%) | Seller equity rollover: $760,000 (20%) | Seller note: $380,000 (10%)

Seller retains 20% equity stake in the newly formed regional platform entity valued at closing price. Seller note at 7% over 4 years, not subordinated to institutional debt. Seller signs a 3-year employment agreement as VP of Design and Client Relations at market compensation. Shareholder agreement includes tag-along rights giving seller liquidity at the platform's next recapitalization or exit event, expected in 4–6 years.

Negotiation Tips for Kitchen & Bath Remodeling Deals

1Normalize EBITDA before anchoring your offer — kitchen and bath remodeling owners routinely run personal vehicles, family payroll, and owner compensation well above market through the business. Build a detailed add-back schedule and agree on a normalized EBITDA figure before debating multiples to avoid late-stage valuation disputes.
2Tie earnout metrics to gross profit, not revenue — project-based remodeling revenue is easy to manipulate through billing timing on large kitchen or bath jobs. Gross profit earnouts tied to completed and invoiced projects better reflect the actual economics of what you are acquiring and are harder to dispute.
3Request a subcontractor retention agreement as a closing condition — before finalizing deal terms, meet with the top 3–5 subcontractors who generate the majority of the seller's project capacity. Confirm their willingness to continue working under new ownership and, where possible, execute preferred vendor agreements prior to close.
4Negotiate a deposit liability and work-in-progress schedule at close — kitchen and bath remodelers routinely hold customer deposits for projects not yet started or completed. Clarify which party retains these liabilities, how they are reflected in the closing balance sheet, and whether a working capital adjustment applies.
5Build a transition support period into the deal structure, not just the LOI — a vague handshake agreement for the seller to 'help with the transition' is insufficient. Define a specific number of hours per week, duration, compensation structure, and the specific introductions the seller is responsible for making to designers, realtors, and key repeat clients.
6Stress-test the seller's referral network before closing — ask for a breakdown of revenue by lead source for each of the last 3 years. If more than 30–40% of revenue traces back to a single interior designer, real estate agent, or luxury builder relationship, price that concentration risk into the deal structure through a lower base price or a larger earnout tied to retention of that revenue source.

Find Kitchen & Bath Remodeling Businesses For Sale

Pre-screened targets ready for your deal structure — free to join.

Get Deal Flow

Frequently Asked Questions

What EBITDA multiple should I expect to pay for a kitchen and bath remodeling business?

Most kitchen and bath remodeling businesses in the $1M–$5M revenue range trade at 3x–5.5x EBITDA. Businesses at the lower end of the range typically have significant owner dependency, inconsistent financials, or heavy revenue concentration. Businesses commanding 5x or higher typically have diversified referral networks, documented project management systems, clean accrual-based financials, and minimal owner involvement in day-to-day sales and operations.

Can I use an SBA 7(a) loan to buy a kitchen and bath remodeling company?

Yes. Kitchen and bath remodeling businesses are SBA-eligible and are a common use case for SBA 7(a) acquisition loans. The SBA will typically finance up to 90% of the purchase price for qualified buyers, with the buyer contributing 10% equity. The business must have at least 3 years of tax returns showing sufficient cash flow to service the debt, and the seller is often required to carry a subordinated seller note representing 5–10% of the purchase price.

What is a seller note and why is it common in remodeling business acquisitions?

A seller note is a form of seller financing where the seller accepts a portion of the purchase price as a promissory note paid out over time, rather than cash at closing. In remodeling acquisitions, seller notes are used to bridge the gap between the SBA loan amount and the agreed purchase price. They also serve as a risk-sharing mechanism — if the business underperforms post-close, the buyer has leverage to renegotiate the note rather than defaulting on a bank loan.

How does an earnout work in a remodeling business acquisition and when does it make sense?

An earnout is a contingent payment tied to the business's performance after the sale closes. In kitchen and bath remodeling acquisitions, earnouts are used when the seller's asking price exceeds what the buyer can justify based on historical financials — often because revenue is lumpy, owner-dependent, or the backlog quality is uncertain. A typical structure pays the seller an additional 20–30% of the purchase price if the business meets gross profit or revenue thresholds in the first 12–24 months post-close.

What happens to existing project deposits and work-in-progress at closing?

This is one of the most important and often overlooked issues in remodeling acquisitions. At the time of sale, a remodeling business may be holding significant customer deposits for projects that have not yet started or been completed. These represent real liabilities — the new owner must complete that work. A well-structured deal includes a closing balance sheet adjustment for deposit liabilities and work-in-progress, ensuring the buyer is compensated for the cost to complete outstanding projects or that the seller retains those liabilities and funds them from sale proceeds.

Should I structure the deal as an asset purchase or a stock purchase?

The vast majority of kitchen and bath remodeling acquisitions are structured as asset purchases. This allows the buyer to select which assets and contracts to assume — including subcontractor agreements, client lists, and equipment — while leaving behind unknown liabilities such as warranty claims, permit violations, or litigation. Stock purchases are less common but may be considered when valuable state contractor licenses are entity-specific and cannot be easily transferred, or when the seller insists on stock sale treatment for tax reasons. Always engage a transaction attorney to evaluate the licensing and liability implications before agreeing to a structure.

More Kitchen & Bath Remodeling Guides

Acquire a Kitchen & Bath Remodeling Business →Valuation Guide →SBA Loan Guide →LOI Template →Due Diligence →

More Deal Structure Guides

Kombucha & Functional Beverage →Lab & Diagnostics Company →Landscaping →Language School →Laundromat →Law Firm →Lawn Care Service →Lead & Asbestos Abatement →Browse all deal structure guides →

Start Finding Kitchen & Bath Remodeling Deals Today — Free to Join

Find the right target, structure the deal, and close with confidence.

Create your free account

No credit card required