SummitPentagon Premier Roofing Business Plan — Executive Summary

Residential replacement and light commercial roofing: $736,000 capital, five crews by Year 5, $6.42m revenue and 2.58x debt service cover.

Executive Summary

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1.1 The proposition
1.2 Four numbers that govern this business
1.3 Headline numbers
1.4 Investment conclusion

1.1 The proposition

SummitPentagon Premier Roofing is a residential roofing contractor. It starts with one crew and grows to five by Year 5, adding light commercial work from Year 3, taking revenue from $535,000 to $6.42 million.

The owner contributes $165,000. Capital equipment is funded by equipment finance, working capital by a line of credit and supplier trade credit, and the Year 3 expansion by an SBA 7(a) term loan. Total capital expenditure across five years is $736,000 — roofing is a low-asset, high-working-capital business.

$6.42m

Year 5 revenue

$532k

Year 5 EBITDA

5.2%

Net margin

$165k

Owner cash in

1.2 Four numbers that govern this business

35.4 per cent gross margin against 27.1 per cent overhead. Roofing overhead typically runs 30 to 45 per cent of revenue, and the gap between those two numbers is the entire business. One percentage point of gross margin at Year 5 is $64,000.
$1,303 to acquire one replacement customer. Marketing is 5.9 per cent of revenue by Year 5 and is the largest single overhead line — ahead of sales commission and workers’ compensation. Roofing is a customer acquisition business that happens to install shingles.
Workers’ compensation at 16.0 per cent of crew payroll. Roofing sits in NCCI class code 5551, among the highest-rated classifications in construction. Rates commonly run $15 to $35 per $100 of payroll, and premiums range from roughly $306 a month per employee in South Dakota to $1,905 in New York. Where you operate changes the economics materially.
$3,008 of contribution on a $17,411 roof. That is 17.3 per cent after materials, crew labor, workers’ compensation, sales commission and the cost of acquiring the customer. Section 4 shows the full build-up.

Figure 1. Revenue and crew count, with gross margin. Revenue scales with crews; margin improves through job costing rather than through price.

1.3 Headline numbers

$’000 unless stated	Year 1	Year 2	Year 3	Year 4	Year 5
Crews	1	2	3	4	5
Replacements completed	33	96	156	220	290
Gross margin	31.8%	32.8%	33.8%	34.6%	35.4%
Overhead as % of revenue	52.5%	36.6%	32.4%	29.4%	27.1%
Revenue	535	1,625	2,960	4,538	6,424
Cost of goods	(364)	(1,092)	(1,961)	(2,966)	(4,150)
Gross profit	170	533	999	1,571	2,274
Overhead	(281)	(595)	(960)	(1,335)	(1,742)
EBITDA	(110)	(63)	40	237	532
Profit after tax	(143)	(135)	(86)	69	331
Net margin	-26.7%	-8.3%	-2.9%	1.5%	5.2%
Closing cash	45	57	200	264	520

Figure 2. EBITDA and profit after tax, against the NRCA industry average net margin.

1.4 Investment conclusion

Measure	Value	Basis
Owner equity invested	$165k	At inception
Loans and facilities	$1,005k	Equipment finance, SBA Microloan, SBA 7(a) and lines of credit
Supplier trade credit at Year 5	$346k	Free, never drawn, and larger than the SBA 7(a) facility
Total capital expenditure	$736k	Across five years; roofing is a low-asset business
Year 5 EBITDA	$532k	At an 8.3% EBITDA margin
Year 5 net margin	5.2%	Against an NRCA industry average of 2.8%
Year 5 debt service cover	2.58x	Against an SBA 7(a) minimum of 1.10x
Project IRR at a 5.0x exit	63.0%	On free cash flow with a terminal enterprise value
Return on owner equity	71.6%	A 14.88x multiple on $165k
Exit multiple at which owner equity is returned	0.70x	Applied to Year 5 EBITDA
First profitable year	Year 4	EBITDA turns positive in Year 3

Read the return honestly: it is high because the capital base is small

The return on owner equity is 71.6 per cent and the money multiple is 14.88 times. Those numbers are arithmetically correct and they are almost entirely a function of denominator. Roofing has an unusually low capital requirement: industry guidance puts start-up costs at $10,000 to $80,000, and a solo owner can launch for $15,000 to $35,000. A business that generates $532,000 of EBITDA on $165,000 of owner cash will always produce a spectacular percentage return. That is precisely why 108,000 to 115,000 roofing contractors compete in the United States and why the average one nets 2.8 per cent. Low barriers to entry produce high returns for good operators and losses for everyone else, and an investor should underwrite the operator and the job costing discipline rather than the IRR.

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