Buying an electrical contracting business: what to check
Short answer
When buying an electrical contracting business, identify the licence holder (usually a master electrician or qualifying individual), split revenue between service work and contract projects, and for contract work review the work-in-progress schedule, backlog, bonding capacity and concentration among general contractors. Check safety records, insurance and apprentice and journeyman headcount, since labor is the constraint.
Electrical contractors range from a two-truck residential service company to a commercial contractor with a dozen crews and a bonding line. The checks differ by mix, but the licence and the labor force matter in all of them.
Revenue mix
| Work type | Characteristics | Verify |
|---|---|---|
| Residential service | Many customers, quick jobs | Call volume, average ticket |
| Commercial service / maintenance | Repeat accounts, some contracts | Account list, contracts, tenure |
| Contract projects (commercial, new construction) | Bid work, GC-driven, retainage | WIP, backlog, GC concentration, bonding |
| Specialty (EV chargers, solar, low voltage) | Growth but newer | Recurring vs one-off, certifications |
For contract work, read the WIP
Worked example: margin fade on contract jobs
Illustrative example, not a real contractor
At last year-end the WIP schedule showed three open jobs. Job A: $800,000 contract, estimated cost $680,000, so a 15% margin. Job B: $450,000 contract, $396,000 estimated cost, 12%. Job C: $1,200,000 contract, $1,008,000 estimated, 16%. When they finished, A cost $730,000 (8.75% margin), B cost $405,000 (10%), and C cost $1,104,000 (8%). Estimated profit across the three was $120,000 + $54,000 + $192,000 = $366,000; actual was $70,000 + $45,000 + $96,000 = $211,000. The jobs earned 58% of what the schedule said ($211,000 ÷ $366,000). If the WIP you're buying on looks the same, a large part of the profit you think you're acquiring has already been counted, or doesn't exist.
Service work: the steadier half
Residential and commercial service work (repairs, panel upgrades, maintenance contracts with property managers) is less exposed to estimating risk and often has better margins per hour. Pull the service side's numbers separately: calls per technician per day, average ticket, repeat customers, and any maintenance agreements. If service is a meaningful share of revenue and the customer base is broad, it can steady the earnings that contract work makes lumpy. If it's all through two property managers, it's a concentration risk with a different label.
People, licence and safety
- Licensed master electrician or qualifier: who, and are they staying?
- Journeyman and apprentice headcount, tenure, wages, any union agreements.
- Safety record: incident logs, OSHA history, workers' comp experience.
- Estimator: if the owner bids every job, budget for an estimator. See construction valuation factors.
Labor: the real constraint
Most electrical contractors are limited by how many licensed electricians they can field. Ask for the roster with licence levels (master, journeyman, apprentice), hire dates and pay, and compare pay with what competitors are advertising; underpaid crews are a retention risk that shows up after closing. States set apprentice supervision ratios, which limit how many apprentices each licensed electrician can supervise. If the company has a union agreement, get labor counsel involved early. OSHA's construction standards (29 CFR Part 1926) include electrical safety rules; ask for the injury log, any citations and the workers' comp experience modifier, which affects both insurance cost and which customers will hire you.
Bonding: why the surety letter matters before the LOI
Many commercial and public jobs require performance and payment bonds. A surety bonds a contractor based on its financial strength, track record and, for small companies, the personal indemnity of its owners. When the owner changes, the surety looks again. If you can't get bonded at the level the company has been working, you can't bid the same jobs, and the backlog that justified the price may be the last of its kind. Ask the seller for a letter from the surety stating current single-job and aggregate limits, and ask your own surety agent early what they'd need from you: personal financial statements, the company's financials, often a personal indemnity agreement. Build the answer into your plan before you agree a price.
Red flags specific to electrical contractors
- Underbillings growing year after year. Work done but not billed can mean optimistic percent-complete estimates.
- Retainage that's old. Retainage held more than a year after a job finished is often disputed.
- One GC providing most of the backlog. If that relationship is the seller's, it may not transfer.
- Permits pulled under someone else's licence. Ask whose licence numbers appear on recent permits.
- Callbacks and warranty work booked as overhead rather than job cost.
- Tools and vans owned personally by the seller and missing from the asset list.
What moves the value of an electrical contractor
We don't value deals or publish multiples we can't verify. Appraisers and lenders weigh these factors:
| Factor | Supports a higher value | Pulls it lower |
|---|---|---|
| Revenue mix | Meaningful service and maintenance base | All bid work |
| Estimating | Little fade between estimate and final cost | Consistent fade |
| Licence | Several licensed masters, qualifier staying | Seller is the only master |
| Customers | Many GCs and owners, repeat work | One GC dominates |
| Bonding | Strong capacity based on company finances | Depends on seller's indemnity |
| Workforce | Tenured electricians, apprentices in the pipeline | High turnover, open positions |
Documents to request
- Three years of tax returns, financial statements and bank statements.
- WIP schedules at the last three year-ends, final job cost reports and the current backlog.
- Revenue by customer and GC; service revenue by customer type.
- Contracts, change orders, pay applications, lien waivers; receivables and retainage aging.
- Surety letter, insurance policies, loss runs and experience modifier.
- Licences and qualifier details; permits pulled in the last year.
- Electrician roster with licence levels, pay and tenure; any union agreements.
- Vehicle, tool and equipment lists with liens.
What an SBA lender will check
A lender will verify tax returns against IRS transcripts and use historical earnings, not projections, for debt service coverage. For contract-heavy companies they'll focus on WIP, backlog, bonding and GC concentration; at a business purchase price of $3 million or more, SBA rules require a Quality of Earnings report for initial acquisitions. They'll ask whether the licence qualifier and estimator are staying.
Prevailing wage and certified payroll
If the company works on federally funded construction, the Davis-Bacon Act requires prevailing wages and weekly certified payroll, and many states have their own prevailing wage laws for public work. Ask which jobs in the last three years were covered, request a sample of certified payroll, and ask about any audits, complaints or back-wage findings. Errors in classifying workers or paying fringe benefits can lead to claims after the job is finished. Your attorney should address pre-closing wage claims in the purchase agreement.
Questions to ask the seller
- Who holds the contractor licence, and will they stay for at least a year?
- Can I see WIP schedules for the last three year-ends and final costs for each job?
- What share of revenue comes from your top three GCs?
- What bonding capacity do you have, and what will the surety require of me?
- Any open change-order disputes, liens or warranty claims?
- How many electricians did you lose last year, and why?
Before closing, ride along with a service electrician for a day. How calls are dispatched, priced and closed out tells you more about the service side than any report.
Frequently asked questions
Who needs to be licensed in an electrical business?
Requirements vary by state and locality, but electrical contractors typically need a licensed master electrician or qualifier, and electricians doing the work need appropriate licences. Plan for the licence holder before closing.
What is a WIP schedule and why does it matter?
It lists each open job's contract value, costs to date, estimated costs to complete and billings. It shows whether profit has been booked ahead of the work.
Does bonding capacity transfer?
Bonding depends on the surety's view of the company and its owners. A new owner may need to re-establish bonding, which can limit the jobs you can bid at first.
How do I value service vs project revenue?
Separately. Recurring service and maintenance customers are steadier; project revenue depends on backlog, bidding and GC relationships.
Does a union agreement carry over when you buy an electrical contractor?
It can. Whether a buyer inherits a collective bargaining agreement or bargaining obligations depends on the deal structure and facts, and the rules are specialized. If the company has union labor, get a labor attorney involved before you sign the LOI.
How do I verify an electrical contractor's revenue?
Tie invoices by customer to the bank and the tax returns, then check contract jobs against the contracts, pay applications and lien waivers. For service work, the dispatch or field service system should show jobs and tickets that add up to the service revenue on the P&L.
Sources
- SBA SOP 50 10 8.1, Appendix 15 (QoE: cash vs accrual, sustainability)
- eCFR 29 CFR Part 1926 (OSHA construction safety standards)
- OSHA: Construction standards, 29 CFR Part 1926 (including electrical)
- NFPA (publisher of the National Electrical Code, NFPA 70)
- OSHA Recordkeeping
- 40 U.S.C. § 3142: Davis-Bacon rate of wages (Cornell LII)
Related guides
General information, not legal, tax, financial or investment advice. Rules and lender practices change; check the linked sources and talk to your attorney, CPA and lender about your deal. Examples with named numbers are illustrations, not real businesses. OKtoBuy's Deal Check does not value businesses or give price opinions.