May 19, 2026 By Claudio Vilas (Founder – The Roofing Biz Broker, M&A Advisor)
The cash-to-accrual conversion is where deals get repriced; and most sellers never see it coming.
“$600,000 in working capital??”
“My normalized EBITDA is not $2 million but $1.5 million??”
“What the f… is this?”
The owner was furious.
We had just finished meeting with the buyer, and they had presented their version of the Quality of Earnings report, commonly called a QoE in mergers and acquisitions.
He was pacing around the room trying to make sense of it.
“We need to counter this,” he said. “I know my working capital is nowhere near that number.”
“How exactly are we going to counter it?” I asked.
Silence.
“Well… I don’t know.”
I looked at him and said: “The buyer just spent tens of thousands of dollars on a team whose only job is to analyze working capital, normalized EBITDA, accrual adjustments, and risk in this transaction. How much money did you spend on your side?”
He looked down. “Well… I didn’t think it was going to get this serious.”
Calmly, I reminded him how many times I had told him at the start of the engagement: “The buyer is going to bring a team of experts. You cannot do this yourself. We need an experienced M&A accountant.”
As happens far too often, he chose not to do it.
He saved a few thousand dollars upfront.
Now he was looking at the possibility of losing hundreds of thousands (maybe millions) in valuation and take-home proceeds.
That moment happens constantly in roofing M&A. Most owners do not realize they are vulnerable until the buyer’s QoE lands on the table and starts rewriting the financial story of their company.
By then, the leverage has already shifted.
In This Article
Not Normal Accounting
The Buyer’s QoE
Why Roofing Is Vulnerable
The Bridge to Accrual
The Dangerous Part
Your CPA vs. M&A Accounting
Final Thought
“Whoever controls the financial narrative usually controls the economics of the deal.”
Selling a Roofing Company Is Not Normal Accounting
One of the biggest misconceptions in the roofing industry is believing that selling a company is mostly about finding a buyer.
It’s not. Not by a long shot.
Buying a roofing company is a financial and operational investigation performed by highly sophisticated buyers, private equity firms, strategic acquirers, lenders, attorneys, and transaction advisory teams whose job is to identify risk, reduce uncertainty, and justify a lower purchase price whenever possible.
That process revolves around numbers. Not the numbers you “feel” are correct, or what the tax return shows, and certainly not what you “think” the company earns, the numbers buyers themselves determine and can defend analytically.
That is where accrual accounting, normalized EBITDA, working capital analysis, and Quality of Earnings reports become critically important.
Owners preparing a roofing business for sale often underestimate how aggressively buyers analyze financials during due diligence. And that is exactly where many sellers get blindsided.
The Buyer’s QoE Is Not Neutral
Many owners mistakenly believe the buyer’s accounting team is simply “checking the books.”
They are not.
A Quality of Earnings report exists to analyze a wide range of factors on the seller’s business:
What a QoE Analyzes
- Normalized EBITDA — stripping out non-recurring items and owner add-backs
- Working capital requirements — what the business needs to operate post-close
- Accrual adjustments — converting cash-basis results to accrual-basis reality
- Revenue recognition — when income is actually earned vs. when cash arrived
- Payroll liabilities — accrued wages, contractor vs. employee classification
- Margin consistency — are gross margins stable across jobs and seasons
- Customer deposits and deferred revenue — obligations already on the books
- Work-in-progress schedules — open jobs and their percentage of completion
- Sustainability of earnings — is this EBITDA repeatable or a one-year anomaly
Every adjustment identified becomes negotiation leverage. Every inconsistency becomes a discussion about risk. And risk directly affects valuation.
According to CBIZ, even relatively small EBITDA adjustments can materially impact enterprise value because roofing company valuations are based on EBITDA multiples.
$2.5MA $500,000 reduction in adjusted EBITDA at a 5x multiple reduces the purchase price by $2.5 million. That is not accounting theory. That is real money walking out the door.
And it happens every time a seller enters due diligence unprepared, or believes he can “wing it” because he “knows a little accounting.”
In roofing M&A, the buyer’s accounting team isn’t checking your books — they’re building a case for a lower price.
Why Roofing Companies Are Especially Vulnerable
Roofing businesses have unique accounting complexity.
Open jobs crossing year-end, insurance supplements, retainage, customer deposits, prepaid materials, subcontractor timing, seasonality, and inconsistent job costing all create distortions when companies operate on cash-basis accounting.
Under cash accounting, revenue is recognized when cash is received. Under accrual accounting, revenue is recognized when earned. That difference matters enormously in a roofing transaction.
Organizations like Procore, Anders CPA, and RSM have written extensively about how accrual accounting creates a more accurate picture of contractor profitability, because expenses and revenue are matched correctly over time.
Sophisticated buyers understand this very well. That is why private equity firms and strategic buyers almost always convert roofing companies from cash basis to accrual basis during due diligence. And that process can materially change EBITDA, working capital, liabilities, margin, and revenue.
If the seller does not have experienced representation, the buyer effectively controls the financial narrative. And whoever controls the narrative usually controls the economics of the deal.
What the “Bridge to Accrual” Actually Means
Most roofing companies use cash accounting because that is how their CPA originally set them up — for tax purposes. It is simpler, cheaper, and in many cases helps defer taxes.
For day-to-day operations, it works well enough.
The problem is that cash accounting was designed for tax reporting and simplicity, not for measuring the true economic performance of a roofing company during an acquisition.
The bridge to accrual is the process of converting a roofing company’s financials from cash basis to accrual basis so buyers can properly analyze the business. That conversion often requires adjustments for:
Common Bridge-to-Accrual Adjustments
- Accounts receivable and payable — revenue earned but not yet collected; expenses incurred but not yet paid
- Customer deposits — cash received before work is performed is a liability, not income
- Deferred revenue — jobs partially completed at period-end
- Payroll accruals — wages earned but not yet paid at month-end
- Retainage — amounts withheld by general contractors until job completion
- Work-in-progress schedules — percentage-of-completion method for open jobs
- Prepaid expenses — insurance, materials, and other costs paid in advance
This is not simple bookkeeping cleanup.
A roofing business that appears to generate $2 million in EBITDA under cash accounting may appear closer to $1.5 million once accrual adjustments are applied correctly. At a 5x or 6x multiple, that difference represents millions of dollars in valuation.
The bridge becomes the financial lens through which the buyer evaluates your business.
“A $500,000 EBITDA reduction at a 5x multiple is $2.5 million off your check at closing. The bridge to accrual is where that happens.”
The Dangerous Part: Letting the Buyer Build the Bridge for You
If you do not prepare your own bridge to accrual before going to market, the buyer will create one for you during due diligence.
That is a dangerous position.
Because now the buyer controls the assumptions and the adjustments — and with that, they control the negotiation leverage.
Remember: the buyer’s accounting team was hired to protect the buyer, not you. Their job is to identify risk, normalize earnings conservatively, and negotiate the best possible economics for their side.
If you do not have your own experienced M&A accounting team defending your numbers, the buyer’s QoE quickly becomes the only credible financial interpretation in the room.
That is how sellers lose hundreds of thousands or even millions of dollars, not because the business is weak, but because they entered a sophisticated financial negotiation unprepared.
Sophisticated sellers sometimes commission a sell-side Quality of Earnings report before going to market, so they understand the financial story before the buyer builds their own version of it.
Sellers who commission their own QoE before going to market control the narrative — sellers who don’t, don’t.
Your CPA May Be Excellent — and Still Be the Wrong Person for This
I am not bashing your CPA.
But the skill sets required for an M&A transaction are very different from day-to-day accounting and tax preparation.
Many roofing owners assume that because their CPA has handled taxes for twenty years, that same CPA automatically understands sell-side preparation. Those are completely different disciplines.
Tax accounting focuses on minimizing taxes, preserving cash flow, maximizing deductions, and IRS compliance.
M&A accounting focuses on earnings quality, financial defensibility, accrual analysis, buyer scrutiny, and transaction readiness.
Those are not the same thing. The AICPA, RSM, Anders CPA, and other transaction advisory groups clearly distinguish between tax accounting and M&A advisory work because the objectives are fundamentally different.
And “knowing a little accounting” becomes dangerous because it creates false confidence. Construction accounting is incredibly nuanced. Roofing accounting is even more so.
$0What most roofing sellers spend on their own financial advisory team before entering due diligence, and why buyers love unrepresented sellers.
Final Thought
One of the biggest misconceptions in roofing M&A is believing the sale process is mostly about finding a buyer.
It’s not.
The real challenge is preparing the financial story before sophisticated buyers start pulling it apart. That is where deals get repriced. That is where leverage gets lost.
If you are planning to sell your roofing company in the next few years, understanding the bridge from cash accounting to accrual accounting may be one of the most important financial steps you take.
And that is where many owners discover (far too late) that “knowing a little accounting” is nowhere near enough for a transaction that could define their financial future.
Not Sure How Buyers Would Read Your Financials?
I work with roofing company owners in the $5M–$50M revenue range, helping them understand what their financials look like to a buyer before it costs them millions to find out. No obligation. Completely confidential.
