Alan Lochridge·March 21, 2024

How to Identify & Buy a Great Residential Contractor | Alan Lochridge Interview

Alan Lochridge left a 20-year career leading project-based management consulting teams and, after a friend planted the idea, ran a roughly 2-3 year self-funded search centered tightly on the growing Charlotte, NC market. In April 2021 he bought The Stoneman, a ~$5.5m-revenue residential hardscaping and natural-stone contracting business, at a 2.5x SDE multiple using a ROBS-funded 10% down payment plus a 90% SBA loan (with no seller note) — helped along by the fact he personally knew and had once hired the founder through a shared men's workout group. He later bought out the ROBS-held shares within 18 months using business profits, effectively getting his original capital back while keeping full ownership. Despite the category's reputation as risky (discretionary, non-recurring, weather-dependent, only 75-90 days of sales visibility), the business thrived through COVID-era demand and Alan sustained those gains afterward by adding project management capacity (cutting from six crews to five while holding revenue flat), professionalizing digital marketing and CRM, and leaning on a 20-year brand, five-star reviews, and a fast cash-conversion cycle (deposits plus weekly progressive billing, ~8-day DSO). The transition wasn't friction-free — a botched QuickBooks migration briefly knocked the company onto pen and paper while several staff departed simultaneously — but overall he describes a smooth handoff, attributing it to shared values with the seller and the underlying quality of the business he bought.

Deal facts

multiple: 2.5x SDE off 2020 numbers (roughly 3x if averaged over prior three years)
sde ebitda: SDE margin jumped to low 20% in 2020 (from typically mid-teens); ~18% margin more recently
revenue: $5.5m at time of purchase (grew from ~$4m in 2018); $6.4-6.5m in 2023
financing structure: 10% cash down via ROBS (401k rollover) + 90% SBA loan (SBA backing was raised to 90% under CARES Act); no seller note
notes: Bought back (repurchased) the ROBS-held shares from his 401k about 18 months after acquisition, funding the buyback entirely from business profits/gains generated during that period, so his original capital was effectively returned while he retained 100% ownership outside the SBA loan.

Why this business

Alan spent ~20 years in project-based management consulting and, after his firm was acquired and he no longer fit into the resulting larger organization, took a buyout package and was nudged by a friend (a small-business banker) to consider buying a business. He ran a 2-3 year self-funded search focused tightly on the growing Charlotte, NC market, open to services or light manufacturing. He ended up buying The Stoneman, a residential hardscaping/natural stone contractor, in April 2021 in part because he personally knew and respected the founder (a fellow member of his men's workout group, F3, and a past customer of the business for his own backyard project), which gave him unusual insight into the quality of the business and let him skip a seller note despite the deal's inherent risk.

What's working

20+ year brand reputation, strong Google reviews, and heavy referral/repeat business in a growing, wealthy Charlotte market
Niche differentiation in natural stone/masonry hardscapes (patios, grill islands, fireplaces, pergolas, pool surrounds) commanding premium pricing, ~$70k average ticket
Negative/short cash-conversion cycle: ~1/3 deposit upfront, weekly progressive billing, only ~8 days sales outstanding (DSO) vs Net-30 terms with vendors
Use of fixed-price (not hourly) subcontracted masonry crews, aligning incentives for speed and quality while keeping the cost base variable/flexible with weather and demand
Added project management layer (went from 2 to 3 PMs) which reduced rework and delays, letting the company hold revenue flat with one fewer crew (5 vs 6) — improving efficiency
Outsourced digital marketing (SEO, Google/Meta ads, website, CRM) replacing a paper-based sales tracking system and homebuilt website with no SEO
5-year workmanship warranty (vs industry-typical 1 year) used as a tool to protect its 'fortress' of five-star Google reviews
Values/mission alignment carried over from the prior owner (weekly Monday all-hands reviewing core values), producing a smooth cultural transition
General contractor's license obtained earlier (from a prior unconsummated deal pursuit) removed a major barrier to entry into the trade

What's hard

Business is discretionary, non-recurring, project-based residential construction — no visibility beyond ~75-90 days of sales pipeline, subject to real down-cycle risk once the COVID home-improvement boom faded
Fully exposed to weather: rain days directly cost revenue since crews can't work outside, requiring occasional weekend make-up work
Early operational crisis: bad advice on transitioning QuickBooks forced a full shutdown and rebuild of the accounting system, with the business running on pen and paper for three weeks while simultaneously losing a project manager, a driver, and the office manager (who handled the QuickBooks transition) in a short span
Margins are thin if the business strays into commercial work or landscape maintenance, both considered but rejected as unattractive dilutions of focus
Managing homeowner expectations on highly customized, emotionally significant, big-ticket projects where the customer's vision and the delivered product can diverge, occasionally requiring costly rework to keep customers satisfied
Heavy reliance on independent subcontracted masonry crews means less direct control and no real career-growth lever over that labor force, even though the community of skilled masons has so far been resourceful

Notable quotes

I don't think I would have jumped in if it was sort of a pure or traditional home builder... I think the competition is too steep for that... I think what we do is a niche.

I wouldn't go into this thinking that a W2 is a risk-free proposition versus going into a business... there's a risk over here of the market shifting, there's a risk over here of being a W2 as you get older in your career because it's not a risk-free proposition.

I basically bought the shares out with the business proceeds over that 18 months... the valuation was higher than I bought it, so the IRA got back more money than it took out, and personally I feel at this point I don't really have any investment in the business, it's all been paid back.

I had gotten some really bad advice on managing the QuickBooks transition... I had to shut QuickBooks down, I had to pay a third party to essentially rebuild it, and we were on pen and paper for three weeks.