If you're looking to expand your remodeling company, investment banker Scott Sanderson has some advice for you. The managing director of Goldsmith Agio Helms, a Chicago investment banking firm, recently helped a remodeling company find funding for expansion through an equity firm.

Equity firms put private money to work for a company, but they are looking for growth and large returns. Sanderson says it's difficult for most remodeling companies to have access to equity firm funds. “If a remodeler is doing 10 projects per year at $100,000 each, with a volume of $1 million and a 15% profit margin, that is not a business model that is large enough or unique enough to access private equity,” he says. That company is better served by borrowing from their local bank.

However, if a firm has $80,000 in earnings with $8 million in revenue along with good systems, it may get the attention of one or more of the 1,300 private equity groups in the United States.

Remodelers must also demonstrate that their company has the potential for growth or has a “better mousetrap,” Sanderson says. If you are in one market and want to expand to a nearby city, you have to show how you would grow and how that growth would benefit your financial partner. That is where the expertise of an investment banker is useful. “We collaborate with our client to present it to the market. Sometimes it's hard for an owner to do that while still running a business,” he says.

An investment banker will also know which equity firms to target. Some firms have Small Business Investment Corporations to encourage small business growth. A firm with around $1 million in volume can attract SBIC money but must demonstrate similar growth potential.

Once the partnership is set, the remodeler will report to a board of directors that has a fiduciary obligation to outside investors to make sure the owner is making good decisions. Sanderson cautions remodelers to choose their equity partner very carefully. “If you like entrepreneurship, you don't want someone who will put a brake on your good ideas,” Sanderson says.