Valuing A Construction Company
If you own a successful Construction Company, chances are it may be one of your most valuable assets – if not your MOST valuable asset. If you have a buy-sell agreement with your partners, if you ever plan to sell the business, if you are doing retirement or estate planning – figuring out what your Construction Company is worth is the essential first step.
Most Construction Company owners with whom we've worked have preconceived guesses of what their Construction Company is worth. Those values are almost always based on an industry ‘rule of thumb’ – for example some multiple of sales, or earnings, or cash flow, or book value. The most important advice we can give you is this: rules of thumb are always wrong!
Consider this fairly typical statement taken from the website of an unnamed law firm, relating to the valuation of a construction company: "A good rule of thumb is that a company is worth anywhere from one to four times its net earnings. A firm netting $300,000 after expenses might be worth anywhere from $300,000 to $1.2 million."
In other words, the business maybe worth $300,000 -- or $1.2 million -- or something else entirely. Gee, thanks a lot! If you are selling the company, should you be asking $300,000 or $1.2 million? Without knowing a company’s value pretty accurately, its owner risks either selling for much less than the business is worth; or scaring away potential partners; or saddling loved ones with a catastrophic estate tax bill; or dozens of other equally bad outcomes. That is why it is essential to have your Construction Company accurately appraised.
So how should your Construction Company be valued, if not with a rule of thumb? Most expert appraisers use one or more of three principal methods to value an operating business or professional practice: the market approach, the income approach and the asset approach. Click this link to learn more about each approach.
If you are thinking about having your business valued, consider choosing SPARDATA. Since 1990 we have prepared over 27,000 valuations of privately-owned businesses and professional practices. We specialize in valuing businesses with sales between $1 million and $40 million, and with from 10 to 300 employees. Our popular SPARDATA Reports cost $5,000 and take 6-8 weeks to prepare (or clients may pay a small premium for a rush order completed in 3 weeks or less). About half our clients use our valuations to buy or sell a business; the other half use them for other purposes such as updating a buy-sell agreement, doing succession planning, gifting stock etcetera.
Few business valuation firms have more experience and credibility than SPARDATA. Hundreds of law firms, accounting firms and financial advisory firms use SPARDATA as their business valuation provider; some of the most prominent include New York Life, Morgan Stanley, MassMutual, PNC Bank, Transamerica, MONY and Piper Jaffray. Federal regulatory agencies using SPARDATA include the Internal Revenue Service, the U. S. Department of Labor and the Securities and Exchange Commission.
