Business Valuation Blog | Understanding Buying / Selling a Company

Valuing a Construction Company

Posted by Business Valuation Specialists LLC on Sep 28, 2016 12:00:00 PM

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Construction is and has always been a boom/bust business. Either business is so great that you can't keep enough people hired or so poor that you're barely keeping the lights on. How can you ensure your construction company will make it through the hard times and get the best out of the good times? A quality business valuation performed by a certified business appraiser provides you with amazing insights into where and how your company is profitable and how to plan for coasting through the rough patches. Here's how:

Valuing a construction company to navigate industry slumps

Many business owners consider the valuation of a company using serious business appraisal methods to be something for Wall Street. But how do you think the big companies got there? The owners, executives and managers paid close attention to what was going on in the business and made good decisions. Much like the stock market, construction has a lot of ups and downs, and to take advantage of market conditions, you need to know what shape your business is in first.

If the market is going into a slump and there's a competitor considering selling out, is it a good time to buy? It could be, even if the market is going into a decline, if both your business and the other business are on solid financial footing. The best tool to use to make a smart decision, especially if you don't have a solid background in business yourself, is having business valuations performed by an experienced business appraiser. But why wouldn't you use the asking price as a point for negotiations? Surely the owner wouldn't be asking too much for the business, right? Not necessarily. An asking price is just that. It's an opening point for negotiations and represents what the owner hopes will come from the sale of the business. A business appraiser takes many more considerations into account when valuing a business.

What about the new machinery you're considering buying during an upswing? A business appraiser's recommendation might be to get an equipment appraisal to give you a better idea of what your assets are actually worth rather than a random estimate. This can help qualify you for better financing and lower interest rates, which allows you to put even more into your business. Basing your assets only on what a balance sheet says after tax time can leave you under- or over-estimating the value of your assets. Why? A tax accountant takes the value of your assets and depreciates them over a certain amount of time. The  2-ton box truck you use may be completely depreciated in five to seven years, showing a zero value in your accounting system. But what if it dies after three years and you lose money because it wasn't completely depreciated? What if it lasts 12 years and still has value after being completely depreciated? A formalequipment appraisl will take these factors into account.

Having a business valuation performed on your construction company helps you navigate the rough times and take advantage of the good times. It allows you to take your business further while protecting your investment against unnecessary risk. Are you ready to improve your construction company and your chances at real success? If you're not currently working with a certified business appraiser with experience in construction, you're leaving yourself open to risk.

Topics: valuing a construction company, Business Appraiser