Valuing a construction company involves many factors, including financial, operational, industry, and market considerations. Here is some insight into the key variables that are reviewed and analyzed when an experienced professional completes a business appraisal for this type of operation:
Financial Performance
This includes an in-depth review of historical income statements and balance sheets to determine revenue trends, profitability, cash flow, assets, and liabilities.
Workforce and Management
Understanding a construction company’s skilled labor force and management team is important when valuing the overall business. The appraiser will review owners salaries and overall personnel compensation while making adjustments to normalize the data if necessary to bring it closer to competition in the industry.
Market Position and Relationships
The value of the company will be determined in part by its long-term reputation in the market, as well as vendor and supplier relationships, and its customer base.
Construction Industry and Market Trends
The overall health and landscape of the current markets and industries directly pertaining to the construction business are critical to developing an accurate appraisal.
Capital Equipment and Inventory
Construction companies will have a significant amount of machinery & equipment (M&E) as well as fixed and consumable inventory. Knowing the market value of these tangible assets will be crucial in the context of the overall business. Ask your business appraiser if they have the personnel capable of completing an accredited M&E valuation along with an inventory analysis.
Key Ratios
Debt-to-Equity, Working Capital, and Return on Assets are common ratios to measure within the business. These will assist in determining how leveraged the company is as well as their operational efficiency.
These are just a few of the factors that will be measured when valuing a construction business. Other variables such as legal and regulatory compliance, environmental and safety concerns, and even technology use are others that are important to understand. When your construction company is in need of a current valuation, ensure that you work with an independent, experienced, and credentialed valuation professional to get the job done.