Business Valuation Blog | Understanding Buying / Selling a Company

Best Ways of Valuing a Construction Company Before a Sale

Posted by Business Valuation Specialists LLC on Jul 25, 2018 11:19:00 AM

You've worked hard to build that construction company, and now you're preparing to sell it. This is often a bittersweet time for business owners, especially those who founded the business and who remember firsthand all of the hard work in getting their construction firm off the ground. Before you seek buyers, get an objective valuation of the construction firm, so you understand how much your construction company is worth to others. Then you can set your price, seek buyers, and move forward with a sale that honors the business yo have worked so hard to create. See below for the best ways of valuing a construction company when the time has come to sell. 

Asset-Based Valuation 

An asset-based valuation works well for construction companies that hold assets, whether that's equipment or real estate. If your construction company owns a lot of equipment but there is not much income then the business may be worth more being sold off as assets. To get an asset-based value for your company, an appraiser will sum up the value of all of your assets, then subtract liabilities to show the value as a snapshot in time. A formal equipment appraisal is suggested for situations like this.

Income-Based Valuation 

An income-based valuation is a reliable way to gauge the value of a construction company when the company is generating a profit to where there is value above just tangible asset value. Either the discounted cash flow or capitalization of earnings method can be used here. In discounted cash flow, appraisers look forward five years to estimate the business's future revenue and spending, then extrapolate a current value that accounts for risk in going forward. With capitalization, the appraiser normalizes the construction company's earnings and divides by a capitalization rate, which reflects for anticipated growth and risk.

You only get one chance to sell your business, so take the time to do it right. Search for an appraiser with experience in construction company valuation, ask questions before you hire them (so you know what to expect), and make sure you understand what their business valuation really means -- not just the final number.   

Topics: valuing a construction company