Construction Business Valuation Calculator

Construction business valuation calculator to determine your business worth in California. We walk you through the three main calculation methods.

Revenue is the primary factor that affects how much your construction business is worth, but accurately estimating a business's worth depends on the size of the business, its management staff, area of expertise, and a variety of other factors.

Business Valuation Calculations

The most common and trusted construction business valuation method is the income multiples approach, which aims to compare businesses within a niche using broadly applicable financial assessors. Below are nine categories with associated questions that can help you determine the value of your construction business under the income multiples approach:

• Market size: How big is your market? What portion of that market does your company hold?
• Traction: Is your company growing? How is it growing?
• Financing: How much money does it take to maintain your company’s profits?
• Talent potential: Does the company have a pool of skilled talent?
• Investor demand: Is your company a part of a burgeoning industry?
• Clients: Who are your clients? What is the quality of your relationships with them?
• Trade name: What is your company’s reputation?
• Tangible assets: What is the quality of your tangible assets?
• The health of the economy: Is the economy bullish? Or bearish?

The value of most businesses is determined using these nine categories. If you answered positively to the questions from each category above, then congratulations: your construction company is one of the few lucky, robust businesses out there, which means that it should fetch a handsome price on the market.

The size of your construction business’s niche and its relative presence in that industry will influence how valuable your company is to investors. If your industry market is small and your company is a top performer, your business will fetch a higher price in the marketplace.

If your quarterly numbers are trending upwards at a vigorous rate, then your company will be more valuable. Impressive profits are good for any company, but the overall value of your company will suffer if you have high debt or liabilities. Cost to profit ratio is an important factor of valuation that affects a construction business’s salability.

Who runs your company is just as important as what services you provide. Strong leadership and competent employees make your business more profitable to potential buyers.

Certain niches have higher projected growth than others. As a result, investors looking for long-term investment will be more attracted to construction businesses within burgeoning industries that are projected to experience rapid growth.

Clients also influence the value of a construction company. Short-term, low-profit accounts do not demonstrate the demand and in turn, the value of your company. Government contracts or sub-contracting for more established contractors shows potential investors that revenue will not dry up once your business changes hands.

Visibility is key to a construction company’s success. If your business has a visible, well-respected brand, you can expect to fetch a higher price on the market.

Tangible assets refer to products and equipment that your company owns. For example, a fleet of new work trucks can be considered a tangible asset. The quality and quantity of your tangible assets will influence how much potential buyers are willing to spend on your construction business.

Construction business owners have little control over the health of the economy. However, how a business reacts to the overall health of the economy determines how valuable a company is. Investors are looking for robust businesses that can outperform others during a booming economy and stay afloat during a slump.

What is the Worth of My Business? Construction Business Valuation Calculator

To calculate the worth of your business, use the average of these three valuation methods:

• Capitalization of Earnings
• Discounted Cash Flow
• EBITDA Valuation

Each valuation method will provide a different value estimate. Using the average of the three values obtained using each of these valuation methods will give you the most robust estimate of how much your business is worth,

Capitalization of Earnings Business Valuation Calculator

Capitalization of earnings determines the value of a company by determining its projected profits. Projected profits are determined using current earning figures and growth models.

Capitalization of Earnings Formula

(Annual Future Earnings/RRR) = Business Value

Future earnings are calculated by determining your company’s growth. RRR stands for Required Rate of Return, which is the minimum amount of profit required by an investor in order for them to purchase your company.

Discounted Cash Flow

Discounted cash flow valuation relies on the quantity and quality of a construction company’s revenue streams to determine its value.

The more robust your income streams, the better. Likewise, the more income streams you have, the more valuable your business is.

Discounted Cash Flow Formula

(First-year cash flow streams and their amount) / (RRR – Growth Rate)

EBITDA Business Valuation Calculation

EBITDA stands for earnings before interest, tax, depreciation, and amortization expenses. Amortization is similar to depreciation. Assets decline in value over time. Having a middle-market business broker perform an EBITDA valuation can improve the digestibility of the jargon used to determine your business’s worth.

EBITDA Valuation Formula and Calculation

(Earnings before interest, taxes, depreciation, and amortization)

How to Increase the Value of a Business

The best way to increase a business’s value is to fortify it against volatility and risk. To make your business more robust:

• Diversify your services
• Adapt to market trends
• Look for growth opportunities
• Establish a pool of qualified employees

In general, potential construction business buyers are looking for long-term investments. The more flexibility and dynamism built into your business, the more attractive it will be as a product for potential investors.

Benefits of Using a Middle Market Business Brokers

Using construction business brokers in the lower middle market means that you limit the risk of undervaluing your company. Brokers are incentivized to get you the best deal possible for your construction company in California because their fees often come from a portion of the business sale. A qualified business broker or an M&A advisor are especially useful in the middle market, construction companies with revenue between five and fifty million dollars.

Lower middle-sized businesses in California are often the most difficult to sell because their market of qualified buyers is small. Lower mid-sized businesses in the construction sector do not often offer enough promise of success to be considered seriously by large corporations or wealthy investors. Similarly, middle-sized businesses are often too expensive for individual buyers to purchase.

Hiring a middle-market business broker to sell your construction company in California is a viable selling route because:

• Business brokers or M&A advisors in California can determine your company’s most vigorous earning potential and market it to potential investors.
• Qualified brokers in California can develop strategies to increase your business’s growth and risk tolerance.
• Certified business brokers in California have professional networks to locate optimal investors.

Selling Your Business

Many lower middle-sized construction businesses are the result of industrious individuals with a vision. However, building a company is different from selling it, which is why hiring a certified M&A broker to value your construction business in California is highly recommended.

A certified M&A broker has the professional expertise to accurately value your lower middle-sized construction company in California. Hiring a certified M&A broker or a middle market business broker ensures that every facet of your business is considered an asset to potential investors. M&As can also increase the value of a company by minimizing the perceived risk of a particular business and its industry.

Many successful lower middle-sized construction businesses are owned by first-time entrepreneurs or baby boomer business owners, which means that they have a higher likelihood of incorrectly valuing their business.

For a modest fee, M&A brokers or middle market business brokers ensure a healthy return on investment for first-time and seasoned business sellers in the construction industry.

You might be ready to see a business valuation sample. Click here

But if you are selling your construction company, hopefully, this article convinced you to use the income approach. This cash flow/revenue approach to valuation is one of the best ways to accurately value a construction company.

If you have decided to value and then sell your business now or within the next six months, click here to get started with this quick and simple form, so we can understand your pain points better and prioritize your inquiry with RBS Advisors.

Go to the next article: Part of tips to selling a construction company in California series ->