Business Valuation for Buying a Construction Business
The construction industry is highly fragmented with over 3.7 million construction companies in the United States. However, there are many baby boomers with construction companies looking to retire. As such, hundreds of construction companies are bought and sold each year. Acquiring a construction business can be a lucrative investment opportunity. First-time buyers can bypass the challenges of starting a business from scratch. Established companies can create economies of scale and strengthen their competitive position. They can also boost growth by entering new markets and expanding service offerings. To begin, you need a valuation for buying a construction business.
Peak Business Valuation, business appraiser, values construction businesses throughout the United States. We are happy to provide you with a construction business appraisal. Also, Peak can discuss any questions you may have on valuing a construction business. Start today by scheduling your free consultation below!
What is a Business Appraisal for a Construction Business?
A business appraisal for a construction company determines the fair market value of a construction company. A business appraiser conducts a thorough assessment of various factors influencing this value. These factors include tangible assets such as equipment and property. They also include intangible assets like brand reputation and customer relationships. A construction business appraisal not only identifies a business’s current worth. It can also help you understand its prospects. This comes down to detailed research into its financial state and market position. As such, obtaining a valuation for buying a construction company can give you a clear understanding and increased confidence. To learn more, read How to Value a Construction Business.
In this article, we highlight the importance of a business valuation for purchasing a construction business. If you have questions, schedule a free consultation with Peak Business Valuation today!
Construction Business Valuation Methods
Below we outline the most common valuation methods for valuing a construction business. These include the asset approach, the income approach, and the market approach.
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Market Approach:
First, the market approach compares a construction business with similar market peers. Valuation experts scrutinize private companies within similar locations, industries, and sizes. This approach primarily utilizes construction valuation multiples. The business appraiser determines what multiples for a construction business are most appropriate. These can include REV multiples, EBITDA multiples, and SDE multiples for a construction company. Using the market approach they then determine a fair market value for a construction company.
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Income Approach:
Next, the income approach measures the future income potential of a construction company. A business appraiser converts this potential, generally cash flow, into a present value. It also analyzes the risks of meeting expected earnings. Common risks for buying a construction company include high owner dependency and supplier/customer concentration.
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Asset Approach:
Last, an asset-based approach considers a company’s net tangible assets. A business appraiser adjusts the value of assets and liabilities to a chosen standard of value. Analysts can then accurately assess the construction company’s worth.
The best construction business appraiser often uses a combination of valuation approaches. Doing so helps to determine a fair market value for a construction company. Depending on your specific situation, one approach may be more applicable than another. Working with a valuation professional will provide the most accurate assessment of a construction company’s worth. As such, obtaining a valuation for buying a construction company is key.
Negotiating a Fair Purchase Price for a Construction Business
One major benefit of a business valuation for buying a construction business is the negotiation power you gain. During a business valuation, you will learn the fair market value of a construction business. The construction business appraisal also gives insights into the business’s strengths, weaknesses, and growth potential. As such, you can negotiate buying a construction company with confidence. In addition, you can ensure you pay a price that reflects the true value of the construction business. For help on negotiations, check out Negotiating a Purchase Price of a Business.
Building a Strong Construction Business Plan
Another benefit of a construction business appraisal is the foundation you now have for a strong business plan. As you know, we assess a business’s current financial condition and market position. You can use this information to develop a strategic roadmap for future growth. This plan can be critical for expanding the business and improving operational efficiency. A construction business valuation can be a guide for forming your business plan. For more information, read Using a Business Valuation for a Business Plan.
Understanding Opportunities of a Construction Business
When valuing a construction business, business appraisers assess its key value drivers. This assessment helps business owners understand the opportunities associated with a construction business. Some common value drivers/success factors of a construction company are:
- Skilled Workforce
- Diversified Service Offerings
- Strong Customer Relationships
- Supplier Relationships
- Innovation and Technology Adoption
By understanding these opportunities, you can start on the right foot. You can capitalize on its strengths and position yourself for growth in the construction industry. For more information see Value Drivers for a Construction Business. Peak Business Valuation is a professional business appraiser. We frequently work with individuals looking to purchase a construction business. We can answer any questions about the construction business appraisal process or valuing a construction company. Schedule a free consultation with Peak to get started!
Identifying Risks of Buying a Construction Company
Business appraisers also assess the risks of buying a construction company. During a construction business appraisal, common risks for a construction company are:
- Economic Volatility
- Regulatory Compliance
- Seasonal Demand
- Supply Chain Disruptions
- Project Delays
Understanding these risks helps those buying a construction company make informed decisions. By identifying potential risks, you can implement strategies to mitigate them. To learn more read How to Value a Construction Business.
Securing Financing for Buying a Construction Business
Next, financing the purchase of a construction business can be a complex process. However, there are several options available to prospective buyers. Small Business Administration (SBA) loans are a popular choice for financing business acquisitions. The SBA offers competitive interest rates, low down payments, and long repayment terms. At Peak Business Valuation, we work with over 90 SBA lenders. We are happy to connect you with an experienced construction SBA lender. They will guide you through the loan application process, providing expert support every step of the way.
When applying for an SBA loan for a construction company, SBA lenders may request an SBA business valuation. Peak Business Valuation is happy to provide a construction business valuation to help you secure an SBA loan. Read SBA Loans for Construction Businesses to learn more.
Obtaining a Construction Business Valuation Report
At the end of a construction business valuation, you receive a valuation report. This report outlines the value of a construction business and other detailed insights. The report includes insights into the company’s financial performance and market position. As such, a construction business appraisal report is a valuable tool for decision-making. Construction business buyers can use it to negotiate, secure financing, and develop strategic plans for a construction company.
Conclusion
If you are looking to buy a construction company, a business valuation for a construction business is a useful tool. During a construction business appraisal, you will uncover a construction company’s fair market value. Additionally, you will understand its strengths, weaknesses, opportunities, and risks. This information can help you maximize the value of a construction business.
Peak Business Valuation is a qualified and credible business appraiser. We have experience working with construction business owners across the country. We can help you understand the fair market value of a construction company. This includes providing a valuation for buying a construction company. Get started by scheduling a free consultation! We would love to chat with you!
See also Valuing a Construction Company, and How to Value a Construction Company to learn more.
