What’s a Construction Business Worth?

Views: 34 Comments: 0 0 Post Date: October 13, 2020

Construction is at the epitome of human achievement, perseverance, and demise.

This business is at the core of the American dream. Owners, workers, investors, have made and lost fortunes in this line of work. It also may be one of the oldest skills and documented proof of human evolution and ingenuity. That continues to this day…

Let’s see what a construction business is worth…

People come to me to know what their biggest asset (their business) is worth. I am here to share tricks of my trade so you can use them to increase your business’ value. Construction is one of the largest industries in the US. Its annual revenue is $1.7 trillion; spread over 700,000 businesses; and employing over 7 million people.

 

 

Rule of Thumb – A rule of thumb is really not a rule. It is more of a guideline. It will help you understand the business from an appraiser’s perspective. If you are looking for specifics, comment below and I will put you in touch with a business broker or an expert in my network.

Value of a construction business can vary from 0.20-0.30x of annual revenue or 3-5x of EBITDA. What affects where you are in the range?

There are FIVE FACTORS that smart buyers look for and pay big money for

  1. Size,
  2. history,
  3. backlog,
  4. financial strength, and
  5. the business cycle.

For size, bigger is better. More stability and optimized operations. $10M and over companies are considered sizable. Three plus years of good history of earnings and on-time delivery of projects.

60-90 days of a strong backlog of work or projects. A strong balance sheet to support bonding for larger projects. And the economic business cycle. The construction business is highly dependent on the economic reality of the day and interest rates. The upside of making a fortune is unlimited.  No wonder why many immigrants in America gravitate towards it to fulfill their American dream.

Construction business owners today are no less than the Andrew Carnegie, or George Hearst, or Elon Musk of the world. Except their fortunes are built on REAL things, for REAL people, in the REAL world.

As they say, the road to success is always under construction.

Bharat Kanodia – Founder and Chief Appraiser

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