What Is My Concrete Business Worth?
Get the best valuation for your business before entering the market with these simple tips.
What is my Concrete Business Worth?
Concrete businesses provide services such as placement of concrete, foundation laying, formwork, and excavation. Being one of the best in this industry means that you always have to have the best, by being the best you always have to have the most efficient people, facilities, processes and the most competitive rates. You’ve spent countless hours training your staff and doing the research to carry the best inventory. You did everything to make sure that your business succeeded. And now you are seriously considering selling, but you don’t know where to start. Finding a professional broker to do the assessing work will give you the true value of it. However, it is essential and beneficial as an owner to know and understand how that value is given.
What goes into a valuation?
A valuation consists of three main styles:
- Asset Methodology — The company’s value is based off the assets that a business holds (e.g. trucks, raw material, equipment).
- Future Earnings Methodology — An estimation of a certain amount of money that a business would accept from an investment in the future.
- Comparable Sales Methodology — The value is based on a business that is similar to the business in question.
And the average multiple is?
The average multiple for this business is 2.1. The average multiple is the number of concrete businesses that have valuation ranges from $50 thousand to $15 million that have sold for net profit. This data was collected from 39 businesses that were sold in the years 2005-2015, broken down to further explain how the average multiple affects the valuation of your business.
The example below shows how the multiple of earnings valuation methodology works:
Let's use this example
The concrete business generally involves working on commercial and residential projects. Some companies are larger chains and others are independently owned business. The figures below give an estimate of the future sales and profits of medium-sized companies that see profits of between 100-400k dollars each month in revenue:
- Year 1 – Sales of $1,700,000 and profit of $225,000
- Year 2 – Sales of $175,000 and profit of $125,000
- Year 3 – Sales of $3,338,472 and profit of $374,833
- Year 4 – Sales of $971,406 and profit of $248,305
We are able to assume the business value each year by looking at the data we analyzed:
- Year 1 – Profit of $225,000@ 1.5X multiple = $337,500
- Year 2 – Profit of $125,000@ 2.3X multiple = $287,500
- Year 3 – Profit of $374,833@ 3.1X multiple = $1,161,982
- Year 4 – Profit of $248,305 @3.7 X Multiple = $918,728
How Does Your Business Compare?
Keep in mind that there are always daily fluctuations in the market and that different variables will give you different values of a business. So, comparing your business directly to a firm next door will not get you the answer you seek. But, generally, the bigger your business, the more money you can ask for.
The graph below represents the total deals that were sold at each valuation range. For example, in 2014 (light blue line), there were three deals sold between $0 and $250,000.
The data below breaks down the analysis we have conducted on 136 business sales in the last 10 years and, as you can see, as your revenue increases, your multiple becomes higher. What does a higher multiple get you? A better return on your investment.
The next graph represents the valuation multiple for deals completed at each valuation range. For example, in 2015 (dark blue line), deals sold between $500,000 and $1 million received an average multiple of 2.0X yearly net profit. So, if your business sold for $800,000, it was likely making $400,000 per year in net profit ($800,000 divided by 2.0).
What If I Want To Sell My Business?
Broker — (under $1million in sales per year) — Smaller business and micro-businesses are usually best sold by brokers.
- Businessbrokers.net — A marketplace that specializes in selling smaller firms.
- bizbuysell.com — Another marketplace specialized in helping sales.
M&A Advisor — ($1million to $50million in sales per year) — Medium-sized businesses are best sold through brokers who help with finding buyers as well as negotiating and structuring the deal. To see those, check out this website:
Investment Banks — best for large deals ($50m +) — Larger businesses are best sold through investment banks or merger and acquisition companies. For this kind of market, check out:
What Factors Increase Valuation?
For your potential buyer to really understand all of what is going on in your business, and to weigh the risk-versus-reward of buying your concrete business, they will consider all of the following factors which will also play a part in your valuation:
- What are the sales?
- What is the profit?
- What are the growth trends?
- What is driving new sales and is that sustainable?
- What channels do new customers come from and what is the breakdown of each channel?
- What is your market position?
- Is your location favorable?
- How reliant is the center on the owner?
- What systems and processes are in place to run the center?
Are You Ready To Sell?
Deciding to sell your concreting business is not something to decide quickly. It is a very complex process with many moving parts that takes a long time to complete. We hope that this article gives you insight into this process and what your concreting company is worth.
Written by Jock Purtle