Do you need to figure out the value of an architecture firm? First, some of the tools professional appraisers use:
The pros tend pick market-based valuation methods to value architecture firms, classified under SIC code 8712 and NAICS 541330. Business brokers often close business sales in this professional services industry. As a result, you can find reliable data on business sales to value your architecture firm.
Some valuation multiples are more useful
You have quite a choice of valuation multiples. However, some are a better fit than others. How to pick the best one?
Top valuation multiples for architecture firm appraisals
Importantly, you can rank valuation multiples based on the coefficient of variation. This statistic indicates the spread of valuation multiples around the average. The smaller the coefficient, the smaller the spread of business value estimates you get.
Here is our list of valuation multiples arranged in the order of their accuracy:
- Business selling price to gross revenues or net sales.
- Enterprise value (EV) to EBITDA.
- Business sale price to EBIT.
- Sale price to Net Income.
- Price to total business assets.
- Price to the book value of equity.
Experienced brokers prefer the top multiples for pricing architectural firms for sale.
Market players tend to value architecture firms based on EBITDA and net sales
The coefficient of variation for the net sales-based valuation multiple is just under 0.5 which is 2.5 times less than the equity-based number. In other words, most architecture firm sales are actually priced based on the net sales or EBITDA.
Selling your firm? Set the right asking price!
You need to invest time setting the right asking price for your firm. Why? Because it can can make or break a deal and seriously affect the time and effort it takes to sell the company. Consider this: the average days on market is around 470 days. But it can take over 2 years to sell an architecture firm.
Example – business valuation of an architecture firm using the multiples
Let’s take a look at a typical firm grossing around $600,000 in net sales and generating $200,000 in EBITDA profits in the most recent year.
We’ll use the valuation multiples of 0.5 times the net sales and 2 times the EBITDA. As a result, we get the following value estimates for the firm:
- Business value based on net sales: $300,000.
- Value based on EBITDA: $400,000.
Now average the results above. Let’s apply the weights according to the accuracy of each value estimate, and we get:
$300,000 x 0.52 + $400,000 x 0.48 = $348,414
The business value estimate covers the tangible assets, goodwill and other valuable intangibles such as client lists. However, cash, receivables and company owned real estate are usually not included.
More on valuation multiples for architecture firms
Look to recent sales of architecture firms as the best source of valuation multiples. You can estimate your firm’s fair market value based on its gross revenues, net sales, profits, EBITDA, cash flow and assets.