Market-based business valuation techniques are often used to value professional architecture firms, classified under SIC code 8712 and NAICS 541330. Many business sales in this professional services industry are brokered by skilled intermediaries. As a result, there are reliable business sale comparables data to value your architectural services company.
While you have a number of valuation multiples for business value estimation, some are more accurate than others when it comes to valuing the architecture firms.
Top valuation multiples for architecture firm appraisals
Our ranking of valuation multiples is based on the coefficient of variation that indicates the spread of business 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.
- Price to EBITDA.
- Business sale price to EBIT.
- Business sale price to Net Income.
- Business sale price to total business assets.
- Price to the book value of equity.
The first valuation multiple is the typical one used for pricing an architectural company for sale.
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. What this means is that most architecture firm sales are actually priced using the company net sales or EBITDA as the valuation basis.
Setting the right asking price for your business can make a big difference to the successful sale outcome and the time it takes to sell the company. While the average days on market is around 470 days, it can take over 2 years to sell an architecture firm.
Example – business valuation of an architecture firm using the multiples
Let’s consider a typical firm grossing around $600,000 in net sales and generating $200,000 in EBITDA profits in the most recent year.
Using the typical valuation multiples of 0.5 times the net sales and 2 times the EBITDA, gives us the following estimates of business value for the firm:
- Business value based on net sales: $300,000.
- Business value based on EBITDA: $400,000.
One way to reconcile the difference is to average the two results above. Applying the weights based on the accuracy of each value estimate, 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. Cash, receivables and company owned real estate are usually not included.