Business valuation of home remodeling contractors
How to value a home remodeling contractor business? First, some important industry stats to consider:
The home remodeling companies are usually classified within the specialty contractor industry sector under the SIC code 1799 and NAICS 236220. These businesses generate combined annual revenues of $41.96B. There are some 105,000 such firms in the US alone employing about 474,700 people.
Yet the average home remodeling company is a typical small business – with annual revenues of $400,000 and a staff of just 5.
Business valuation of home remodeling contractor companies
Established home remodeling contractors with a steady pipeline of projects often are profitable, highly desirable businesses. Such companies are sought after in acquisitions and the selling prices offer you an excellent way to estimate your own business value by comparison.
Valuation multiples calculated from these business sales comps are the valuation tools of choice under the market approach. The common valuation multiples used for home remodeling contractor valuations are:
- Business value to revenues (net sales)
- Value to EBITDA
- Company value to fixed assets such as Property, Plant and Equipment (PPE)
- Selling price to total business assets
- Price to owners’ equity
Example: Use of valuation multiples for valuation of home remodeling contractors
To illustrate the market-based valuation technique, let’s pick a typical home remodeling company with the following yearly financials:
- Revenue: $400,000
- EBITDA: $58,000
- Total business assets: $165,500
Now let’s apply a set of reasonable valuation multiples derived from comparable contractor firms that sold recently and calculate the business value for our sample company:
|Multiple||Multiple value||Business value|
|Business value to net sales||1.62||$648,000|
|Business value to EBITDA||6.52||$378,160|
|Business value to total assets||2.95||$488,225|
|Average Business Value||$504,795|
You can use the average value calculated from all the estimates above, or establish your company’s worth as a range of values, from the low to high estimate.