Valuation of an Excavation Business

[Jim Dandy]

I did a fair amount of combing the forum looking for multiples of revenue, profit, or whatever used to determine the value of an excavation business. I have been on the internet and most of that is consultants wanting you to pay them to figure it out. I don't mind paying for that but I am not at that point yet. Plus I live in a medium sized town and don't really want to share my fininacials to any local accountants. Any of you know what multiples of what number would help me get at least a ballpark number of the value of my business. Thanks in advance for your time

 

[Junkyard]

The simple rule of thumb I've always heard is take your Net income/profit and multiply that by 3-5 times and that's where most people seem to start negotiating. There are other things to add in such as property, hard assets (or equity in them at least), future contracts etc.

 

[CM1995]

The simple rule of thumb I've always heard is take your Net income/profit and multiply that by 3-5 times and that's where most people seem to start negotiating. There are other things to add in such as property, hard assets (or equity in them at least), future contracts etc.

What junkyard said and I'll add some more.

Any special licenses that can be transferred with ownership will increase the value.
Customer base and current contracts.
Quality of employees and management.
The business's reputation in the market area.

The real value is your assets that are paid for and the ability for someone to step in and keep the train going without stopping so to speak.

 

[crane operator]

Instead of going to a "business" consultant, I would suggest going to a local business orientated bank. Go to their main loan officer, and he'll need to see your financials, and he can tell you what he would allow someone to borrow, to buy it from you.

I find that "business" brokers tend to just fire off #'s based on sales figures, not profit #'s.

Bankers have to be pretty quiet about #'s, so it doesn't get around to your competition. And/ or he may know someone that is capable of buying the business from you.

 

[CM1995]

Instead of going to a "business" consultant, I would suggest going to a local business orientated bank. Go to their main loan officer, and he'll need to see your financials, and he can tell you what he would allow someone to borrow, to buy it from you.

I find that "business" brokers tend to just fire off #'s based on sales figures, not profit #'s.

Bankers have to be pretty quiet about #'s, so it doesn't get around to your competition. And/ or he may know someone that is capable of buying the business from you.

Crane operator I agree on the "business" consultants, they're in it for themselves to make a %.

However be careful with bankers, they are also out for their %. I've come to find out through the expensive school of hard knocks that accountants, lawyers and bankers aren't as smart nor business savvy as one expects them to be.

 

[Jim Dandy]

Thank you all for your responses.

 

[RTSmith]

I too own my own small business, and we do ok. But in talking to the business brokers (won't again..... Spent too much then that the wife won't let me live it down), the issue we have, and I could foresee you do- is like was mentioned before the ability for it to do as well with you gone as it has with you there. The more of a daily role you have, the less value there is because the assumption is that you won't be around after you sell. I am at my place every day, and generate a lot of the sales. So unless the new owner can do that, value is ?? And if he can do that, not too hard for him to have started his own business. I also agree with the comment about bankers & accountants, in that they aren't really all that up on things at times.

 

[Junkyard]

I too own my own small business, and we do ok. But in talking to the business brokers (won't again..... Spent too much then that the wife won't let me live it down), the issue we have, and I could foresee you do- is like was mentioned before the ability for it to do as well with you gone as it has with you there. The more of a daily role you have, the less value there is because the assumption is that you won't be around after you sell. I am at my place every day, and generate a lot of the sales. So unless the new owner can do that, value is ?? And if he can do that, not too hard for him to have started his own business. I also agree with the comment about bankers & accountants, in that they aren't really all that up on things at times.

Agreed. The majority of the value in a small business is the person that started it. Take them away and what do you have? Value of equity in tangible assets and that's about it.

I don't trust bankers at all and don't trust most accountants any farther than I can throw them!

 

[crane operator]

I guess I should feel fortunate then, I have a banker that I do get along with well, and I use him as a gauge of local business economy. He see's a different picture of what's going on in the community, than I do, and I put a pretty good value on his impressions of "local" things. I don't ask him for particular/specific advice for my own business, but I would value his input on any business deal I'm looking at. He actually comes from a business/manufacturing background (banking has been his second career), so that may be why I feel more comfortable with him.

My accountant is a signature on the business taxes, and a bill to pay. He gives no advice at all, and it seems most of them in my area are that way. I'm not a great customer though, he just looks over my year end taxes, we take care of are own payroll, accounts receivable/payable, and everything in house, most of the accountants want to do it all (for a fee).