Value Drivers for a Lumber Wholesale Company
The lumber wholesale industry is the major supplier of lumber to the residential construction sector. As the need for residential property increased, so did the need for lumber. In the last five years, lumber wholesale has grown at an annualized rate of 6.9%. While the need for lumber is high, the supplies are low. This has created a sharp increase in the price of lumber. While 45% of lumber goes to new home construction, home remodeling and commercial construction also require large amounts of lumber. These factors all contribute to how an expert values a lumber wholesale business. Below we discuss specific value drivers for lumber wholesale. For more information, see Valuing a Lumber Wholesale Business. As well as, Valuation Multiples for Lumber Wholesalers.
It is important to understand what drives the value of your lumber wholesale business. These value drivers will impact the success of your business. When buying or selling, it is imperative to consider what drives the value of your lumber business. When focusing on these factors, you will be able to maximize the value of a lumber wholesale business. Peak Business Valuation, business appraiser, considers key value drivers when determining the fair market value of a lumber wholesale business. We value lumber wholesalers across the nation. To learn more or obtain a business valuation, schedule your free consultation below!
Value Drivers for Lumber Wholesale
In the following paragraphs, we discuss key value drivers for lumber wholesale. These value drivers impact the value of a lumber wholesale company. To better understand the value of a lumber wholesale business, obtain a business valuation. Peak Business Valuation, business appraiser, is here to help! Schedule a free consultation.
World Price of Lumber
Many industries are impacted by the price of lumber, oil, steel, or coal. Because of this, the price of the commodity impacts the company’s financial performance. As prices at the sawmills skyrocket, so do lumber wholesalers’ revenue and profits. These high prices are not likely to remain. Lumber prices are extremely volatile and likely to continue changing over the coming years. At Peak Business Valuation, business appraiser, we often look at historical price averages to better understand the company’s operations for a normal year. This is generally a better indicator of value.
Supplier Concentration
Next, having quality suppliers is a key indicator of success and value. A great way to ensure reliable suppliers is to create key relationships with these businesses. If one supplier is supplying too much of your revenue, it may be time to expand operations. Relying too heavily on one supplier can be risky. Diversifying suppliers reduces this risk. In addition, creating contracts with suppliers is a great way to reduce risk. Contracts ensure stable relationships, which in turn increases the value of your lumber wholesale business. You can never be sure what a supplier will do, but establishing good relationships will benefit your business more than you may now realize. When valuing a lumber wholesaler, the business appraiser will assess risks of your business.
Delivery
Because lumber wholesalers supply bulk quantities of lumber, it is important to have a smooth delivery system. Customers want to know they are in good hands with someone who values their time and their money. Good communication is important in the delivery process. Things should be handled in a timely manner, with careful attention to detail. Make sure delivery fees are clearly stated, with an understanding of who, what, when, and where. When valuing a lumber wholesale business, the business appraiser will analyze your profit margins, operating margins, and look at your efficiency ratios. They will compare your wholesale business to similar lumber wholesalers.
Stock on Hand
Next, it is important to maintain stock on hand with high turnover levels while avoiding stock outs. Seeing as supplies are in short supply, it is important as a lumber wholesaler to remain aware of your stock. Stay two steps ahead of the game. Order supplies in advance and be aware of the needs of your customers. If supplies are unavailable, contact your customers. Keep them in the loop as supplies are scarce. This is a key value driver because, without stock, you have no business. Reevaluate your business plan to determine what steps you are taking to prevent stockouts. In addition, having quality stock on hand will create positive customer relationships. It will build trust with your clients and prevent the loss of customers. When valuing a lumber wholesale business, the business appraiser will look at stock turnover and customer loyalty.
Lumber Quality
Not only is it important to have stock on hand, but it is also important to have quality stock on hand. If your product is known for being poor quality, you will lose the trust of your customers. Lumber is an essential part of structures. If the quality is bad, it can not only be dangerous but cause harm to the name of your business. Always ensure the quality of your product. Be diligent in checking the sources of your lumber before supplying it.
Proximity to Key Markets
The last value driver to consider is delivery costs and proximity to key markets. Delivery can be one of the largest costs for a lumber wholesaler. Being in close proximity to key markets can set your business apart from the rest and reduce costs. It will not only benefit your business but will benefit the construction industry and retailers as they work with tight deadlines. Because lumber is a commoditized good, it does not compete with other lumber wholesalers based on quality. However, they compete based on price and proximity. These two factors are huge value drivers to lumber wholesalers. As stated above, the business appraiser will analyze your financial statements and compare them to similar lumber wholesale businesses.
Summary
In conclusion, it is important to stay aware of the various value drivers impacting your business. Each value driver plays an important role in the fair market value of a lumber wholesale business. The lumber wholesale industry is competitive. It will benefit your business to understand value drivers for lumber wholesale. Obtaining a business valuation is a great way to determine the fair market value of your lumber wholesale business. It will also uncover ways to increase the value of your business.
Peak Business Business, business appraiser, values lumber wholesalers across the nation. We would love to answer any questions you might have about valuing a lumber wholesale business. Let us help you start the process of obtaining your business valuation. Schedule your free consultation below!
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