How to Value a Masonry Company
Businesses in the masonry industry provide construction and repair services using masonry materials. This includes working with bricks, concrete blocks, stone, and mortar. IBIS World notes that the masonry industry has had steady profit and revenue growth in recent years. This trend will likely continue in the coming years. As such, it may be a good time to buy, expand, or sell a masonry company. However, the masonry industry is 100% fragmented and very competitive. To succeed, it is beneficial to learn how to value a masonry company.
The best way to learn how to value a masonry company is to receive a business appraisal. As part of a business appraisal, valuation experts determine the fair market value of a masonry company. In addition, a business appraiser can discuss the strengths and weaknesses of your masonry company. As such, a business appraisal can help you understand how to increase the value of a masonry company.
Peak Business Valuation is a professional business appraiser. We frequently value masonries across the country. As such, we are happy to provide you with a business appraisal for a masonry. In addition, Peak Business Valuation can answer any questions you may have on how to value a masonry company. Schedule your free consultation today to get started!
How to Value a Masonry Company
There are various methods to value a masonry company. Most often, business appraisers rely on the market approach and/or the income approach when valuing a masonry. Each method provides a different perspective on the value of a masonry business. As such, a valuation analyst will determine which valuation approach is most suitable for your masonry company. This can include using a combination of valuation multiples.
Valuing a Masonry Using the Market Approach
A common approach when valuing a masonry is the market approach. To understand the market approach, consider the real estate appraisal process. Real estate appraisers assess comparable properties in the area to determine the value of a home. When valuing a masonry with the market approach, valuation experts assess comparable companies that recently sold. If the business is privately owned, business appraisers refer to private transaction databases to gather data.
Multiples for a Masonry Company
Valuation multiples are a key component of the market approach. Multiples are ratios that compare the value of a business to financial metrics. These metrics often include revenue, earnings, and cash flow. To find the valuation multiples for a masonry, a valuation analyst applies the proper NAICS or SIC code. We discuss SDE, EBITDA, and REV multiples for a masonry below.
SDE (Seller’s Discretionary Earnings) Multiples for a Masonry
- SDE multiples are common for valuing masonry companies. This multiple assesses a masonry’s seller’s discretionary earnings.
EBITDA Multiples for a Masonry Company
- EBITDA multiples measure a masonry’s earnings before interest, depreciation, amortization, and depreciation. This helps the business appraiser understand the return on investment (ROI) a masonry company can expect.
REVENUE or SALES Multiples for a Masonry
- REVENUE or SALES multiples measure the value of a masonry based on the amount of sales it generates.
To learn more on how to value a masonry company using the market approach, see Valuation Multiples for a Masonry Business.
Valuing a Masonry Company Using the Income Approach
The income approach is another common approach in small business valuation. This valuation method assesses the future cash flow potential of a masonry. Additionally, the income approach evaluates the risks of buying or selling a masonry company. We discuss a few common risks below.
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- Competition: The masonry industry is very competitive. As such, masonry companies need to differentiate from competitors and create diverse revenue streams.
- Financial Performance: Many masonries struggle to increase or retain profitability. To succeed, it is vital to have strong financial planning and budgeting skills.
- Machinery and Equipment: Masonry companies use a variety of machinery and equipment to provide quality services. It is important to obtain high-quality and reliable machinery and equipment.
- Location: The location of a masonry company has a significant impact on its value. It is best for masonry companies to locate near key markets like residential construction companies.
Methods to Value a Masonry Company Using the Income Approach
There are several variations of the income approach. The most common methods under the income approach are the capitalization of cash flow method and the discounted cash flow method. Below, we discuss how to value a masonry using the capitalization of cash flow method and/or the discounted cash flow method.
Capitalization of Cash Flow Method
The capitalization of cash flow method is ideal for masonries with long and stable histories. When valuing a masonry business using this method, business appraisers determine an appropriate amount of cash flow for one period. The valuation expert then applies a capitalization rate which indicates the rate of return investors can expect. In addition, the capitalization of cash flow method assesses the risks associated with masonry companies. We highlight a few of these risks above.
Discounted Cash Flow Method
The discounted cash flow method is best for masonry companies with stable financial histories and predictable forecasts. This approach involves projecting future cash flows over a 3-5-year period. Then, a business appraiser applies a discount rate rather than a capitalization rate to account for the time value of money. Keep in mind, the discounted cash flow method is less common since it is limited to future cash flow estimates which can be inaccurate.
Summary
If you are looking to buy, expand, or sell a masonry company, it is beneficial to understand how to value a masonry company. The best way to learn how to value a masonry is to obtain a business appraisal. During a business appraisal, you will learn the fair market value of a masonry company. In addition, valuation experts may discuss the risks and opportunities of your masonry company. This information can help you take the next steps in increasing the value of a masonry company.
Peak Business Valuation, business appraiser, is here to assist! At Peak, we work with masonries on a regular basis. We are happy to provide you with a business appraisal for a masonry. Peak can also answer any questions about valuing a masonry company. Start now by scheduling a free consultation with Peak below!
For more information see also Valuing a Masonry Contracting Business, Valuation Multiples for a Masonry Business, and Value Drivers for a Masonry Business.
