How to Value a Restoration Company
Natural accidents like floods, hurricanes, and earthquakes generally have devastating impacts on affected communities. Citizens are often left with destroyed homes and tattered hopes. As such, restoration companies play a key role in areas where natural disasters wreak havoc. These businesses help the community by fixing and restoring damaged homes. If you are looking to buy, grow, or sell a restoration company, it is crucial to obtain a business valuation. By obtaining a business valuation for a restoration company, you will discover how to value a restoration company. This can help you take the next steps to maximize the value of a restoration company.
There are several factors to consider when valuing a restoration company. To learn how to value a restoration company, it is best to receive a business appraisal. As part of a business appraisal, a valuation analyst can help determine the value of a restoration company and identify its risks and opportunities. This information can help you take steps to increase the value of a restoration company you are buying, growing, or selling.
As a business appraiser, Peak Business Valuation works with restoration companies nationwide. We are here to provide you with a restoration company valuation. In addition, Peak can address any questions on how to value a restoration company. Start now by scheduling a free consultation with Peak Business Valuation below!
Valuing a Restoration Company Using the Market Approach
The market approach is a popular method for valuing a restoration company. The market approach is similar to the real estate appraisal process. When valuing a property, real estate appraisers compare similar homes that recently sold in the area. Moreover, when using the market approach, a valuation expert looks at comparable restoration companies recently sold. For privately owned companies, the valuation analyst refers to private transaction databases for relevant data.
Multiples for a Restoration Company
When using the market approach to value a restoration company, business appraisers often use valuation multiples. Valuation multiples are financial ratios that determine the value of a restoration company based on its financial standing. To find applicable valuation multiples for a restoration company, valuation experts apply an NAICS or SIC code. Below, we discuss some of the most common multiples for a restoration company.
SDE (Seller’s Discretionary Earnings) Multiple:
The SDE multiple measures the value of a restoration company based on its seller’s discretionary earnings. This is a common multiple in small business valuations.
EBITDA Multiple:
EBITDA multiples measure the business’s earnings before interest, taxes, depreciation, and amortization. This multiple provides insight into the return on investment (ROI) that a restoration company can potentially achieve.
Revenue or Sales Multiple:
Revenue multiples value a restoration company based on the amount of revenue or sales it generates.
To learn more about how to value a restoration company with valuation multiples, see What is a Valuation Multiple?
Valuing a Restoration Company Using the Income Approach
Another common valuation method for restoration company valuations is the income approach. This method assesses the company’s future income potential and the risks associated with it. Below, we discuss a few common risks that influence the value of a restoration company.
- Financial Performance: Restoration companies often experience fluctuations in demand, especially in response to natural disasters. This can hurt a restoration business’s financial performance and make it difficult to manage.
- Competition: The restoration industry is highly competitive. With many competitors, offering specialized services and exceptional customer service is key to success.
- Equipment and Technology: Restoration companies rely on advanced equipment, such as water extraction tools, dehumidifiers, and air movers. Using quality and reliable equipment is essential for maintaining high-quality service. When valuing a restoration company, an equipment appraisal may also be needed.
- Location and Service Area: The location of a restoration company significantly affects its value. Companies located in regions prone to natural disasters often experience higher demand which can increase the restoration company’s value.
Methods to Value a Restoration Company Using the Income Approach
There are a variety of methods for valuing a restoration company with the income approach. The most common income approaches are the capitalization of cash flow method and the discounted cash flow method. We discuss the details of each method in the following paragraphs.
Capitalization of Cash Flow Method:
The capitalization of cash flow method is frequently used for restoration companies with long and stable operating histories. This income approach determines a reasonable amount of cash flow for a specific period. It is then divided by a capitalization rate, which reflects a reasonable rate of return an investor can expect. The capitalization of cash flow method also considers the risks associated with buying, expanding, or selling a restoration company.
Discounted Cash Flow Method:
Next, the discounted cash flow method is ideal for restoration companies with strong financial histories and predictable forecasts. This method projects future cash flows over a 3-5-year period and uses a discount rate to reduce them back to their present value. Keep in mind, that the discounted cash flow method is less common since it relies on future cash flow estimates.
Summary
Business appraisers may use various valuation approaches when valuing a restoration company. To understand the best approach for your restoration company, it is important to receive a restoration business valuation. As part of a restoration company valuation, you will learn how to value a restoration company and gain insights that will help you maximize its value. As such, it is important to receive a business valuation for a restoration company whether you plan to buy, grow, or sell it.
Peak Business Valuation, professional business appraiser, is happy to help you with a restoration company valuation! Peak works with individuals throughout the country who are looking to buy, expand, or sell a restoration company. In addition, we can answer any questions you may have on how to value a restoration company. Start today by scheduling a free consultation with Peak Business Valuation below!
