Valuation Multiples for a Carpentry Business

Valuation Multiples for a Carpentry Business

The carpentry industry includes businesses that engage in framing, carpentry, and finish work. There are over 220,000 carpentry businesses in the U.S. These carpentry businesses bring in over $41 billion in revenue. With the growth in residential construction, demand for carpentry increased. This is causing an increase in the transactions of carpentry businesses. Understanding the value of a carpenter business is important if you plan to sell or buy. The first place to start is by obtaining a business valuation.

Valuing a Carpentry Business

When you plan on selling a carpentry business, a business valuation can help determine a fair listing price. This is important because many businesses don’t sell primarily because they are either listed too high or they aren’t prepared to sell. A business valuation can help you understand various factors that can help you prepare to sell your business.

If you plan on buying a carpentry business, a business valuation is an important tool. As part of the due diligence process, a business appraisal can help you understand the fair market value. In addition, it can also be very useful when negotiating the purchase price. This is because it helps you understand key value drivers for a carpentry business and the strengths and weaknesses of the company.

The first step in either process is understanding the value of a carpentry business. Peak Business Valuation is a leading business appraiser in the country. We are happy to answer any questions you have about valuing a carpentry business. Get started by scheduling a free consultation with our valuation professionals.

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Valuation Multiples for a Carpentry Business

You may wonder how a valuation expert determines the fair market value of a carpentry business. They often use a variety of methods including the use of valuation multiples. Below is a brief overview of valuation multiples for a carpentry business. Keep in mind these numbers are only a guide. For specific information about a carpentry business you are buying or selling, schedule a free consultation. Be sure to also read Valuing a Carpentry Business. As well as Value Drivers for a Carpentry Business.

Valuation Multiples For A Carpentry Business

Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.

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What is a Valuation Multiple?

A valuation expert often uses market multiples when determining the value of a carpentry business. A valuation multiple is a ratio. It compares to factors to each other. For example, a common ratio in business valuation is an SDE multiple. The SDE multiple compares the seller’s discretionary earnings of the business with the implied value of the company. Often the valuation professional looks at multiples of other similar businesses that have recently sold on the open market when determining an appropriate multiple for your carpentry business.

For instance, a carpentry business has $336,000 in SDE. The valuation expert applies a 2.32x SDE multiple. In this case, the business has an implied value of $779,520. ($336,000 times 2.32x) Whereas if the valuation expert uses a 3.18x SDE multiple the business has an implied value of $1,068,480. ($336,000 times 3.18x)

As a business appraiser, Peak Business Valuation works with carpentry businesses across the nation that are selling or being bought. Below are average ranges of valuation multiples for carpentry businesses. These multiples are what carpentry businesses tend to transact and be valued at. Every business is unique and as such the range of value can be significant. Below are average SDE, EBITDA, and REV multiples for a carpentry business.

SDE Multiple

Average SDE Multiple range: 1.73x – 2.63x

According to our data, carpentry businesses transact between a 1.73x – 2.63x SDE multiple. To derive an implied value of a carpentry business, apply the multiple by the most recent 12-months of revenue. The calculation follows:

SDE X Multiple = Value of the Business

For instance, a carpenter generates $390,000 in seller’s discretionary earnings. The business transacts at a 1.98x multiple. Then the business value is approximately $772,200.

$390,000 X 1.98x = $772,200

Seller’s discretionary earnings is a common cash flow multiple. A valuation expert often uses it when valuing small businesses such as carpentry businesses. They calculate it by taking the company’s operating profit and adding back potential expenses a new owner may not incur. This can include expenses such as owner’s compensation, personal expenses, and other non-related or non-recurring business items.

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EBITDA Multiple

Average EBITDA Multiple range: 2.37x – 4.31x

The average EBITDA multiples for a carpentry business range between 2.37x – 4.31x. By applying the multiple to EBITDA you derive an implied value of the business. The calculation is as follows:

EBITDA X Multiple = Value of the Business

For example, a carpentry business has an EBITDA of $250,000. It transacts on a 3.43x EBTIDA multiple. Using the above metrics, the carpentry business is worth approximately $857,500.

$250,000 X 3.43x = $857,500

An EBITDA multiple measures a company’s return on investment (ROI). In some cases, this multiple is preferred as it is normalized for differences in capital structure, taxation, and fixed assets. Normalized ratios allow for comparisons to similar businesses. Normalized ratios also more accurately represent the future earnings a buyer can expect from the business.

REV Multiple

Average REV Multiple range: 0.32x – 0.61x

According to our data, carpentry businesses sell for an average of 0.32x – 0.61x of revenue. To calculate the implied value of the business you multiply sales or revenue by the valuation multiple. See the below calculation:

Revenue X Multiple = Value of the Business

For instance, a carpentry business makes $2,000,000 in revenue. It transacts at a 0.47x REV multiple. The business in this case is worth approximately $940,000.

$2,000,000 X 0.47x = $940,000

A valuation expert will determine which multiples are most applicable to your carpentry business. Often a combination of valuation methods are used to determine the fair market value. In some instances, a revenue multiple may not be as applicable. This is because it does not consider the operations and cash flow of the business. Cash flow multiples – EBITDA and SDE – therefore are important to look at. They consider expenses that impact cash flow such as COGS, salaries, rent, among other expenses.

Summary

When looking at valuation multiples for a carpentry business know that many factors impact them. These factors – value drivers – impact the business and the multiple a valuation expert uses to value the carpentry business. As such, Peak Business Valuation, business appraiser, is happy to chat with you about factors that may impact the value of a carpentry business.

Peak Business Valuation, business appraiser, values carpentry businesses throughout the country. We love working with individuals who are buying, selling, or looking to maximize the value of a carpentry business. Questions are always welcome! Click the link below to schedule your free consultation!

 

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