Valuation Multiples for a Flooring Business
Contractors in the flooring industry primarily install flooring, carpet, linoleum, wood, and other floor coverings and surfaces. Within the United States, there are over 120,000 flooring installation companies. These companies generate over $26 billion in revenue. With the increased demand for residential construction, flooring businesses fared well during the pandemic. As such, there are dozens of transactions each year involving flooring installation companies. If you plan on buying or selling a flooring business, it is important to understand the valuation multiples for a flooring business.
Valuing a Flooring Business
A business valuation is an important piece of buying or selling a flooring company. A business valuation determines the fair market value of a business. If you plan on buying a flooring company, a business valuation can help ensure you are receiving a fair purchase price. Whereas, if you plan on selling a flooring company, a business valuation can help determine a fair listing price. You don’t want to overprice your business and scare away potential buyers, but you also don’t want to leave money on the table. In either case, a business valuation can help when negotiating a purchase price. Peak Business Valuation, business appraiser, helps individuals across the country buy or sell a business. We are happy to answer any questions you have about valuing a flooring business. Get started by scheduling a free consultation with Peak Business Valuation, business appraiser.
A valuation expert determines the fair market value of a flooring business using a variety of valuation methods. These methods often involve using valuation multiples. Below is a brief overview of valuation multiples for a flooring business. Keep in mind that these numbers are only a guide. For specific information about a flooring business, schedule a free consultation.
Be sure to also check out Valuing a Flooring Installation Company, How to Value a Flooring Company, as well as Value Drivers for Flooring Installers.
Valuation Multiples for a Flooring 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.
What is a Valuation Multiple?
A valuation expert values a flooring business using valuation multiples. A valuation multiple is like a ratio. It compares two factors to each other. For example, a common ratio or multiple in valuation is an SDE multiple. The SDE multiple compares the seller’s discretionary earnings of a flooring business with the implied value of the company. A valuation analyst often looks at multiples of similar flooring companies that have recently sold. They then use these when analyzing your business to get a range of value.
For instance, a flooring business has $230,000 in seller’s discretionary earnings. The valuation analyst uses a 2.31x SDE multiple to determine the value of the business. In this case, the flooring company has an implied value of $531,300. ($230,000 times 2.31x) Whereas, if they use a 1.89x SDE multiple, the business would be worth $434,700. ($230,000 times 1.89x)
As a business appraiser, Peak Business Valuation values flooring installation businesses across the country. This includes individuals who are looking to sell or buy a flooring business. Below are average valuation multiples for a flooring business. These are valuation multiples a flooring business is valued at and transacts at. Below are SDE, EBITDA, and REV multiples for a flooring installation company. Keep in mind, each business is unique, and the range of value can be significant.
SDE Multiple
Average SDE Multiple range: 1.62x – 2.88x
According to our data, flooring installation businesses transact between 1.62x – 2.88x average SDE multiple. To derive the implied value of a flooring business, apply the multiple to the most recent 12 months of revenue. The calculation follows:
SDE X Multiple = Value of the Business
For instance, a flooring company generates $410,000 in seller’s discretionary earnings. It transacts at a 2.57x SDE multiple. In this case, the business value is worth approximately $1,053,700.
$410,000 X 2.57x = $1,053,700
Seller’s discretionary earnings is a common cash flow multiple. A valuation expert often uses it when valuing small businesses. They calculate it by taking the company’s operating profit and adding back potential expenses the new owner may not incur. These expenses can include the owner’s compensation and personal expenses, as well as other non-recurring or non-related business items.
EBITDA Multiple
Average EBITDA Multiple range: 3.39x – 3.97x
The average EBITDA multiples for a flooring installation business range between 3.39x – 3.97x. Applying this multiple to EBITDA derives an implied value of a flooring company. The calculation is as follows:
EBITDA X Multiple = Value of the Business
For example, a flooring business has an EBITDA of $380,000. It transacts at an EBITDA multiple of 3.72x. Using the above calculation, the flooring business is worth approximately $1,413,600.
$380,000 X 3.72x = $1,413,600
An EBITDA multiple measures a company’s return on investment (ROI). 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: 0.29x – 0.51x
According to our data, flooring businesses self or an average of 0.29x – 0.51x of revenue. You can calculate the value of a flooring business by multiplying the amount of revenue or sales a flooring business makes by the valuation multiple. The calculation is below.
Revenue X Multiple = Value of the Business
For instance, a flooring installer makes $3,200,000 in revenue. It transacts on a 0.45x REV multiple. Then the business value is approximately $1,440,000.
$3,200,000 X 0.45x = $1,440,000
A valuation expert will determine what valuation multiples are most applicable to your flooring installation business. In some cases, a revenue multiple is less relied upon. This is because it does not consider the operations of the business. Therefore, it is important to look at cash flow multiples. Cash flow multiples – SDE and EBITDA – consider expenses that impact cash flow. For instance, COGS, salaries, rent, and expenses, among others. Through a business valuation, the valuation expert will determine which multiples for a flooring business to use to determine the value.
Summary
When looking at valuation multiples for a flooring business, keep in mind many factors impact them. These factors impact the multiple a valuation expert uses to value the flooring installation business. As such, it is important to talk with a business appraiser such as Peak Business Valuation. We are happy to chat with you about your flooring business.
Peak Business Valuation, business appraiser, works with individuals across the country who are buying or selling a flooring business. A business valuation can help you feel confident in your business transaction. Get started by scheduling a free consultation using the link below.
