Valuation Multiples for a Painting Business

Valuation Multiples for a Painting Business

The painting industry includes businesses that engage in interior and exterior painting and interior wall covering. This works includes new builds, additions, maintenance, repairs, and alterations. In the United States, there are nearly 261,000 painting businesses. These businesses generate over $36 billion in revenue. This industry is heavily dependent on the construction industry. While the painting industry is currently driven by the high demand for residential housing, private spending and home improvements come in second. This industry is expected to grow over the next five years. As such, now is a great time to buy or sell a painting business. An important part of doing so is obtaining a business valuation. During the valuation process, an expert usually uses valuation multiples for a painting business to determine a fair market value.

Valuing a Painting Business

When valuing a painting business, a valuation expert determines a fair market value. One of the common valuation approaches an expert uses involves using market multiples for painting businesses. A business valuation is a key part of both buying and selling a painting a business. A business appraisal will help determine a fair listing price and is a valuable tool when negotiating with buyers. If you plan on selling your painting business in the next few years, a business valuation can help you understand how to maximize the value.

If you plan on buying a painting a business, a business appraisal will help you understand the fair market value and provide key information about the strengths and weaknesses of the business. This is especially helpful when negotiating a purchase price.

The first step of either process is understanding the value of a painting business. You can get started today by scheduling a free consultation with Peak Business Valuation, business appraiser. We would love to help you understand the value of your painting business.

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Valuation Multiples for a Painting Business

Below is a brief overview of average valuation multiples for a painting business. Keep in mind these are industry averages and should only be used as a guide. For specific information, schedule a free consultation. Peak Business Valuation, business appraiser, is happy to answer any questions you have about valuing a painting business.

Be sure to also check out our other articles: Valuing a Painting Business and Value Drivers for a Painting Business.

 

Valuation Multiples For a Painting 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?

One of the ways a valuation expert values a painting business is by using valuation multiples. A valuation multiple is a ratio. It compares two factors to each other. For instance, a common multiple to value a painting business is the SDE multiple. The SDE multiple compares the seller’s discretionary earnings of the business with the implied value of the company. Often, the valuation expert looks at multiples of similar painting businesses that have recently sold on the open market. They will then determine an applicable multiple for your painting business to determine a range of value.

For instance, a painting contractor makes $580.000 in seller’s discretionary earnings. The valuation expert uses a 2.17x SDE multiple. If this case, the painting business has an implied value of $1,258,600. ($580,000 times 2.17x) On the contrary, if the valuation expert uses a 1.67x multiple, the implied value of the painting business is $968,600. ($580,000 times 1.67x)

As a business appraiser, Peak Business Valuation values painting businesses across the country. We work with painting contractors look to buy, sell, or expand a painting business. Below are average valuation multiples for a painting business. These multiples are what painting businesses transact and are valued at. Below are SDE, EBITDA, and REV multiples for painting contractors. Each painting business is unique, as such the range of value is significant. For specific information, schedule a free consultation.

SDE Multiple

Average SDE Multiple range: 1.41x – 2.84x

According to our data, painting businesses transact between a 1.41x – 2.84x average SDE multiple. To calculate the implied value of the painting business, apply the multiple to the most recent 12-month period of revenue. The calculation is as follows:

SDE X Multiple = Value of the Business

For instance, a painting business generates $340,000 in seller’s discretionary earnings. It transacts at a 2.72x SDE multiple. In this case, the business value is approximately $924,800.

$340,000 X 2.72x = $924,800

Seller’s discretionary earnings is a common cash flow multiple a painting business transacts on. It is also common when valuing small businesses especially painting businesses. Seller’s discretionary earnings is calculated by taking the company’s operating profit and adding back expenses that a new owner may not incur. This can include the owner’s compensation, personal expenses, and other non-recurring or non-related business expenses.

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EBITDA Multiple

Average EBITDA Multiple range: 1.82x – 3.81x

The average EBITDA multiple for a paint contractor ranges between 1.82x – 3.81x. Appling this multiple to EBITDA derives an implied value of the business. Below is the calculation.

EBITDA X Multiple = Value of the Business

For example, a painting business has an EBITDA of $498,000. It transacts at an EBITDA multiple of 2.81x. Using the above metrics, the painting business is worth approximately $1,399.380.

$498,000 X 2.81x = $1,399,380

An EBITDA multiple measures a company’s return on investment (ROI). The EBITDA multiple can be preferred as it normalizes 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: 0.37x – 0.55x

According to our data, paint contracting businesses sell for an average of 0.37x – 0.55x revenue. To calculate the implied value of the business, multiply the amount of revenue or sales a painting business makes by the valuation multiple.

Revenue X Multiple = Value of the Business

For instance, a painting business makes $2.5 million in revenue. It transacts on a 0.45x REV multiple. The business is worth approximately $1,125,000.

$2,500,000 X 0.45x = $1,125,000

A valuation expert will determine what multiples are most applicable for your painting business. Depending on the situation, one or more valuation multiples for a painting business may be used when determining the fair market value. Painting business most often transact on cash flow multiples or SDE and EBITDA. The is because cash flow multiples consider expenses that impact the cash flow including COGS, salaries, rent, expenses, among others.

Summary

When viewing valuation multiples for a painting business, keep in mind many factors impact these. The financials of the company and key value drivers impact the value of the business and the multiple the valuation expert uses. As such, a business appraiser at Peak Business Valuation would love to talk with you more about your painting business. We are happy to answer any questions you have about valuing a painting business.

Peak Business Valuation, business appraiser, loves working with paint contractors looking to buy or sell a painting business. We provide business valuations for painting businesses across the country. Questions are always welcome! Get started by scheduling your free consultation today!

 

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