Value Drivers for a Construction Company
Construction has been and always will be important and necessary for cities to expand. When the Covid-19 pandemic hit, demands for commercial construction subsided while demands for residential construction increased. There are many factors that affect or change revenue, but there are several things your company can do to stay on top of the game. Focusing on aspects that drive your construction business will increase its worth.
Peak Business Valuation, business appraiser, works with people every day who are trying to sell, buy, or grow their construction business. We would love to help you learn about the value of your construction company. Click the link below to schedule a free consultation!
Key Value Drivers for a Construction Company
In order to maximize the value of your construction company, you need to know the key value drivers of a construction business. Since 2016, construction in the United States has seen a 2.4 percent annual growth. This means there is an opportunity to maximize your business. Below, we discuss the top key value drivers for the construction industry. For more specific information on your company, please reach out to us by scheduling a free consultation. For more information see Valuing a Construction Company, How to Value a Construction Company, and Valuation Multiples for a Construction Company.
Service Mix
The construction industry offers many products and services. In the current industry, residential construction is in higher demand than commercial construction. As a valuation expert, Peak Business Valuation will compare the revenue between the two. Companies that focus on residential tend to have higher revenue, which means a higher value. Residential construction can include homes and developments, renovation projects, or upgrades on existing features.
Specialization
There are over three million construction companies across the United States. To be successful, you need something that sets you apart from the competition. Whether that is the type of construction work you offer, or the time frame to get the job done, etc., you need something. Create a competitive advantage for your construction business.
One option is to look at growing market needs. For instance, the need for multifamily housing has increased significantly over the past few years. This includes townhomes, duplexes, condos, etc… Millennials and baby boomers prefer this type of housing over buying a home.
One way to create a competitive advantage is to follow the trends. If people want multifamily housing, create contracts with builders who are doing multifamily housing. Following what the consumer wants is a great way to keep on top of your business.
Business appraisers, such as Peak Business Valuation, always consider the competition when valuing a construction company. Setting your construction company apart from the competition increases revenue. Revenue directly impacts the value of a construction company. For additional questions schedule a free consultation with Peak Business Valuation.
Recurring Revenue
Next, an important piece to success in a construction business is bringing in recurring revenue. This can come in many forms but oftentimes, a construction business will have contracts with builders. This creates continual revenue and less owner dependency. Since the beginning of the pandemic, residential construction is booming and low-interest rates are reeling in the clientele. Construction contractors who take the time to build successful business relationships will do well in the industry. Bringing in new contracts is time-consuming and expensive.
Recurring revenue raises the value of your business because it can smoothly transfer from one owner to the next. If you plan to sell or maximize your business, creating revenue that reoccurs is the best way to be successful. For more ideas see Growing Your Business Through Recurring Revenue.
Overall Work Management and Training
Construction takes many hands to get the job done. Successful construction companies are organized and complete jobs on time. This begins with good communication, organization, and management. In addition, each person working on the site requires some sort of training to know how to do their job. Creating a properly trained team is important to company growth. To avoid litigations, take the time to train your employees on safety and work protocols. If you are wanting to sell or grow your company it is important to have well-trained employees and effective management techniques in place.
Technology
Last, embracing technology is a great way to add value to your construction company. Using technology to keep track of projects, manage training, track clients, and manage contracts can help your company run efficiently. In addition, new types of equipment are released often, and company owners are smart to invest. Using the latest technology for production and staffing helps the business run efficiently and safely. The more efficient a business operates the higher the profit margin tends to be. A valuation expert such as Peak Business Valuation will consider margins and cash flow when valuing a construction company.
Summary
Knowing what drives the value of your construction business will help you increase revenue and drive sales. This helps maximize the value of a construction company. Whether you are wanting to buy, sell, or maximize the business you own, it is important to know the value of the company.
Peak Business Valuation, business appraiser, values construction companies across the United States. Our valuation professionals at Peak would love to chat with you about how to increase the value of your construction business. Click the link below to schedule your free consultation!
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