Value Drivers for an Electrical Company

Value Drivers for an Electrical Company

The electrical industry is rapidly growing alongside the construction industry. With an annual increase of 2.0% over the past five years, there is no indication of it slowing down. As such, it is a great time to consider expanding, selling or buying an electrical company. Understanding the value of an electrical company is key.

Valuing an Electrical Company

The industry includes companies that do light or power installation, repairs and maintenance on existing wires, and communication wiring/cable installation. 

Here are a few things to note about the industry:

  • Low-interest rates encourage home purchases and improvements
  • Profit margins are expanding due to construction growth
  • There are 221,000 electrical companies with over 1 million employed
  • The adoption of newer technologies is projected to support industry revenue

As a result of the factors discussed above, electrical companies are expected to continue expanding. If you are buying, selling, or expanding your current business, it is important to understand the value drivers of an electrical company. Peak Business Valuation, business appraiser, helps business owners or potential buyers understand the value of their business. Schedule a free consultation today to get started!

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Value Drivers for an Electrical Company

Here are some of the value drivers for an electrical company. These value drivers impact the value of your electrical business. For questions, schedule a free consultation with Peak Business Valuation, business appraiser.

Owner Dependence

This industry requires trained professionals with ample experience. If the business relies solely on the owner, the business will not be able to expand and gain new clientele. Taking the time to train employees and bring on experienced individuals will be one of your most valuable assets. It will decrease owner dependence and increase the ability to bring on new business. 

When valuing an electrical business, a third-party business appraiser such as Peak Business Valuation will look at factors such as owner dependence when valuing the business. The lower the dependence, the higher the value. For more ideas, see Reducing Owner Dependence. 

Quality Team

This section directly correlates with the previous section. Electrical work can be dangerous if not handled properly. An experienced team that works efficiently and safely will create happy customers. A quality team will also be able to handle plenty of jobs. This will increase your revenues and potentially bring in recurring revenue. A quality team is essential to maximizing the value of an electrical company. 

Recurring Revenue

As the market shifts to high residential construction demand, builders have more work on their hands. This means they are contracting out electrical work. Establishing good connections with contractors like this is crucial to gaining recurring revenue. Recurring revenue is one of the essential ways to increase the value of an electrical business. One of the easiest ways to create recurring revenue is through contractor relationships. For more information see Growing Your Business Through Recurring Revenue.

Service Contracts

Another important value driver for electrical companies is the number of service contracts. Service contracts are also a form of recurring revenue. Whether you are doing electrical work for the first time or performing repairs, explain to your customers the value of entering a service agreement. Service contracts ensure the quality of the work that has initially been done and help prevent future problems. Service contracts are a great way to increase your revenues and establish strong customer relationships. A valuation professional will consider customer concentration and service contract revenue when valuing an electrical business. Refer to Diversifying Revenue Streams for more information.

Licensing

Buying a specialized contracting business like an electrical company requires licensing. The fewer people with licensing in the company, the less valuable it is. This is because the only people allowed to operate equipment or work with supplies are licensed electricians. If you do not have many licensed individuals, you will not be able to increase workflow. This means less revenue and a lower-valued company.

Getting individuals licensed is a long process. To become a licensed electrician, you must go through an extensive apprenticeship. If you want to increase the value of the business, you need to focus on this. Whether you choose to get current employees licensed or hire trained personnel, make sure they have enough experience and can work at the expected level. Peak Business Valuation, business appraiser, will consider the licenses your electrical business holds when valuing the electrical company. 

Summary

Electrical companies are part of one of the highest growing industries. This industry is expected to continue that growth in the following years. When valuing an electrical company, there are many factors to consider. If you plan on buying, selling, or growing an electrical company it is important to understand the value. Receiving a business valuation can identify opportunities to increase the value of an electrical business. A business appraisal will also determine a fair market value for an electrical company.

Peak Business Valuation is a leading business appraiser in the nation. We provide business valuations for electrical companies on a regular basis. For more information on valuing an electrical company or electrical valuation multiples, see Valuing an Electrical Company. We are also happy to answer any questions you have. Schedule your free consultation below.

 

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