Value Drivers for Lumber and Building Material Stores
The value of lumber and building materials stores has been changing recently. Recent market forces have had positive effects on the industry which have altered the industry’s landscape. For example, as home improvement activities by consumers increased the demand for lumber and other home improvement goods increased. During this surge in demand, prices for key inputs such as lumber also increased. Both of these changes bode well for the small lumber store and building materials store. The aware small business owner can use this information as an opportunity to increase the value of a lumber and building material store.
In the following paragraphs, we discuss key value drivers for lumber and building material stores. If you are looking for an answer on how to increase the value of your lumber and building materials store, this article is for you. For further information, schedule a free consultation with Peak Business Valuation, business appraiser. We are happy to answer any questions about valuing a lumber and building materials store.
Key Value Drivers for a Lumber and Building Material Store
Below are several key value drivers for lumber and building materials stores. These key value drivers are essential for any operator in the space. If you are looking to increase the value of a lumber and building materials store, focusing on these value drivers will be the top priority. Remember, an increase in demand provides an opportunity to increase value. If you want to maximize this opportunity, focus on the following key value drivers for lumber and building materials stores. For more ideas see Valuing a Lumber and Building Material Store, How to Value a Lumber and Building Material Store, and Valuation Multiples for a Lumber and Building Material Store.
E-Commerce Sales
The demand for e-commerce transactions has increased because of the pandemic. Stay-at-home orders made ordering products online far more convenient than in-person shopping methods. This shift in consumer habits brings opportunity with it for lumber and building materials store owners to meet consumer needs. And if you don’t think e-commerce is a worthy investment for the local lumber and building materials store, think again. IBIS World reports that 21 of the top 100 industry operators currently operate an online e-commerce channel in 2016. Furthermore, about half of the industry’s top 100 operators plan on creating one within a year. This means that within a year, around 75 of the top 100 operators will be competing online.
Investing in an e-commerce website has many implications for a lumber and building materials company’s value. Outside of increasing revenue, offering consumers an e-commerce sales experience will lower costs per transaction. This will increase the profitability of the lumber and building materials store. Increasing profitability, decreasing costs, and increasing customer transactions all increase the value of a lumber and building materials store. As a business appraiser, Peak Business Valuation will analyze your revenue streams and financial statements when valuing a lumber and building materials store.
Customized Products
Next, as big box lumber stores continue to amass market share and spread across the country, anything a company can do to stand out will improve its value. One of the ways industry operators have been successful at this is by providing customers with customized products. This takes a significant investment as customized products need a more skilled and creative workforce. This investment may seem like a large commitment, but it can go a long way in developing a brand and increasing sales. Big box lumber and building material stores are not as able to provide customized products. Thus, consumers who desire these products cannot expect a big box store to fill the demand. This is why customized product offerings stand out as a significant value driver for lumber stores.
Investing in the ability to provide customized products increases company value by expanding revenue and diversifying the customer base. Lumber and building material stores that provide these products serve a wider range of customers than other stores that do not.
A business appraiser at Peak Business Valuation analyzes a company’s customer base to see if customer concentration risk is present. Companies with high revenue concentration among a few customers are riskier and less valuable. By expanding the company’s customer base, the company becomes less risky and a more valuable investment for a potential buyer.
New Home Sales and Retaining Key Contracting Relationships
The home sale market is an important driver for the industry, particularly new home sales. Demand for new home sales drives industry demand. New home construction requires large amounts of lumber and building supplies. And as stated, demand for lumber and building materials is expected to rise. These relationships with home builders can prove to be a huge investment for a small lumber and building materials store owner. Providing discounts and services for high-volume contractors can go a long way to developing these relationships. For example, volume discounts and job-site delivery services may help secure relationships.
When home sales are forecasted to increase, valuation analysts tend to forecast higher revenue and profits. This increases the company’s value naturally. Additionally, valuation analysts analyze accounts receivable summaries for indications of high-volume clients. If a company has a large number of high-volume clients, the valuation of the lumber and building material store will be higher.
The Price of Lumber
Another primary value driver for the lumber and building materials industry is the price of lumber. Industry revenue and profits are reliant upon the price of lumber. As stated, both the price and demand for lumber increased. These two factors will lead the industry to high revenue growth.
This is good news for industry operators hoping to increase the value of a lumber and building materials store. Continued growth in both the price of lumber and the demand for lumber will increases revenue substantially. Both the number of lumber sales and the lumber price will increase. This will increase the value of the lumber and building materials store. Higher revenue leads to more profitability and larger perpetual growth rates used in the valuation process.
Other Building Supplies
Providing a wide range of products is a common valuation driver for many industries. Expanding choices available to consumers can increase company foot traffic and sales. According to reports by IBIS World, lumber is the highest product segment in the industry followed by hand tools and hardware. What may surprise small lumber and building materials store owners is that plumbing and electrical supplies make up almost a third of industry sales. If your company is not providing these products, it may be missing a large chunk of its sales opportunities.
Securing Key Partnerships
Last, many lumber and building materials industry operators have had challenging supply chain issues. These types of supply chain complications are common in industries reliant upon key input pricing. Because of this complication, operators need to establish solid relationships with many suppliers. This is no small task for small lumber and building material store operators, but it can be done. Begin with a small group of suppliers in each key product group and make a plan for how to improve communication and efficiency with each. As relations improve, continue to grow the list. This will have a positive effect on revenue as customers place more trust in your store.
When a business appraiser at Peak Business Valuation is valuing a lumber and building materials store they will assess key partnerships. Diversifying suppliers and creating key contracts reduces risk which increases the value of a lumber and building materials store.
Summary
Understanding what drives the value of your lumber and building material store will enable you to set goals to maximize the value. Whether you are looking to buy or sell a lumber and building material store, you need to know how to value your business. Determining the value of a lumber and building material store can be complicated. As such, a business valuation professional uses their judgment, experience, and relevant information to determine the value.
The first step to finding out how much your lumber store is worth is with a business valuation. A business valuation will determine a fair market value for the lumber and building materials store. The business appraisal will also analyze the business’s strengths and weaknesses and assess how it compares to its competitors.
Peak Business Valuation provides business appraisals for lumber and building material store owners. We are happy to answer any questions you have about valuing a lumber store. Schedule a free consultation by clicking the link below.
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