Valuing a Machine Shop

Valuing a Machine Shop

The demand for machine shop services has been growing over the past several months. Machine shop services primarily focus on grinding, drilling, boring, CNC milling, and sawing services. Additionally, machine shops specializing in the automotive industry are experiencing a higher demand as fewer automobiles are available. As demand for the machine shop services industry is growing, it is important to understand how to value a machine shop. This is important whether you plan on selling a machine shop or plan on buying a machine shop. Peak Business Valuation, business appraiser Ohio, is happy to help!

There are many factors that impact the value of a machine shop services business. Peak Business Valuation, business appraiser Ohio, works with several individuals who are buying or selling a machine shop. Peak Business Valuation recommends the first step in buying or selling a business is to obtain a business valuation. As part of a valuation engagement, we discuss some of the key factors for valuing a machine shop service. As a note, the below factors are only a guide. If you are looking for more specific information about a machine shop you are looking to buy or sell, schedule your free consultation with Peak Business Valuation. We are more than happy to help answer any questions you may have! 

Market Multiples for a Machine Shop Services Company

  • SDE Multiple range: 2.34x – 3.49x
  • EBITDA Multiple range: 3.04x – 4.23x
  • REV Multiple range: 0.61x – 1.22x
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.

The first step to increase the value of a machine shop is to understand its value. Understanding the fair market value of a machine shop is helpful whether you are buying, selling, or growing a machine shop. The most accurate multiples to value a machine shop are cash flow multiples, SDE and EBITDA. The SDE and EBITDA multiples are a measure of a company’s financial performance. As such, cash flow multiples are generally a better indication of value over a revenue multiple. Here are a few ideas to help increase a machine shop’s value. If you are searching for a more extensive valuation, schedule a free consultation with Peak Business Valuation, business appraiser Ohio. We can help you! 

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Key Success Factors in the Machine Shop industry

Peak Business Valuation, business appraiser Ohio, values machine shop’s on a regular basis. Below are several success factors that can help distinguish a machine shop’s value. These success factors can give you ideas of how to increase the value of your machine shop.

Customer Concentration 

The first factor impacting the value of a machine shop is customer concentration. If you are a company in the machine shop industry, it’s important to have a diverse customer base. A company with 100 customers who each account for 3%-5% of annual revenue has low customer concentration. Whereas a company with high customer concentration, for instance, has only 4 customers who each account for 25% of the annual revenue. A machine shop with more customers is considered low in customer concentration and carries less risk.

A machine shop company will likely have a higher value if the company has a diverse customer base. Peak Business Valuation, business appraiser Ohio, assesses the level of customer concentration compared to similar businesses in the industry when valuing a machine shop.

Employee Quality 

Next, an essential asset to a machine shop is its expert workforce. Skilled machinists, programmers, and tools room managers can be hard to come by in the machine shop industry. Typically, in the machine shop industry, there is high employee turnover. Machine shops with lower employee turnover will have a higher value. As such, one of the main goals to increase the value of a machine shop is to have skilled, long-standing employees.

Certifications

Last, certifications are becoming an essential part of the machine shop industry. Obtaining certifications is a great way to increase the value of your machine shop. Certifications will help your machine shop maintain quality, safety, and efficiency. In addition, certifications are also a helpful tool to add credibility. 

Summary

There are many important factors to consider when valuing a machine shop company. If you are looking to buy or sell a machine shop service company, it’s essential to understand the value. Obtaining a business valuation from Peak Business Valuation can help you understand the fair market value of the machine shop. A business valuation can also help you recognize areas to maximize the value of your machine shop.

Peak Business Valuation, business appraiser Ohio, values machine shops across the country. One of our main goals and priorities is to help you understand the value of a machine shop business. For more information about a machine shop service business, check out Value Drivers for a Machine Shop. As well as Valuation Multiples for a Machine Shop. We are also happy to answer any questions you may have about valuing a business!  Give us a call or schedule your free consultation below!

 

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