Valuing an Electrical Company
Demand for the construction industry directly impacts electrical companies and electrical contractors. While commercial construction slowed during the 2019 pandemic, residential construction continues to increase. With consistent demand and the expected growth of the economy, now may be a good time to sell an electrical company or buy an electrical company. Whether you plan on selling or buying an electrical company it is important to understand the fair market value of an electrical company. Below we discuss valuing an electrical company.
Valuing an Electrical Company
There are many important factors that can impact the value of an electrical company. Peak Business Valuation, business appraiser, has worked with many individuals who are buying or selling an electrical company. The first step to buying or selling a company is obtaining a business appraisal or valuation. A valuation engagement provides a detailed report of the value of your company and some of the key value drivers. These key-value drivers impact the value of an electrical company. Below we discuss what valuation multiples a valuation expert may use. And then the factors impacting the value of an electrical company. Keep in mind the below factors are only a guide. For specific information about valuing an electrical business you are looking to buy or sell, schedule your free consultation with Peak Business Valuation, business appraiser.
Market Multiples for an Electrical Company
- SDE Multiple Average: 2.22x – 2.89x
- EBITDA Multiple Average: 3.20x – 4.02x
- REV Multiple Average: 0.38x – 0.71x
** Disclaimer: These multiples are for educational purposes only. Multiples are based on companies with revenues between $1-$5 million. As such, the information provided does not constitute valuation advice and should not be acted as such. These multiples do not represent the valuation opinion of Peak Business Valuation or any of its valuation professionals. Seek the guidance and advice of a qualified business valuation professional with respect to any matter contained in this article.
A valuation expert often uses SDE multiples and EBITDA multiples when valuing an electrical company. A revenue multiple is less often used as it does not consider the operations of the business. For more information, read Valuation Multiples for an Electrical Company.
By understanding what your electrical company is worth, you can take steps to maximize the value of your business prior to selling. If you are buying an electrical business, understanding the value can help you feel confident you are buying the business at a fair price. Below are a few ideas of ways to increase the value of an electrical company. For a more extensive valuation, schedule a free consultation with Peak Business Valuation.
Key Success Factors
Peak Business Valuation values electrical companies on a regular basis. Below are several success factors that can help distinguish your electrical company. These key-value drivers will also increase the value of an electrical business. See Value Drivers for an Electrical Company and How to Value an Electrical Company for more ideas.
Product and Service Mix
What products and services does your electrical company primarily serve? Revenue sources for electrical contractors include installation, servicing, and repairs. The value of electrical companies also varies based on the percentage of residential verse nonresidential services. In the recent pandemic, nonresidential construction saw a decline while residential construction continues with strong growth. This growth is primarily due to increased consumer spending and low lending rates. A valuation expert will analyze your company’s product and service mix and compare it to averages in the electrician industry.
Owner Dependence
Next, one of the main factors impacting the value of an electrical company is the level of owner dependence. For many electrical companies, the owner may be the sole practitioner or key employee. Companies with high owner dependence are more difficult to sell. And, thereby, less valuable. To increase the value of your electrical company, it is important to build a fully independent and skilled team. Another strategy to reduce owner dependence is to be sure all key processes and information are well-documented. Creating recurring revenue streams such as ongoing service and maintenance contracts can also help reduce owner dependence. For more information see, Reducing Owner Dependence.
Quality Team
As we discussed above, having a high-quality, skilled team is of key importance. This is especially important if you are looking to sell an electrical company or looking to buy an electrical company. A buyer will want to walk into a team that is fully operating. Be sure to keep employees up to date with training and new technology. These and licensing can help to ensure a smooth transition when buying or selling an electrical company.
Licensing
Licensing for an electrical contractor can take a significant amount of time and experience to obtain. As such, prospective buyers who do not hold licensing may be less likely to buy the business. And they will typically not buy the business at a premium valuation. Electrical companies that sell for top valuations tend to have several employees licensed. The more licenses and certifications your team and company have the more valuable the electrical company becomes.
Summary
Electrical companies are highly sought-after businesses. Most electrical companies have tremendous growth opportunities. When valuing an electrical company, there are many important factors to consider. Whether you plan on buying, selling, or growing an electrical company it is important to understand the value. Obtaining a business valuation can identify opportunities to maximize the value of an electrical business. A business appraisal will also determine a fair market value range.
Peak Business Valuation values electrical companies across the country. We are happy to answer any questions you may have about understanding the value of an electrical company. You can reach out by scheduling your free consultation below.
