Client being requested for a valuation of the business

[David]

Client has been asked for a valuation of their business. The requester is fine with a valuation method to use in lieu of getting a full valuation done every year.

They told my client that their CPA should be able to give them insight as to how most companies in their industry are valued. They gave an example of net profits times X% + assets. The X% is supposedly the typical valuation % for the industry.

Does anyone know a good resource that I can use to determine a valuation method for a roofing company?

Thanks.

[Lion EA]

Is there a trade organization for roofers?

[JohnH]

What is the purpose of the valuation?  This can potentially get expensive if they do an annual valuation.

Edited March 4, 2015 by JohnH

[JohnH]

I seriously doubt an annual valuation will be worth much - almost certainly not worth the cost to get it done.

Also, anyone preparing a valuation needs to consider the potential risks of getting caught up in a dispute down the road.

 

Here's a pretty good article on the subject - it'd old but still useful.

 

http://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=3054&context=flr

Edited March 4, 2015 by JohnH

[Lee B]

Be careful the top two reasons that accountants in public practice get sued are Business Valuations and Divorced Clients.

[jklcpa]

I'd be very careful about providing any information about this for the reasons already mentioned, plus there can be a wide range in a valuation for this kind of service business depending on its size.  As Lion said, I'd point the roofer back to looking for that information through trade organizations that he can provide directly to the "requester" without involving you.

 

Here's an interesting article about why these types of businesses have such low values, and at the end talks about how a roofer could increase the value of its business.  You'll see from this that a roofer with a couple of trucks with signs on them and operating out of a small office will have a vastly different valuation than a larger one that has multiple levels of management, a sales team, a large number of roofers employed, etc.  It is from roofingcontractor dot com. http://www.roofingcontractor.com/articles/84818-how-much-is-your-business-worth

[BulldogTom]

I echo all the thoughts above.  be careful where you tread.

 

In my neck of the woods, a typical valuation of a contractor would be something like 5 times annual cash flow.  That is a very general rule.  There would be adjustments to cash flow for owner payments, and other situations unique to the individual business.  Assets are almost entirely ignored for contractor valuations, unless there is a very readily available market for the assets (think heavy equipment for highway construction, large land movers, tractor trailers, etc). 

 

For roofers, I would assume that they are holding a bunch of beat up equipment and some rolling stock.  The balance sheet approach would be useless in valuing them.  You would pound the balance sheet so hard that what would be left is cash on hand, discounted receivables and liabilities.

 

Hope this helps.

 

Tom

Newark, CA