Valuation Math - Growth Pays

All other factors being equal, a contractor that can accelerate growth after the purchase will -- in most cases -- be able to pay for the business quicker.

D. Brown Management Profile Picture
Share

  Here are some things to consider:

Succession: Graph representing valuation and purchasing math for growth and timelines.
  • If the business was already on a strong growth trajectory, then that will be built into the valuation and likely won’t change the pay-off timeline.
  • If the business was valued during peak performance or just before an economic downturn, such as being valued in 2008, then it was likely overvalued and will take longer to pay off, creating a lower return for the buyer and potential payment risk for the seller.  
  • Business growth requires additional capital to manage, so unless the new management finds a way to make the business materially more capital efficient, then some of the after-tax profits each year will have to be retained for working capital with the remainder going toward paying off the business.  
  • Even if the capital comes in from the outside, such as in the case of a third party buyer or merger, the timelines still apply because that is how long their capital will be tied up before they even start to see a cash return. It is like having your money tied up in a 10-year CD at a bank and then after ten years, you can start to receive the interest payments (profits) each year while your original capital is still tied up.      





Valuation Math - Growth Pays
Continue building value in your business, yourself and your key team members with a good succession strategy....

Valuation Math - Growth Pays
Continue building value in your business, yourself and your key team members with a good succession strategy....

Impacted Productivity - Five Elements of Making a Good Case
Contractors are continually faced with costly impacts to their labor productivity and schedule with many beyond their direct control. The best Project Managers know how to identify, communicate, and mitigate these impacts.
Management and Leadership (Similarities and Key Differences)
A growing contractor requires both great leadership (right direction) and great management (right actions). The creativity required to attract, motivate, develop, and retain people are where management and leadership intersect.
Five Stages of Adult Behavior
The larger your team gets the more important it is to learn as much about talent development as you have learned about construction means and methods. These are not skills that can be delegated to someone in HR.