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.

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  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....

Cash Flow Myth 3 - Having Enough Capital
We have enough capital to not worry about Cash Flow. From the time this type of thinking starts to permeate the organization it is just a matter of time before there will be a cash flow crisis.
Lean Principle - Kaizen (Every Detail Matters)
As contractors build their businesses, it is important to look at every detail from the first meeting with a potential customer through winning and building the project. This same attention to detail also applies to supporting operations and talent.
Project Delivery - CM Agency or Multi-Prime
Project Owners can minimize the markups for overhead and profit by contracting directly with the specialty contractors and hiring a Construction Management (CM) firm to work as their agent. This project delivery method is called CM Agency or Multi-Prime.