Knowing the value of your home services business

How do you determine the value of your contracting business?

Even if you have never even considered selling your business, it is important to understand its value to you and your family. In fact, you should always be thinking about having your business in a position to sell. 

The simple reason is that owning your own business opens you up to many options. Many owners run and enjoy running a profitable business for decades. But some day, every business needs to either be passed down to a deserving relative, sold to another company, sold to employees or shut down. Even if you wanted to donate the entire value of your company to your favorite charity, it still has value. Knowing its value is critical knowledge no matter which exit plan you choose. 

As baby boomers reach an age that they would like to retire, this is a super important piece of information to know because it will likely determine at what age you can expect to comfortably retire. 

Recent demographic reports from financial experts suggest that 90% of baby boomer owned businesses will be sold in the next 5 years (2024 - 2029). If you are a buyer that is great but if you are a seller how do you stand apart from the others?

Know the accurate value of your business!

Can you enter your credit card information and pay $24.95 to some Paypal verified website and sit back and wait for your ‘full report’ on your business value? - NOPE!

Perhaps using a business valuation calculator that you select your business type and the last 12 months of sales? There might even be a disclaimer at the bottom of the calculator that says ‘solely to provide an estimated value…..’. MAYBE, but there is always that doubt that the ‘types’ of businesses really don’t match your service structure.

Key factors in understanding your business value:

• Company assets
• Company sales
• Net profit
• Customer relationships
• Business model
• Growth trends
• Years in business
• Sales network
• Industry forecast
• Intangibles (brand awareness, repeat business)

Key information you need to track:

• Revenue and revenue growth trends
• Profit margins and overall profitability
• Customer acquisition costs and customer lifetime value
• Customer satisfaction

There are also other business trends that are going to play a role such as the temperature of the business market for the service being offered. For example, companies dedicated to installing land-line phones in multiple rooms, might find the market a bit cold now.

You probably know what your company assets are but the knowledge of the other factors becomes more challenging to understand. Because your team is an important company asset, you can emphasize your bonus program to keep the best employees.

Because you have been doing cost based estimating for years you will be in great shape knowing your gross profit information. What did you sell each year, how those numbers improved from year to year and how the profitability rose in each phase. Doing job costing will also give you the advantage to know your profitability during and immediately after a job is completed as well as historically.

Presenting the facts about your business to a potential buyer such as growth trends in both sales and profitability will give you the confidence to reject offers that do not represent the true value of the company.  

Another option is to check in with business coaches that specialize in your trade, they can help you value your business. You want to select a coach that has experience selling companies in the same trade as your business since the metrics vary from service to service. If you are a Painter, you should check out Brandon Lewis from The Academy for Professional Painting Contractors, he is a straight shooter and has helped a lot of painters improve their businesses and many to sell them. 

Knowing your numbers will help give you the tools and confidence to know what your business is worth.