A recent client discussion occurred for a client in the construction industry with their CPA regarding business value. The CPA’s opinion was that construction company value was largely asset based only. He remarked that year to year they can experience fluctuating revenues due to industry cycles and that for three months of the year the company shows historically negative cash flow.
In a further discussion with Chuck Richards, CEO of CoreValue he remarked that is a classic misconception held by many is that these firms value is only tied to the fixed assets they hold. Successful businesses in the construction industry have well developed sophisticated systems and processes for estimating, bidding, customer contact and project management. The organizational architecture and the systems the business runs on all make up a significant goodwill factor that should be accounted for in enterprise value. Gaps in these systems should be a focus of effort to close to further enhance profitability and enterprise value.
Chuck referred me to Ron Everett, CEO of the Business Valuation Center. With Ron’s deep back ground in construction industry valuation he was able to provide pointed guidance to me to help guide the CPA in getting the needed financial data points to run an accurate Core Value report.