Business Valuation Methods for Construction Companies

Document Type: Guide
Version: 1.0
Last Updated: February 2026
Distribute To: Owner, CFO, Advisors

---

Purpose

Provide guidance on valuation methods specific to construction companies for succession planning, sale preparation, buy-sell agreements, and strategic planning.

---

Why Valuation Matters

Common Valuation Needs:

• Succession/exit planning
• Selling the business
• Buying a competitor
• Partner buyout
• Buy-sell agreement funding
• Estate planning
• Divorce proceedings
• Shareholder disputes
• Banking/financing
• ESOP implementation

---

Construction Company Valuation Factors

What Drives Value:

Factor	High Value	Low Value
Revenue trend	Growing	Declining
Profitability	Consistent, above market	Volatile, below market
Backlog	12+ months	Short
Client concentration	Diversified	over 30% one client
Key person risk	Strong team	Owner-dependent
Recurring work	Repeat clients	All new
Safety	Low EMR	High EMR
Systems	Documented	In owner's head
Reputation	Excellent	Problems

Construction-Specific Considerations:

• WIP adjustments
• Backlog quality
• Bonding capacity/transferability
• License considerations
• Key employee retention
• Subcontractor relationships
• Equipment condition and value
• Contingent liabilities (warranties, claims)

---

Valuation Methods

Method 1: Income Approach (Most Common)

EBITDA Multiple Method:

================================================================
         EBITDA MULTIPLE VALUATION
================================================================

STEP 1: Calculate Normalized EBITDA

Reported EBITDA: $_________________

Adjustments:
  Owner compensation adjustment: $_________________
    (Excess or below-market compensation)
  Non-recurring expenses: $_________________
    (One-time legal, moving, etc.)
  Non-recurring revenue: $_________________
    (One-time gains)
  Related party adjustments: $_________________
    (Above/below market rent, etc.)
  Personal expenses: $_________________
    (Run through business)
  Other: $_________________

Normalized EBITDA: $_________________

----------------------------------------------------------------

STEP 2: Determine Appropriate Multiple

Construction industry multiples (general ranges):
  Small contractor (under $5M): 1.5-2.5x
  Mid-size contractor ($5-25M): 2.5-4.0x
  Larger contractor ($25M+): 3.5-5.5x
  Specialty with niche: 3.0-5.0x
  Design-build: 4.0-6.0x

Factors affecting your multiple:

POSITIVE (Higher multiple):
☐ Strong growth trend (+0.5x)
☐ Diverse client base (+0.5x)
☐ Low owner dependency (+0.5x)
☐ Strong backlog (+0.5x)
☐ Excellent reputation (+0.5x)
☐ Recurring revenue (+0.5x)
☐ Clean financials (+0.25x)

NEGATIVE (Lower multiple):
☐ Declining revenue (-0.5x)
☐ Client concentration (-0.5x)
☐ Key person risk (-0.5x)
☐ Thin backlog (-0.5x)
☐ Safety/quality issues (-0.5x)
☐ Aged equipment (-0.25x)
☐ Financial issues (-0.5x)

Selected multiple: _____x

Rationale: _________________________________________________

----------------------------------------------------------------

STEP 3: Calculate Enterprise Value

Normalized EBITDA: $_________________ × _____x = $_________________

----------------------------------------------------------------

STEP 4: Adjust to Equity Value

Enterprise Value: $_________________
Less: Interest-bearing debt: $_________________
Less: Debt-like items: $_________________
Plus: Excess cash: $_________________
Plus/Less: Working capital adjustment: $_________________

Equity Value: $_________________

================================================================

Discounted Cash Flow (DCF):

================================================================
         DISCOUNTED CASH FLOW VALUATION
================================================================

PROJECT FUTURE CASH FLOWS:

| Year | Revenue | EBITDA | CapEx | WC Change | Free Cash |
|------|---------|--------|-------|-----------|-----------|
| 1    |         |        |       |           |           |
| 2    |         |        |       |           |           |
| 3    |         |        |       |           |           |
| 4    |         |        |       |           |           |
| 5    |         |        |       |           |           |

Terminal value (Year 5 FCF × _____ multiple): $_________________

----------------------------------------------------------------

DISCOUNT RATE:

Risk-free rate: _____%
Market premium: _____%
Size premium: _____%
Company-specific risk: _____%
Discount rate: _____%

----------------------------------------------------------------

CALCULATE NPV:

| Year | Free Cash Flow | Discount Factor | Present Value |
|------|----------------|-----------------|---------------|
| 1    |                |                 |               |
| 2    |                |                 |               |
| 3    |                |                 |               |
| 4    |                |                 |               |
| 5    |                |                 |               |
| Terminal |            |                 |               |

Enterprise Value: $_________________

================================================================

---

Method 2: Asset Approach

Adjusted Net Asset Value:

================================================================
         ASSET-BASED VALUATION
================================================================

ASSETS AT FAIR MARKET VALUE:

| Asset | Book Value | Adjustment | FMV |
|-------|------------|------------|-----|
| Cash | | | |
| Accounts receivable | | (uncollectible) | |
| Costs in excess | | (review) | |
| Equipment | | (appraisal) | |
| Vehicles | | (market value) | |
| Real estate | | (appraisal) | |
| Other tangible | | | |
| TOTAL ASSETS | | | |

----------------------------------------------------------------

LIABILITIES:

| Liability | Book Value | Adjustment | Adjusted |
|-----------|------------|------------|----------|
| Accounts payable | | | |
| Billings in excess | | | |
| Accrued expenses | | | |
| Debt | | | |
| Contingent liabilities | | (estimate) | |
| TOTAL LIABILITIES | | | |

----------------------------------------------------------------

NET ASSET VALUE:

FMV of assets: $_________________
Less: Adjusted liabilities: $_________________
Net Asset Value: $_________________

----------------------------------------------------------------

INTANGIBLE VALUE ADD-ON (if applicable):

Goodwill elements:
  Trained workforce: $_________________
  Customer relationships: $_________________
  Reputation/brand: $_________________
  Licenses/certifications: $_________________

Total intangible: $_________________

----------------------------------------------------------------

TOTAL VALUE: $_________________

================================================================

When to Use Asset Approach:

• Holding company with real estate
• Company being liquidated
• Unprofitable company
• Floor value for any transaction

---

Method 3: Market Approach

Comparable Transaction Method:

================================================================
         MARKET APPROACH VALUATION
================================================================

COMPARABLE TRANSACTIONS:

| Company | Revenue | EBITDA | Price | Rev Mult | EBITDA Mult |
|---------|---------|--------|-------|----------|-------------|
|         |         |        |       |          |             |
|         |         |        |       |          |             |
|         |         |        |       |          |             |

Average revenue multiple: _____x
Average EBITDA multiple: _____x

----------------------------------------------------------------

APPLY TO SUBJECT COMPANY:

Subject revenue: $_________________ × _____x = $_________________
Subject EBITDA: $_________________ × _____x = $_________________

Indicated value range: $_________________ to $_________________

----------------------------------------------------------------

ADJUSTMENTS FOR DIFFERENCES:

| Factor | Comparable | Subject | Adjustment |
|--------|------------|---------|------------|
| Size | | | |
| Growth | | | |
| Margins | | | |
| Risk | | | |

Adjusted value: $_________________

================================================================

Challenges with Market Approach:

• Limited public data for construction
• Each company is unique
• Transaction terms affect price
• Timing differences

---

Valuation Adjustments

Common Adjustments:

================================================================
         VALUATION ADJUSTMENTS
================================================================

EARNINGS ADJUSTMENTS:

Owner compensation:
  Actual: $_________________
  Market rate: $_________________
  Adjustment: $_________________

Non-recurring items:
  Legal settlement: $_________________
  One-time expenses: $_________________
  Adjustment: $_________________

Related party transactions:
  Above-market rent: $_________________
  Below-market services: $_________________
  Adjustment: $_________________

Personal expenses:
  Vehicle: $_________________
  Entertainment: $_________________
  Other: $_________________
  Adjustment: $_________________

TOTAL EARNINGS ADJUSTMENTS: $_________________

----------------------------------------------------------------

BALANCE SHEET ADJUSTMENTS:

Working capital:
  Required level: $_________________
  Actual level: $_________________
  Adjustment: $_________________

Equipment:
  Book value: $_________________
  Fair market value: $_________________
  Adjustment: $_________________

Real estate:
  Book value: $_________________
  Fair market value: $_________________
  Adjustment: $_________________

Contingent liabilities:
  Warranty reserves: $_________________
  Litigation: $_________________
  Adjustment: $_________________

================================================================

---

Discounts and Premiums

Common Adjustments:

Adjustment	Description	Typical Range
Control premium	Buyer gets control	+20-40%
Minority discount	Minority interest	-20-35%
Marketability discount	Hard to sell	-15-35%
Key person discount	Owner dependent	-10-25%

When Applied:

Base Value: $_________________

Control premium (if buying control): +____% $_________________
OR
Minority discount (if minority stake): -____% $_________________

Marketability discount (if closely held): -____% $_________________

Key person discount (if applicable): -____% $_________________

Adjusted Value: $_________________

---

Valuation for Different Purposes

Purpose Affects Method:

Purpose	Preferred Approach	Notes
Sale to third party	Income (EBITDA)	Market-based
Internal succession	Income + Asset	May discount
Buy-sell agreement	Formula or appraisal	Define in agreement
Estate planning	Income	IRS scrutiny
Divorce	Income + Asset	Full disclosure
Banking	Asset	Collateral focus
ESOP	Income	DOL requirements

---

Working with Valuators

When to Hire Professional:

• Sale or significant transaction
• Litigation or dispute
• Estate/gift tax
• ESOP
• Buy-sell funding

Types of Valuation Reports:

Report Type	Detail	Cost	Use
Calculation	Limited	$	Internal planning
Summary	Moderate	$$	Non-litigation
Full appraisal	Comprehensive	$$$	Litigation, IRS

Selecting a Valuator:

• Construction industry experience
• Credentials (ASA, ABV, CVA)
• References
• Clear engagement terms

---

Valuation Summary Template

Final Valuation Report:

================================================================
         VALUATION SUMMARY
================================================================

Company: _______________________
Valuation Date: _______________
Purpose: _______________________
Prepared by: _______________________

================================================================

VALUATION METHODS APPLIED:

| Method | Value | Weight | Weighted Value |
|--------|-------|--------|----------------|
| EBITDA Multiple | $ | ___% | $ |
| DCF | $ | ___% | $ |
| Asset | $ | ___% | $ |
| Market | $ | ___% | $ |
| WEIGHTED AVERAGE | | 100% | $ |

----------------------------------------------------------------

CONCLUDED VALUE:

Enterprise Value: $_________________
Less: Debt: $_________________
Plus: Excess cash: $_________________
Equity Value: $_________________

Value per share (if applicable): $_________________

----------------------------------------------------------------

KEY ASSUMPTIONS:

1. _______________________________________________________
2. _______________________________________________________
3. _______________________________________________________

----------------------------------------------------------------

LIMITING CONDITIONS:

1. _______________________________________________________
2. _______________________________________________________

================================================================

---

Related Documents

• Succession Planning
• Buy-Sell Agreements
• Acquisition Evaluation
• Strategic Planning

---

Template provided by support.construction. Know what your business is worth—and what drives that value.