Building Business Valuations
Independent valuations for residential and commercial building businesses across Australia.
Green Standard values volume and project home builders, custom builders, renovators, builder-developers and commercial builders. Many small builders are worth close to their net assets plus a modest amount for the pipeline, and we say so plainly, because the profit in a building business is usually the product of the contracts in hand rather than of something that carries on by itself.
A builder’s profit is earned job by job and recognised over the life of each contract, with a licence, an insurance eligibility and a set of statutory warranty obligations attached to the company and its directors. Two builders reporting the same profit can hold very different positions: one with signed contracts for the next year and its profit already banked, the other with a thin order book, jobs running over budget and a work in progress schedule that flatters the numbers.
We examine the work in progress, the order book, the contracts, the licence and insurance position, the subcontractors and the balance sheet, then form a view on what a new owner would actually be buying.
How much is a construction business worth?
A building business is often worth close to its net assets, tested against work in progress, plus a modest amount for signed contracts that have not started. A higher value is supported only where earnings clearly repeat without the owner, through a spread of clients, supervisors who run the jobs and a record of margin on completed work. Because a builder’s profit is earned job by job, a strong year does not on its own show that the next one will follow.
Construction businesses we value
What affects the value of a building business?
These are the questions we work through when we value a building business. Some raise value, some reduce it, and most matter only in combination with the others.
Licence, insurance and liability
Licence and nominee or qualified supervisor
Builders are licensed by each state and territory, and a company usually holds its licence through a nominated individual, called a nominee, qualified supervisor or similar, who meets the qualification and experience requirements. If that person is the owner and leaves, the company may be unable to contract for new work until someone else is nominated. We identify who holds each licence and what a buyer would need to hold or arrange.
Domestic building insurance and home warranty eligibility
Where residential work needs domestic building insurance or a home warranty policy, the insurer or state scheme typically assesses eligibility against the company and its directors, including financial position and past insolvencies. A business that loses eligibility may be unable to take residential jobs above the relevant threshold. We ask for the eligibility letters, limits and conditions, because they decide how much residential work the business can actually write.
Defect liability periods
Statutory warranties on building work run for several years after completion, and longer for structural defects in some states, and commercial contracts add their own defect liability periods. The obligation stays with the company after the job is finished, so we look at the defect and claims history, rectification pending and the provisions made.
Contracts and revenue
Residential versus commercial work
Volume and project homes, custom homes, renovations and commercial fit-outs differ in margin, cash flow, risk and the way work is won. We separate revenue and margin by type, because a buyer will price each of them differently.
Fixed-price contract risk
A fixed-price contract signed before a cost increase leaves the builder carrying it, and the exposure grows with the time between signing and the start of construction. We look at escalation clauses, provisional sums, variation recovery and how the margins on recently signed jobs compare with their original estimates.
Pipeline and order book
Signed contracts that have not started are the closest thing a builder has to value beyond its net assets, but they are worth only what they will earn. We test the order book for contract status, deposits, approvals, finance conditions, start dates and cancellation history, and keep it separate from quotes and enquiries.
Margin by project type
A blended margin hides a lot. We compare the margin each completed job was expected to earn with what it did earn, by type of work, because that history is the best evidence of the margin an order book will deliver.
Work in progress and financial position
Work in progress and margin recognition
Profit on a building contract can be recognised as the work proceeds or when it completes, and the choice moves profit between years. We rebuild work in progress by job, with contract price, costs to date, estimated cost to complete and amounts claimed, and test whether the margin recognised so far is supportable.
Retentions
Commercial principals commonly hold back a percentage of each payment until practical completion or the end of the defect liability period, and the builder in turn holds retentions from its subcontractors. We look at the retentions held and owed, how long they have been outstanding and whether cash is available to release them.
Security of payment
State security of payment laws give builders and subcontractors a fast statutory process for progress claims, with strict timeframes that can be lost if a claim or response is late. We look at the claims history, disputes in progress and whether the business follows the process, because both its own recovery and its subcontractors’ claims against it are affected.
Insolvency context and balance sheet
Building has a long record of company failures, and insurers, financiers, suppliers and buyers all price that in. We look at how much of the cash on hand is client money received ahead of the work, the history of the business and its directors, and exposure to the failure of a client or subcontractor.
People and relationships
Owner role
In most small building businesses the owner estimates, sells, holds the client relationship and supervises the sites, and may also be the licence nominee. We deduct a market cost for those roles and ask which of them a buyer could fill.
Subcontractor management
Most builders deliver their work through subcontractors who set their own availability and prices. We look at how many each trade has, how long they have worked together, whether licences and insurances are checked, how they are paid and what happens to a job if a key trade fails or leaves.
Site supervisors, estimators and systems
Supervisors and estimators who can run jobs and price work without the owner are hard to replace, and estimating, job costing and scheduling systems show whether the business is run or only remembered. We look at tenure, who holds the client relationships and what the job cost records show.
Client concentration and how work is found
A builder that depends on one developer, one land supplier or one estate carries a risk the profit and loss statement does not show. We measure concentration over several years, and look at whether work comes from referrals, display homes, designers and agents, or the owner’s own network.
How a buyer reads a building business
Buyers of building businesses include larger builders adding capacity or a new region, developers who want a builder of their own, and senior supervisors or estimators buying their way into ownership. Most are paying for people, a licence position and an order book, and few are paying for earnings alone.
That is why many small builders are worth close to their net assets plus a modest amount for the pipeline. The profit is largely the owner’s own work in estimating, selling and supervising. Contracts are won one at a time and end at completion. The licence and insurance eligibility are tied to individuals and do not pass automatically with the company, and liability for defects stays with the business after each job. A buyer who paid a multiple of last year’s profit would take on those risks without a contract book to support the price.
Builders can be worth more where earnings clearly repeat without the owner: a spread of clients, a land or developer pipeline, supervisors who run the jobs, systems that cost and schedule them and a record of margin on completed work. A valuation tests both approaches, then states which one it relies on and why.
Adjustments we often make in construction businesses
Reported profit is restated to what the business earns on a commercial footing before any method is applied. Every adjustment is listed in the report.
Owner wages
Replacing drawings, or a salary set for tax reasons, with a market cost for the estimating, selling and supervision the owner actually does.
Work in progress recognition
Restating profit to a consistent basis where margin has been recognised early or late on jobs still being built.
Single-job outliers
A job that finished with an unusually high or low margin, or a large cost overrun, that would distort the margin an order book will deliver.
Defect and rectification costs
Unusual rectification or claims costs, separated from the normal cost of delivering work, together with any provisions that are too low.
Related-party subcontracting and supply
Labour or materials supplied by the owner’s family company or another business at other than market rates.
Development profit
For builder-developers, separating the profit on land and development from the margin earned on building.
Bad debts and non-recoverable claims
Unusual losses from a client or developer failure, or from a payment claim that could not be recovered.
Vehicles and premises used privately
Private use of business vehicles, and an office or yard owned by a family trust or super fund and rented at other than market rent.
Information we typically review
You upload documents through the secure client portal after the engagement is confirmed. We send a list specific to your business; nothing needs to be gathered before the intake.
The financial pack
- Profit and loss statements, usually the last three years and the current year to date
- Balance sheets for the same periods
- Tax returns where relevant
- Payroll summary and employee information
- Vehicle, plant and equipment schedules
- Major customer information
- Recurring contracts and service agreements
- Revenue breakdown by service line
- Owner remuneration and drawings
- Unusual or non-recurring income and expenses
For a construction business, also
- Work in progress schedule by job: contract price, amounts claimed, costs to date, estimated cost to complete and forecast margin
- Signed contracts not yet started, with deposits, conditions, approvals and expected start dates
- Pipeline of quoted and negotiated jobs, with the conversion history
- Completed job register for the last three years showing estimated and final margin
- Builder licence details, naming the nominee or qualified supervisor, and any licence conditions
- Domestic building insurance or home warranty eligibility letters, limits and conditions
- Defect and warranty claims register, open and closed
- Standard contract forms and variation records
- Subcontractor list with annual spend, insurances and payment terms
- Retentions held by clients and owed to subcontractors
- Security of payment claims and disputes, directors’ personal liabilities to financiers and insurers, and debtor ageing
What a construction business valuation costs
Fixed fees, confirmed in writing before work begins. The standard fee applies to most established construction businesses.
Independent Business Valuation
$1,995+ GST
For established trade and field-service businesses requiring an independent valuation.
- Review of financial information
- Normalisation of earnings
- Valuation methodology selected for the business and purpose
- Industry and business risk assessment
- Consideration of plant, vehicles and equipment
- Owner dependency assessment
- Goodwill analysis
- Valuation range and conclusion
- Professionally prepared valuation report
- Draft provided before finalisation
Accountant and Adviser Partner
$1,495+ GST
For accountants and professional advisers who refer valuation matters regularly.
- Streamlined client onboarding
- Adviser kept informed with client authority
- Independent report addressed to the client
- Secure document portal for the client
- Repeat-client workflow
- Partner pricing on every referred matter
Complex Valuations
From$2,995+ GST
For matters with more moving parts. Quoted as a fixed fee in writing before work begins.
- Multiple entities or divisions
- Significant plant and equipment
- Unusual ownership structures
- Partnership and shareholder disputes
- Complex normalisations
- Significant customer concentration
- Historical valuation dates
Fees are fixed and confirmed in writing before work begins.
Construction valuations: common questions
How much is a building business worth?
A building business is often worth close to its net assets, tested against the work in progress, plus a modest amount for signed contracts that have not started. A higher value is supported where earnings clearly repeat without the owner, through a spread of clients, supervisors who run the jobs and a record of margin on completed work. Our guide on how trade businesses are valued explains the methods.
Our profit was strong last year. Why does the valuation focus on net assets and work in progress?
Because a builder’s profit is earned job by job, and a strong year does not show that the next one will follow. We consider an earnings-based approach as well, but it carries weight only where the earnings repeat without the owner and do not depend on a few contracts or on margin recognised early on jobs still being built. The report states which approach we relied on and why.
Does my builder’s licence transfer if I sell the business?
Generally not as an asset. Licences are issued by state regulators to a company through a qualified individual, and a buyer has to hold or arrange a suitable licence and nominee of their own. The rules differ by state, so we identify what applies and a buyer should confirm the position with the regulator. Home warranty eligibility is assessed against the business and its directors, so it needs separate attention.
How does work in progress affect the value of a building business?
It shows how much of the reported profit has actually been earned. Part-built jobs carry costs still to come and a margin that is not yet certain, and amounts received ahead of the work are an obligation to finish it. We rebuild the schedule job by job and adjust earnings and net assets to a consistent basis.
Related industries and guides
Valuing a construction business? Start with a short intake.
An Independent Business Valuation is $1,995 + GST, with a draft before the report is finalised. Typical turnaround is 3 to 7 business days once all required information has been received.