How Much Is an Electrical Business Worth?

What makes an electrical business different to value?

Electrical businesses often run several unlike earnings streams under one name. Service call-outs, fault finding, switchboard upgrades, commercial maintenance, new-home wiring, commercial fit-out, data and communications, and solar and battery installation can all sit on one set of financial statements, and they do not behave alike.

The profit figure rarely says which stream produces it. A valuer separates them where the records allow, because a buyer will price each one differently. This guide covers the points that most often decide the answer for an electrical contractor. The wider list of factors is on our page on electrical business valuations.

The earnings themselves are rebuilt in the usual way. An owner who works as an electrician is replaced at a market cost, private vehicle costs and family wages are put at market levels, and one-off jobs and bad debts are separated out. Our guide to how much a plumbing business is worth walks through those steps with figures, and they apply here too. What follows concentrates on what is particular to electrical work.

Does service work or project work carry more value?

Per dollar of profit, service work usually carries less risk, because it repeats. A homeowner with a faulty circuit or a property manager with a failed switchboard calls whoever they know. Nothing has to be tendered, and the next call does not depend on a pipeline.

Project work has to be won again. It is quoted, often at a fixed price, delivered against a program and billed in progress claims. It can be very profitable, but a buyer cannot assume that next year’s projects exist, so project earnings are generally read with more caution.

Neither is better in itself. What matters is the balance and the evidence for each, so we ask for:

• revenue and gross margin by stream for three years, not a single blended figure
• job counts, average job values and repeat-customer rates from the job management system
• awarded work set against quoted work, to see how much of next year’s revenue is already secured
• the pattern of variations and disputed claims on project jobs

How much does builder concentration matter?

A great deal, and it is often the first thing we look at in an electrical business that does housing or commercial fit-out. If a third of revenue comes from one builder or head contractor, the profit and loss statement shows a profit but not the dependency behind it.

We look at how long each relationship has run, how it was won and who holds it. A relationship that sits with the owner or one estimator is worth less to a buyer than one built on a panel arrangement or a long record of repeat work. Payment history and retentions matter too, because a builder’s financial failure can turn a good year into a bad debt. Our guide on customer concentration and business value covers the wider question.

Do commercial maintenance contracts add value?

They can add a good deal, if they are documented and would pass to a new owner. Periodic testing and inspection work, such as test and tag of portable appliances and testing of emergency and exit lighting, is commonly needed by building owners and employers on a set schedule. The details vary by state, building type and the customer’s own compliance program. Because the customer needs the work done, it tends to recur.

We read the contracts, not just the revenue line. We check the length remaining, the renewal history, the pricing basis, whether the customer can terminate on a change of ownership, and whether the business keeps a register of sites and test dates. We also check who does the work: a well run testing round using trained technicians has a different margin profile from one that needs licensed electricians on every visit.

Contracts that were won on price and are re-tendered every year are worth less than ones that have renewed repeatedly. The wider principles are in our guide to recurring maintenance contracts and business value.

What if the owner holds the only electrical licence?

Then part of the value sits with the person rather than the business, and a buyer will price that risk. Electrical work must be carried out or supervised by appropriately licensed people, and the rules on contractor licences, supervisors and who may hold them are set by each state or territory. We describe the facts and leave their interpretation to the client’s adviser and the licensing body.

What we examine is practical: how many licensed electricians the business employs, whether another person could hold the licence the business operates under, how long staff have stayed, and the apprentice pipeline. We also look at how much work is done by employees and how much by subcontractors, since continuity and quality control differ. The wider question is covered in valuing a business with heavy owner dependency.

How much does solar exposure matter?

It matters in proportion to how much of the profit comes from it. Solar and battery installations depend on government incentive settings, retail electricity prices, equipment costs and consumer confidence, and a change in any of them can move volumes quickly. A strong solar year can lift reported earnings above what the business will keep earning.

We ask what share of revenue and gross profit is solar, how that share has moved over three years, and whether the business also earns from servicing, upgrades and retrofit rather than new installations alone. We look at warranty and defect obligations on systems already installed, and at reliance on one equipment supplier. Where solar is the business rather than part of it, the solar industry page is the better starting point.

Why does work in progress matter?

Project work is billed in stages, so at any balance date there is work done but not yet invoiced, and amounts invoiced but unpaid or held back as retentions. How that work in progress is measured can move profit between years, and it needs funding, so a project-heavy business needs more working capital than a service business of the same size.

We ask for a work in progress schedule at each year end and compare how revenue was recognised across years. If work in progress includes disputed variations or jobs that are running at a loss, earnings may be overstated. A buyer will also want to know how much working capital comes with the business.

Retentions deserve a separate look. Money held back by a builder or head contractor is often released only when a defects period ends, and the period varies by contract. We check the age of retentions held, whether any are in dispute, and whether the builder holding them is financially sound.

Two electrical businesses with the same EBITDA

Here are two illustrative businesses. Both report maintainable EBITDA of $400,000. All figures are illustrative, and the multiples are chosen only to show direction. Real multiples depend on risk, growth and evidence, and they are not market figures.

Business A’s earnings are spread across many customers, partly contracted and supported by several licence holders. Business B’s earnings rest on a few builders, one licence and a larger exposure to solar volumes and unbilled work. For illustration we have capitalised A at 3.2 times and B at 2.4 times. On identical earnings, B comes out $320,000 lower, which is 25 per cent less.

The buyers also differ. A business like A can attract larger electrical groups, facilities maintenance companies adding a trade and electricians buying their way in. A business like B tends to suit a buyer who already holds the licences and builder relationships it lacks, and that buyer prices the gap.

In a real engagement we would also test whether Business B’s $400,000 is maintainable at all, since a strong solar year or one large project can lift it above what it will earn next year. To have your own business assessed, start online or read about how we value.