Tradie Business Valuation: A Plain-English Guide for Owners
A tradie business valuation is an independent written opinion of what a trade business is worth at a stated date for a stated purpose. It starts from the profit the business really makes, adjusts it for a market wage for the owner and for private or one-off items, then turns the resulting maintainable earnings into a value using a multiple or the assets, and cross-checks the answer. An Independent Business Valuation from Green Standard is $1,995 + GST, and the typical turnaround is 3 to 7 business days once all required information has been received.
- A tradie business valuation is built on normalised earnings, not on reported profit or turnover.
- The owner’s wage is usually the largest adjustment, because a buyer has to pay someone to do the work the owner does.
- Maintainable earnings are turned into a value with a multiple, with net tangible assets as a floor and other methods as cross-checks.
- Value rises with recurring work, spread customers, a team that runs the jobs and written contracts, and falls with dependence on the owner, one big customer or an ageing fleet.
- The typical turnaround is 3 to 7 business days once all required information has been received, and complex matters can take longer.
What is a tradie business valuation?
It is a written, reasoned opinion of what a trade business is worth. It states the date, the purpose, the earnings used, the method and the assumptions, so that an owner, accountant, lawyer or buyer can see how the number was reached. It is not a calculator result, and it is not a broker’s guess at a sale price.
It is also not the price you will get. A valuation reports what the business is worth on its earnings and risks. The price depends on who is buying, the terms and the negotiation, and a broker’s appraisal estimates that price rather than the value. Our guide on business valuation versus business appraisal sets out the difference.
The same approach applies to plumbers, electricians, builders, landscapers, concreters, roofers, painters, pest controllers and other trades, with the detail changing as the way each trade earns its money changes. Our industry pages cover each trade, including plumbing, electrical, building, roofing and earthmoving, and the tradie business valuations hub brings them together.
When does a tradie need a business valuation?
Most owners ask when something is about to change. The common reasons each have their own page on what the valuation needs to address.
- Selling, or planning to sell, where a valuation sets realistic expectations: business sale.
- A capital gains tax question that calls for a market value: CGT.
- Moving the business into a new company or trust: restructure.
- Buying out or bringing in a shareholder: shareholder transfer.
- A partner leaving: partnership exit.
- Handing the business to family or staff: succession.
- A disagreement over what the business is worth: dispute.
- Planning an estate: estate planning.
Whether a valuation is needed for a tax or legal purpose, and at which date, is a question for your accountant, tax adviser or lawyer. We work to their brief.
How is the value of a tradie business worked out?
The work follows a set order.
- Normalise the earnings. Reported profit is rebuilt into what a new owner could expect to keep. Private costs, one-off items and related-party arrangements are adjusted in both directions, and only where the records support it.
- Replace the owner’s wage. If the owner works on the tools, quotes and supervises, a market cost for that work is deducted, because a buyer has to pay for it.
- Form maintainable earnings. Looking at several years, we form a view of the earnings the business can sustain, giving less weight to a year distorted by something unusual.
- Convert earnings to a value. Most owner-operated trade businesses are valued by applying a multiple to maintainable earnings, chosen for the risk and growth in them. Net tangible assets act as a floor, and in asset-heavy businesses they can be the main method.
- Cross-check. The result is tested against another method and against the assets, then moved from enterprise value to equity value for debt, surplus assets and working capital where the interest being valued calls for it.
Goodwill, the value above the net tangible assets, sits inside the result, and in a tradie business the question is how much of it a buyer could keep. Our guide to goodwill in a trade business explains that, and how trade businesses are valued gives the full method. The example below uses illustrative figures for a two-van business.
Illustrative: from reported profit to a value for a two-van business
Illustrative- Reported profit before tax
- $140,000
- Add back interest on van finance
- $6,000
- Add back private vehicle and phone costs
- $5,000
- Add back one-off legal costs
- $3,000
- Add back owner’s salary and super paid through the business
- $60,000
- Less market cost of employing someone to do the owner’s work
- ($130,000)
- Maintainable EBIT
- $84,000
- Enterprise value at an illustrative 3.0 times EBIT
- $252,000
- Cross-check: vans and tools at market value, a floor under the value
- $110,000
- Less: van finance owing
- ($55,000)
- Equity value
- $197,000
Illustrative figures only. The 3.0 times is chosen to show the arithmetic and is not a market figure. EBIT is used, so depreciation stays in as a stand-in for replacing the vans. A real valuation tests each adjustment against evidence.
Notice what does the work. Reported profit looks like $140,000, yet once the owner’s work is paid for at a market rate the business earns $84,000 for a buyer. The equipment sits inside the $252,000 and the finance on it comes off afterwards. That gap between reported profit and maintainable earnings is the one owners most often underestimate.
The market wage comes from what the owner actually does, not from what they currently draw. We look at the hours spent on the tools, on quoting, on supervising and on administration, and cost each part at what it would take to hire someone competent to do it. An owner who works full days on the tools and also runs the business is doing two jobs, and a buyer would need to pay for both.
What makes a tradie business worth more or less?
Two businesses with the same profit can be worth very different amounts. The difference is usually risk: how likely it is that the earnings continue under a new owner.
| What we look at | Tends to support value | Tends to reduce value |
|---|---|---|
| The owner’s role | A manager or lead hand runs the jobs and the quoting | The owner quotes, supervises and holds the key relationships |
| Revenue mix | Recurring maintenance and service work | Work won job by job from a few sources |
| Customers | Many customers, none dominant, with long tenure | One or two customers provide a large share of revenue |
| Contracts | Written agreements with clear renewal dates | Verbal arrangements, or contracts about to expire |
| Licences | Licence cover held beyond the owner | The owner holds the only licence |
| The team | Trained staff or settled subcontractors | High turnover, or dependence on one key worker |
| Vehicles and equipment | Current, maintained, with modest finance | An ageing fleet with replacement due |
| Records | Reconciled accounts and job costing | Private and business costs mixed, thin records |
These are tendencies, not rules. How much each one matters depends on the business.
Several of these have their own guide: owner dependency, recurring maintenance contracts, customer concentration, vehicles and equipment and businesses that use subcontractors. For a worked case in your own trade, see how much a plumbing, electrical, landscaping or HVAC business is worth.
What will a valuer ask you about the business?
The documents show the numbers, and the owner’s account shows how the business really runs. Most engagements include a conversation with the owner or manager. Expect questions like these.
- What do you do in a typical week, and which of it could someone else do?
- Where does the revenue come from: service calls, maintenance contracts, projects, builders or head contractors?
- Who are the biggest customers, how long have they been customers and are they under written agreements?
- Who holds the licences, and who deals with customers day to day?
- How old is the fleet, what is owed on it and what is due for replacement?
- Are any large contracts, staff or subcontractors about to leave or end?
- What would a competent manager need to be paid to run the business?
Plain answers are more useful than flattering ones. A valuer tests each answer against the records, and an owner who describes the weaknesses accurately makes the strengths easier to believe.
What does a tradie business valuation cost?
An Independent Business Valuation from Green Standard is $1,995 + GST. Accountants and advisers who refer matters pay $1,495 + GST per referred matter, and complex matters are quoted from $2,995 + GST as a fixed fee in writing before work begins. An additional historical valuation date is from $495 + GST where the engagement permits it.
Our guide on what a business valuation costs explains what drives the fee, and the pricing page lists each one.
How long does a valuation take?
The typical turnaround is 3 to 7 business days once all required information has been received. That is not a promise, and complex matters can take longer. Most of the time in any engagement is spent waiting for records, so the quickest way to shorten it is to have them ready. You receive a draft before the report is finalised, so you can check the facts.
How do you start?
Begin with the short online intake at our start page. We confirm the scope, the valuation date and the fee, and then you upload documents through a secure client portal. Your accountant can upload on your behalf if you authorise it.
The documents are the usual ones: profit and loss statements and balance sheets for the last three years and the current year to date, tax returns, payroll information, and schedules of vehicles and plant. For a trade business we also ask for revenue by service line, major customers and contracts, licences and a description of the owner’s role. Our guides on documents needed for a valuation and preparing a trade business for valuation list what to gather. If you plan to sell, valuing a business before selling explains why 12 to 24 months ahead is the best time to start.
This guide is general information, not legal, taxation or financial advice. Examples are illustrative. The appropriate valuation approach depends on the circumstances and purpose of each engagement.