How to Value an Electrical Contracting Business

How Do You Value an Electrical Contractor Company?

The process of valuing an electrical contracting business is complex and requires various factors to be considered. 

If you're an electrical contractor who wants to learn how to value your electrical business, you're in the right place. We're going to cover that below.

But first, look at our free Service Business Valuation Calculator, which can help you get valuation estimates.

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Disclaimer: The ServiceTitan Business Valuation Calculator is solely meant to provide an estimated valuation of your business. This calculator does not guarantee any price or 

value for your company. Please note that external factors may negatively or positively influence the valuation of your business. If you want a more definitive valuation, please consult a professional.

Valuation Multiples for Electrical Companies

Valuation multiples are among the most common methods to value an electrical contracting business. 

There are many approaches to take for business valuations (income approach or market approach), but here we will cover two of the most commonly used valuation methods for electrical companies:

SDE (seller's discretionary earnings) multiple

An SDE multiple is a commonly used valuation ratio in business valuation. An SDE multiple is a method used to compare a company's seller's discretionary earnings to its implied value. To determine the value of your business, a valuation expert will analyze multiples of recently sold similar businesses and apply them to your company to get a range of values.

EBITDA multiple

The EBITDA multiple is a metric used to evaluate a company's return on investment (ROI). Using a normalized multiple is recommended as it accounts for variations in capital structure, taxation, and fixed assets. This enables businesses to be compared more accurately to similar entities. Normalized ratios provide a more precise indication of the business's future earnings potential for the buyer.

Disclaimer: these multiples are for educational purposes only and should not serve as financial advice. You must consult a qualified professional for an accurate valuation.

These are two of the most commonly used methods to determine the value of an electrical company. Now let's look at some of the most important factors that impact this value.

What Factors Affect the Value of an Electrical Contracting Company?

An electrical contracting business's value is impacted by various factors, such as the size and scope of its operations, its financial performance, customer base, reputation in the industry, competitive landscape, and more.

Next, we'll examine the five most commonly used factors and benchmarks in valuing an electrical contracting company.

Factor #1: Business assets

The value of an electrical contractor company is largely determined by the value of its business assets. This includes vehicles, equipment, tools, and other tangible items used to complete electrical projects.

Intangible assets on the balance sheet such as vendor relationships, customer loyalty, and brand recognition, can also contribute to the value of an electrical contracting business.

Factor #2: Business size & profitability

Size and profitability are two key factors that influence the value of a business. The larger the business, the higher its value will be, as potential buyers recognize it can generate more revenue. Similarly, a profitable business typically commands a higher price tag than one not making money.

ServiceTitan's Reporting Software helps electrical contractors track and understand their business performance, enabling them to identify areas for improvement and increase the value of their business.

By leveraging the Reporting feature, contractors can:

• Track important KPIs like revenue or customer satisfaction by day, week, or month.

• Monitor technicians in the field through technician scorecards.

• Analyze and improve CSR metrics.

Monitoring the performance of their marketing efforts is also important for electrical businesses, and ServiceTitan's Home Services Marketing Software can help with that.

The feature allows contractors to:

• Track ROI on every campaign.

• Analyze and manage their advertising and marketing campaigns. 

• Create trackable phone numbers to get real-time ROI information.

Factor #3: Industry metrics

Industry metrics used when valuing electrical companies include the overall market size, average rates charged by similar businesses in the same geographic area, and other performance indicators such as customer satisfaction surveys and reviews. By looking at these factors, potential buyers can better understand how well the business might perform in the future.

Factor #4: Services & products

Buyers will evaluate the quality of the services and products the business provides and how competitive it is with similar businesses in the same area. If the company offers unique or specialized services or has developed proprietary products, this could increase its value.

For example, if the business has developed a new energy-efficient technology or system, this could be a major selling point and increase its value. 

Factor #5: Licenses

Electrical contractors must be licensed to operate legally in most areas, and having a valid license can increase the value of the business as potential buyers recognize that it has met all of the requirements for operating. Depending on their location, some electrical companies may need to be bonded or insured to do business.

These are some of the key factors that are used to value an electrical contracting business. By understanding these factors, business owners can better prepare their businesses for sale or help potential buyers determine a fair market value for the company.

Tips to Consider Before Selling Your Electrical Contracting Business

If you are considering selling your electrical business, here are some tips.

Tip #1: Grow your electrical business before selling it

To avoid your business being valued at a low price, it's important to show potential buyers that the business is growing and doing well.

ServiceTitan has several features that can help electrical contracting businesses grow and expand their value. 

One such feature is the Service Agreement Software which allows businesses to easily manage and track customer contracts.

Electrical contracting businesses can leverage this feature to: 

• Quickly generate new memberships through ServiceTitan Mobile's three-step membership wizard.

• Tailor memberships for each customer, with customized additional monthly charges, extra maintenance tasks, or membership upgrades for additional services.

• Plan recurring services and prioritize visits that involve older equipment or possible replacements.

Another feature that helps an electrical services business grow is ServiceTitan's Customer Experience Software. 

This comprehensive solution addresses the needs of a new generation of customers that demand consistent and personalized service. The software enables electrical businesses to:

• Deliver a more customized customer experience with automated notifications, web chat services, and personalized messages.

• Send appointment reminders and tech bios over SMS text to let customers know who they should expect. 

• Reschedule appointments and text questions via SMS.

• Enable tech tracking so customers can see where their technician's truck is on the map.

Electrical companies that want to grow also leverage ServiceTitan's Customer Financing Software, which makes it easier for customers to apply for and receive financing. The Financing feature allows customers and technicians to:

• Easily present financing offers using any mobile device.

• Receive financial approval within seconds.

• Automatically calculate "as low as" monthly payments that facilitate the sales process.

• Tailor financing rules according to specific customers' needs.

By offering their customers flexible financing options, electrical companies can keep their biggest jobs moving forward and grow their overall value. 

As companies that we collaborate with grow, ServiceTitan also scales with them. Through our customers' feedback, we constantly improve our solutions and create new features that meet ever-changing customer needs.

Tip #2: Do your research about what professionals you’ll need

Before selling your electrical business, it’s essential to research the professionals you’ll need to help with the sale. You'll require tax, legal, and business support to complete the transaction successfully. The professionals you need might include an attorney specializing in business transfers, a CPA or tax attorney to provide financial advice, a business appraiser to determine the value of the business, and potentially a broker or investment banker to handle the sale.

Tip #3: Ensure a clean financial and legal standing

The company must be up-to-date on all taxes, fees, regulations, financial statements, permits, contracts, and other legal requirements. It is important to have this information in order before beginning the process of selling the business, as potential buyers will likely ask for this information.

You can look for an accountant specialized in the electrical industry to help you review your financials, clean up your books, pay off any liabilities, and advise you on any potential issues. Also, a lawyer might be needed to check your licenses are up-to-date and that you are compliant with local laws.

Tip #4: Understand your potential buyers

The more you know about who is interested in buying your business, the better able you will be to create a successful sales pitch that appeals to them. Understanding the types of buyers interested in your business can also help you plan for the sale.

For example, independent buyers may be looking to purchase a business as an additional income stream or to become their boss. Corporate buyers are typically larger companies looking to expand their operations by acquiring businesses in similar industries.

Regardless, getting a business broker with experience in the electrical industry might be a good idea, and let them handle the sale to ensure you get the fairest price possible. 

Growing an electrical contractor business can involve a lot of work, but the tips and tools presented above should help make the process easier. 

Now Over to You

Valuing an electrical contracting firm becomes easier when you have your questions answered.

On the other hand, growing an electrical business requires more than answering some questions. ServiceTitan can do the hard work and streamline every aspect of your electrical business so that it grows and scales in a competitive landscape. 

ServiceTitan is a powerful tool for electrical contractors who want to stay ahead of their competition and maximize their business’s value. From service agreements and customer financing software to field management, ServiceTitan provides everything you need to grow your business quickly.