The more a contractor subcontracts out aspects of a job, the less value his company has, according to a recent survey. Data from ZweigWhite’s 2003 Valuation Survey of Construction Companies conclude that contractors who self-perform more than half their work have higher value ratios.
Specifically, general building, specialty, heavy and highway contractors can expect a higher value ratio than their counterparts if they lessen the amount of subcontracted work. The valuation survey concludes the median total company value to book value, value to gross revenue and value to pre-tax and pre-bonus profit ratios are all higher for contractors who do the majority of their work. The median value/book value for contractors who do the majority of their own work is 2.00, while those that self-perform less than half have a rating of 1.26.
What do the value ratings mean and should contractors be concerned? Laura Rothman, spokeswoman for ZweigWhite, said the purpose of the valuation survey is to let contractors look at the value of their competitors and compare. While contractors could be rated anywhere on a 0 to 10 scale, the majority were placed in the 0-2 area.
“The rating system is based on three values, including value/book value, value to profit and value to gross revenue,” Rothman said. “If a contractor’s value rating is low, they should not be extremely concerned because there are a number of other factors that determine value, including the type of contractor, how old the company is, the location, when the company was evaluated, how much the company is appraised for and if it is expected to experience growth in the next few years.”
Other data the survey reported showed heavy/highway and specialty contractors are valued higher than general building contractors. Contractors with a high field-to-office-staff ratio are also highly valued.
To compile its information, ZweigWhite collected data from 34 privately owned construction companies across the United States, varying in size and location. For more information on how to obtain a copy of the 2003 Valuation Survey, contact ZweigWhite at 208-651-1559, or at www.zweigwhite.com/store/svvcc. The survey costs $345, plus $4 shipping and handling.