By: Bob Harris, M&A Advisor, M&AMI, Industry Expert
I have advised many lumberyard and building center owners when they are ready to exit their businesses and am often asked to provide an opinion of value. The value of one business over the other can be far different even when they are similar in revenue size. Here are the key value drivers that owners of lumberyard/building centers should consider addressing prior to selling their businesses:
Customer Mix
A lumberyard/building center that provides services to a healthy mix of custom home builders, repair & remodeling contractors, and DIY consumers will typically have more value than those that service primarily just one of these customer segments. Rising interest rates have lowered the demand for new home building and lumberyards/building centers that primarily serve new home builders have experienced revenue declines. On the other hand, rising disposable income and homeowners deciding to stay in their homes longer have fueled demand for more home improvement projects. Customer concentration is also an important factor and business owners should strive to keep their largest customer at no more than 10% of overall revenues.
Owner Dependency
Buyers are more comfortable in purchasing a business that has key management already in place and where the owner isn’t involved in every aspect of the business. As the owner, you want to have peace of mind that the business can operate without you and won’t miss a beat while you take that one-week (or longer) vacation.
Profitability and Owner’s Cash Flow
It goes without saying that lumberyard/building centers that are highly profitable and provide strong cash flow to the owner are much more valuable than those that are just getting by. It is important to keep an eye on margins and to price your products and services correctly. Having an updated inventory system and taking into consideration supplier discounts are crucial in sustaining healthy margins. Growing revenue doesn’t make a business more valuable if the bottom line and overall cash flow to the owner isn’t also showing corresponding growth.
Great Service & Knowledgeable Employees
Providing great service and having knowledgeable employees are key to competing with the big-box retailers. I often hear from owners that finding and retaining good employees are among the biggest challenges they are experiencing. Providing a good culture and work-life balance including competitive pay, flexible scheduling, reduced workdays, benefits and other perks, recognition and rewards, and an emphasis on teamwork will go a long way in retaining good employees. Fostering the opportunity for growth and professional development is also very important.
Supplier/Vendor Concentrations
Having many suppliers available to order products are essential versus relying on just a few. This is especially important for products that are purchased frequently such as lumber and other structural building materials.
Condition of Lumberyard and Equipment
The lumberyard should be kept neat with old, warped inventory immediately removed. Customers will look for other alternatives if they feel they are getting bad lumber. Maintaining equipment and replacing older assets on a regular basis are also important and affect value. Buyers don’t want to purchase a business where they will need to immediately replace assets that are worn out and haven’t been well-maintained.
The value of a lumberyard/building center business comes down to how risky the business is to the buyer. Focusing on these key value drivers will translate to a much higher value when it comes time for the owner to exit the business.
M&A Advisor, M&AMI, Lumberyard & Building Industry Expert
Bob is an accomplished business broker and mergers and acquisitions advisor and has served business owners since 2008.
612-716-4579
bharris@tnma.com
