A Guide To Valuation For Engineering Firms
To improve the value of your business, you need to understand what drives it. This is true regardless of what sector you operate in. The nature of these drivers are unique to your business, but certain sectors have certain commonalities.
Engineering is a diverse sector. Whether you’re environmental consulting group with ten staff or a civil multinational, there is one value factor common to all firms. As professional service businesses, it is human capital that has the most bearing on engineering firms’ value. After all, this is what your clients pay for: the intangible services provided by you and your staff. We explore this rich resource as it relates to engineering firms and their value.
Engineering companies– large and small– tend to rely on a few key figures or directors. In this field, these directors are often practitioners themselves. Through this expertise, they foster strong client relationships, social networks, and industry contacts. The exit or retirement of these key figures can represent a risk to potential buyers if not managed correctly. Risk mitigation might involve internal leadership programs for younger engineers. Or, at the very least, a strong and dynamic succession plan.
These risks, however, come alongside rewards. To work as an engineer in any sector, a higher-level degree is mandatory. To have a group of highly skilled, highly experienced individuals is (you guessed it) highly valuable. Do you have a reputation for hiring exceptional graduates, or for working with highly respected engineers? A talented, well-regarded team can make you attractive to potential buyers.
And another reason you might be appealing: Engineering practice can be geographically dependent. Certain governments have certain regulations: heritage buildings, height restrictions, and environmental preservation. There may be region-specific qualifications or certifications necessary, too.
This is one reason that an overseas enterprise might acquire a locally based business. Strong local business networks, too, are desirable to these players, as they are something they likely lack as new entrants to the local market. Once again, the human capital is what drives this value higher. If your staff are highly trained, and consistently work within local regulations, they are most certainly valuable and an asset to your business.
Understanding your value is the best way to improve it. It is important to recognise that every business is different and that the factors at play might not always be those you expect. And therein lies the value of working with a valuation specialist: when you understand, you improve. Whether we’ve spoken before, or you’re brand new to Seaview, we’d love to hear from you. Contact us here.