lake side bob
Senior Member
The question is what is your small business worth.
You have been in business for what, 20 years, 30 years, and it has been hard to make a living and pay all the expenses given the competition out there.
You have grown old, your knees hurt, the strength of your youth has gone, all that muscle mass that was on your upper body, shoulders and arms is now around your waste, and it’s not muscle.
You have learned a lot about the excavation business, a wealth of knowledge paid for by the school of hard knocks.
So you are thinking what is this business you have built is worth, what can I get out of it for my old age support.
Couple of ways to look at it.
We all know the stock market, per stock share price based on a multiple of the firm’s earnings equals the firm’s value.
You may think my firm is worth 15 times profit, Big Wrong.
Small excavation firms sell for an average of 2.5 times Sellers Discretionary Earnings (SDE), that is adjusted profit.
* Note that SDE includes owners wages.
Small owner operator firms called main street businesses, those that have profits of up to $2 million, yes, a small business with profits of up to $2 million is considered a main street small business. They have on average an earnings multiplier of 2.5. An example your firm has a profit over several years of say $200,000, then 2.5 times equals $500,000. I know very few small excavators that have a profit after expenses of $200,000, I used that number only for an example.
The profit of small firms is adjusted by business brokers to arrive at what is called Sellers Discretionary Earnings (SDE), look it up on the internet to understand what it is, it is not that complicated.
I have read several business broker information sheets, booklets and found this interesting piece of information for all the various kinds of small businesses, not just excavation firms.
SDE Multiple Business Value
$50,000 1.0 – 1.25 $50,000 - $62,500
$75,000 1.1 – 1.8 $82,500 - $135,000
$100,000 2.0 – 2.7 $200,000 - $270,000
$200,000 2.5 – 3.0 $500,000 - $600,000
$500,000 3.0 – 4.0 $1,500,000 - $2,000,000
$1,000,000 3.25 – 4.25 $3,250,000 - $4,250,000
Did you notice that your firm’s equipment and real estate is worth more than its financial business value.
The thing that prevents someone from purchasing a small excavation business is that the buyer needs to have a reasonable return on investment after paying the debt service on the acquisition and paying himself a reasonable salary for his efforts in running the newly acquired business.
The profit is just not there year in and year out. Good years and bad years.
We all know that our equipment was acquired over time, in fact over many years, and to purchase it all at once at its current market or auction value is just not possible, the mortgage payments would sink the business.
The business buyer knows that also, after they look at the purchase numbers and do some figuring.
Someone who has the cash to pay you for your market value of equipment and real estate is business savvy and will want a return on their investment, that they could get investing elsewhere.
I remember several years ago there were conversations, articles in business magazines about employees purchasing the business from the owner, that did not make any logic, I have not seen any of those articles for some time.
To sell an excavation business it needs to have a healthy profit adjusted to (SDE) numbers, in my area I doubt if there is even one excavation firm that would sell as an ongoing business.
The value of a small owner operator excavation firm is the value of the market or auction value of equipment and tools, plus any real estate.
So best keep the equipment in good condition; so it has top market value.
One could sell off a piece of equipment at a time and just downsize overtime into retirement.
One other item I want to mention is that contractors throw around what their equipment fleet is value at. So many contractors use brand new equipment prices, attempting to impress the person they are speaking to.
From one of the equipment magazines, they explained what “estimated replace value” “ERV” is, it is the amount that the firm would need to spend to replace its construction assets at the present time (like kind equipment replacement based upon its current age and condition. ERV is not the cost to replace your fleet with new equipment.
It is freezing here January 23, 2026 while looking through the various posts on the forum and I decided to contribute some of my 2 cents, hope it is interesting.
What do you think about the value of your firm?
You have been in business for what, 20 years, 30 years, and it has been hard to make a living and pay all the expenses given the competition out there.
You have grown old, your knees hurt, the strength of your youth has gone, all that muscle mass that was on your upper body, shoulders and arms is now around your waste, and it’s not muscle.
You have learned a lot about the excavation business, a wealth of knowledge paid for by the school of hard knocks.
So you are thinking what is this business you have built is worth, what can I get out of it for my old age support.
Couple of ways to look at it.
We all know the stock market, per stock share price based on a multiple of the firm’s earnings equals the firm’s value.
You may think my firm is worth 15 times profit, Big Wrong.
Small excavation firms sell for an average of 2.5 times Sellers Discretionary Earnings (SDE), that is adjusted profit.
* Note that SDE includes owners wages.
Small owner operator firms called main street businesses, those that have profits of up to $2 million, yes, a small business with profits of up to $2 million is considered a main street small business. They have on average an earnings multiplier of 2.5. An example your firm has a profit over several years of say $200,000, then 2.5 times equals $500,000. I know very few small excavators that have a profit after expenses of $200,000, I used that number only for an example.
The profit of small firms is adjusted by business brokers to arrive at what is called Sellers Discretionary Earnings (SDE), look it up on the internet to understand what it is, it is not that complicated.
I have read several business broker information sheets, booklets and found this interesting piece of information for all the various kinds of small businesses, not just excavation firms.
SDE Multiple Business Value
$50,000 1.0 – 1.25 $50,000 - $62,500
$75,000 1.1 – 1.8 $82,500 - $135,000
$100,000 2.0 – 2.7 $200,000 - $270,000
$200,000 2.5 – 3.0 $500,000 - $600,000
$500,000 3.0 – 4.0 $1,500,000 - $2,000,000
$1,000,000 3.25 – 4.25 $3,250,000 - $4,250,000
Did you notice that your firm’s equipment and real estate is worth more than its financial business value.
The thing that prevents someone from purchasing a small excavation business is that the buyer needs to have a reasonable return on investment after paying the debt service on the acquisition and paying himself a reasonable salary for his efforts in running the newly acquired business.
The profit is just not there year in and year out. Good years and bad years.
We all know that our equipment was acquired over time, in fact over many years, and to purchase it all at once at its current market or auction value is just not possible, the mortgage payments would sink the business.
The business buyer knows that also, after they look at the purchase numbers and do some figuring.
Someone who has the cash to pay you for your market value of equipment and real estate is business savvy and will want a return on their investment, that they could get investing elsewhere.
I remember several years ago there were conversations, articles in business magazines about employees purchasing the business from the owner, that did not make any logic, I have not seen any of those articles for some time.
To sell an excavation business it needs to have a healthy profit adjusted to (SDE) numbers, in my area I doubt if there is even one excavation firm that would sell as an ongoing business.
The value of a small owner operator excavation firm is the value of the market or auction value of equipment and tools, plus any real estate.
So best keep the equipment in good condition; so it has top market value.
One could sell off a piece of equipment at a time and just downsize overtime into retirement.
One other item I want to mention is that contractors throw around what their equipment fleet is value at. So many contractors use brand new equipment prices, attempting to impress the person they are speaking to.
From one of the equipment magazines, they explained what “estimated replace value” “ERV” is, it is the amount that the firm would need to spend to replace its construction assets at the present time (like kind equipment replacement based upon its current age and condition. ERV is not the cost to replace your fleet with new equipment.
It is freezing here January 23, 2026 while looking through the various posts on the forum and I decided to contribute some of my 2 cents, hope it is interesting.
What do you think about the value of your firm?
