SAME REVENUE. SAME CREWS. $3.2M MORE IN VALUE.
A $13.1M marine general contractor wanted to sell, and the number wasn't there. Four accounting staff, no job costing, no per project reporting. We built the cost structure, tightened spending nobody had examined, and put twice monthly reporting on every job. Net profit went from 7 to 14 percent on the same revenue, and the valuation went from $2.3M to $5.5M.
A buyer doesn't pay for revenue. A buyer pays for profit that can be proved and is likely to continue, and both of those are documentation problems as much as performance problems. This company was already generating more profit than its books could demonstrate, and the $917,000 a year we recovered was money that had been inside the business the whole time. Nine months of clean, documented profitability moved the multiple from 2.5 times to 3 times and doubled the profit that multiple applied to. Nothing changed about the crews, the equipment, or the work.
A $13.1M MARINE SUB. WORTH LESS THAN HE THOUGHT.
A marine general contractor doing $13.1M a year, with experienced crews and strong general contractor relationships. The business wasn't in difficulty and the work kept coming. The owner wanted to sell, and when he looked at what the company was worth, the number was well below what he had assumed. There were four accounting staff, no job costing, and no reporting at the project level.
FOUR PEOPLE IN ACCOUNTING, NO PROJECT REPORTING.
The accounting function was staffed and busy. It produced a record, closed the month, and paid the bills, and it produced nothing that told anyone what a project earned. Adding people to that function had made the record more complete without making the business more legible.
Spending had never been examined. Subscriptions, vendor relationships, and material purchasing had accumulated over years of growth, and because revenue kept covering them nobody had reason to look. Individually none of it was large. Together it was most of a year's profit.
When a buyer asked the questions a buyer asks, the answers weren't available in a form anybody would underwrite. That's what set the price, and the owner had assumed the price was set by the size of the business.
THE PROFIT WAS REAL. IT WAS NOT PROVABLE.
The chain ran from an absent job cost record, into overhead and spending that nobody could attribute or challenge, into a net margin well below what the trade supports, into a valuation multiple applied to an understated number. Every link was a documentation failure rather than an operating one, which is why the recovery took nine months instead of years.
The Working Capital System is the system this page sits under, because valuation and bonding capacity are both underwritten off the same thing: a balance sheet and a profit record that a third party is willing to rely on. The Job Profitability System supplied the underlying structure, since a per project number has to exist before anything above it can be documented.
WHAT CHANGED, WEEK BY WEEK.
THE NUMBERS, NOT THE FEELING.
At 7 percent net with disorganised books the business valued at $2.3M on a 2.5 times multiple. At 14 percent net with nine months of documented profitability it valued at $5.5M on a 3 times multiple. Same revenue, same crews, same work, and $3.2M more in what the business was worth.
Total time from first call to the revalued business: nine months. The margin recovery itself was largely complete inside the first 90 days, and the remaining six months were spent building the documented record a buyer would rely on.
WHAT THIS DOES FOR A BONDING LIMIT.
A surety and a buyer underwrite the same two things: a balance sheet that can absorb a bad month, and a profit record clean enough to project forward. That's why this work reaches a bonding limit as well as a valuation, even though a limit increase wasn't the objective here and isn't claimed as an outcome for this client.
The figures a surety reads are working capital as a percentage of annual revenue, with 10 to 15 percent as the range and 13 percent as the number to build toward, a current ratio between 1.3 and 2.0, and debt to equity below 1.0. A contractor who wants larger work and keeps receiving the same limit at every renewal is almost always being told something about those three numbers and not about their reputation.
DOES THIS SOUND FAMILIAR?
The contractors this describes are rarely in trouble, which is what makes it easy to leave alone. The signals are a staffed accounting function that still can't produce a per project number, spending that has accumulated across several growth years without being examined, a net margin below what the trade supports, and a sense that the business is worth more than any document can demonstrate.
If you're within a few years of selling, refinancing, or asking a surety for a larger limit, the documentation is worth more than the performance improvement. Nine months of a clean record changed the multiple here, and the multiple was applied to a profit figure that had also doubled.
See how CFOS applies to marine subcontractors specifically on theMarine Operating System page, or book a 20 minute call and bring your own numbers.
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