This case involves a construction company that had several ongoing residential projects with a county. These projects were interrupted when the county wrongfully disbarred the construction company prohibiting them from bidding, contracting, subcontracting, or performing work on any residential project for a period of 8 years. As a result, the construction firm went out of business. While the firm was in the process of closing, most of the general ledger was lost. An expert in business valuation was sought to review the construction firm’s financials to estimate the value of the company before it ceased operations.
Question(s) For Expert Witness
- 1. How often do you evaluate the worth of construction companies?
- 2. What sources of data might you use to provide a valuation of a construction company?
Expert Witness Response E-341211
I value construction companies on a regular basis — approximately 10-15 new construction company assignments monthly. My company is a recognized leader in valuation, serving business owners, managers, boards, and trusted advisors throughout the world. I have performed appraisals for a variety of companies in a plethora of industries. I am familiar with the financial performance of companies within the construction industry and how they perform historically and how they may perform in the future, along with a critical eye on the assessment of their various profit centers. As an experienced valuation professional, I am also accustomed to working with limited financial data, corporate documents, and contracts.
It is not atypical for a company to have absent financial information. For example, I had a case of a sub-contractor electrical construction company that had changed accounting firms due to the death of their long-time accountant. The corporate returns from previous years were all lost or destroyed. Some Quickbooks data did survive though. Based on our ability to analyze those files, I was able to glean some useful information, such as sales and expenses. I was able to construct a limited recreation of the company’s historical performance as well as construct a 5-year pro forma forecast via a series of interviews with key personnel and thorough examination of the facts and circumstances of the company’s operations, financial performance, working capital analysis and profitability, debt obligations, such as bank and equipment loans, third-party and related party loans, any prior stock transactions, clientele, marketing, history of bidding, bidding process, client management, client retention, productivity, employee retention and performance, assessment of workers compensation and litigation claims, and overall project performance.