What is a fire protection and sprinkler company worth?

A fire protection firm can earn money in two different ways. Installation work arrives as projects and ends when the system is commissioned. Inspection, testing and maintenance work comes back on a schedule. Ask a broker or an accountant how buyers treat each kind, because the answer may change what your company is worth to them. Before any number is discussed, an owner who wonders what the company is worth should split revenue along that line, and show the trend in each part, because every other question on this page follows from it.

The service book is the asset

Be ready to show how much revenue comes from recurring inspection and service customers, and why those customers keep paying. If a fire code, an insurer or a lease requires the building owner to keep a system inspected, that is a reason for the contract to continue, but it is a claim to document, not assume. Be ready to show which requirement applies to each major customer and who the customer would call if you stopped answering the phone. Ask a buyer or advisor whether contracts that renew by habit are weighed differently from contracts that renew because a requirement applies.

Records are part of the price

Before you share the history of the systems the company has tested, check your own file for gaps, late reports and corrections. Aim for records that are complete, dated and consistent. If records are patchy, ask your lawyer and advisor how that could affect the offer, a holdback or the buyer’s willingness to proceed. Tidying the file before going to market is work you can start yourself.

People who hold the credentials

In Ontario, for example, Skilled Trades Ontario issues Certificates of Qualification to individuals and separates compulsory trades from non-compulsory ones. Check how your own province certifies the trades your technicians work in. Count how many certified people the company employs and how much of the contract volume depends on each. If two technicians carry most of the work, be ready to explain what happens if one of them leaves. Writing down who covers whom is a step you can take before any buyer asks.

Recasting earnings and why similar firms differ

BDC notes that buyers ask to see historic and interim financial statements, projections, tax returns and other records. Be ready to explain owner pay above or below a market wage, one-off projects and personal expenses run through the company, which the glossary entry on add-backs covers. Ask your advisor how differences between two firms with the same revenue could affect price: a larger share of recurring work, cleaner records and a wider bench of certified staff in one, and reliance on a few general contractors for most of the installation backlog in the other.

• Split revenue into recurring service and one-time installation, and show the trend in each
• Document why each large service customer must keep its system inspected, and which requirement applies
• List every certified person, what they are certified to do and how much volume depends on them
• Show how many general contractors or developers produce the installation backlog, and how long those relationships have run
• List the age and condition of testing and pipe-fitting equipment so a buyer does not discover a replacement bill alone

Installation backlog and equipment

A backlog of signed installation work is worth understanding, so ask who signed it. If most of it comes from one or two general contractors, ask whether those relationships belong to the company or to the owner personally, and whether any contract lets the contractor walk away on a change of ownership. Look at equipment the same way. Ask what pipe-fitting and testing gear is near the end of its life and what it would cost to replace, and keep service logs for the gear you have.

What to do with this

Treat this page as a map of what a buyer examines, not a valuation. A figure comes from a review of your own financial statements by a qualified person. BDC says the valuator chooses a method, or a combination of methods, depending on the type of business and available information. It describes earnings-based methods as based on past results and forecasted cash flow or earnings, market-based methods as based on a multiple of metrics such as EBITDA, and asset-based methods as the value of assets minus liabilities. BDC also lists three report types, from basic to thorough: a calculation, an estimate and a comprehensive report. If financing may be part of a future sale, BDC publishes that its business purchase loan can include extra financing for intellectual property, goodwill and a client list, so the contract book and client list are worth having ready as documents a lender can read.