What is an electrical contractor worth?

Two electrical contractors with the same revenue can differ in what their earnings depend on: who holds the licence, how much of the work repeats, and how much is a run of one-off jobs that has to be won again. This guide explains what to examine in an electrical contractor, what to be ready to explain, and what to compare between similar shops. It describes mechanisms, not numbers. It is not a valuation, and only a qualified valuator can give you one for a specific business.

The licence and who holds it

In Ontario, the Electrical Safety Authority (ESA) states that only electrical contractors it has licensed may do electrical work for hire. It also says a licensed contractor must be a Master Electrician or have at least one Master Electrician working for it at all times, and that a Master Electrician cannot be named by more than one contractor at the same time. Other provinces run their own regimes. In British Columbia, Technical Safety BC says a Field Safety Representative, an individual certified with it, is named on every electrical operating permit. If the one qualified person in the business is the owner, ask what it would cost to replace that person, and what happens if no one can be found.

Work that comes back versus work that is won once

Technical Safety BC describes an electrical operating permit as a way to ensure a qualified individual is responsible for the safe operation, maintenance and inspection of equipment on a site. Ask which customers are on written service or maintenance agreements, how long each has run, and whether the agreement can be assigned to a buyer or needs the customer’s consent. Ask also how much revenue came from one-time jobs such as renovation wiring. Have the numbers ready by customer and by type of work, so the recurring share can be seen rather than assumed.

Who holds the customer relationships

If a few general contractors or developers supply most of the revenue, the business is carrying customer concentration. The next question is who actually holds those relationships. If the owner does, ask what the seller will do to introduce a buyer. BDC notes that buyers may insist on a reduced price if the owner chooses to cut all ties after the sale. The same question applies to a backlog: check whether each signed contract can be assigned to a buyer or needs the customer’s consent.

Newer lines and what they depend on

Electric vehicle charger installation is one newer service line. Technical Safety BC says a permit must be applied for before an EV charger is installed in a home, and points to the value of hiring a licensed contractor. Because a permit is needed, ask whether the line’s revenue can be compared with permit records rather than an estimate. Ask how much revenue the line produced in each recent year, which of it was one-off, and whether the people who do it hold the credentials that the work requires.

What to be ready to explain

Some findings are worth raising before a buyer finds them. A licence held only by the owner with no successor is one. Open deficiencies in inspection records are another. A third is workers’ compensation standing. In Ontario, the Workplace Safety and Insurance Board (WSIB) says a contractor’s account must be in good standing to be eligible for a clearance, subject to the exceptions its policy lists (such as an amount owing that the principal pays, or an approved payment plan whose payments are being made), and that starting construction work without a clearance is an offence for both the principal and the contractor. If the contractor’s work falls within WSIB’s construction policy, a customer may need that clearance before work starts, so ask for the account status.

How earnings are recast

BDC says buyers ask for historic and interim financial statements, projections and tax returns. Recasting restates earnings to show what the business would earn under a new owner: replacing the owner’s pay with the cost of the licensed person and manager a buyer would actually need, removing personal expenses run through the company, and treating one-off items as one-off. Ask which adjustments a buyer would accept, and back each with records. See EBITDA for a common earnings measure.

What to compare between similar shops

• A licensed person other than the owner, or a credible plan to replace the owner, against a licence that leaves with the seller.
• A larger share of revenue from agreements that recur, against a book that is mostly jobs won one at a time.
• Customers spread across many accounts, against a handful held personally by the owner.
• A permit and inspection record a buyer can read and find clean, against one with open deficiencies or gaps.
• Insurance and workers’ compensation accounts in good standing, against arrears or disputes a buyer could inherit.