The short answer
A building or construction business in Australia is valued as a multiple of normalised EBITDA, but only after the work in progress schedule has been restated to what was actually earned on each job, and only after retentions, defect exposure and the contracted order book have been tested. Broker and valuation-practice guides published in 2025 and 2026 quote a very wide band, from about 1 to about 6 times normalised EBITDA depending on the size and type of builder. The guides' figures for smaller residential builders mostly sit between about 1.5 and 3.5 times, and one 2026 guide quotes larger commercial builders and specialist subcontractors higher. Those are published guide figures, not audited transaction data, and the guides give little or no detail of the data behind them. What moves a builder is specific to the sector: how much of last year's profit was earned rather than merely billed, how much signed work with visible margin remains, whether the licence and financial capacity stay when the owner leaves, and whether retentions and receivables will be collected.
What a buyer is really paying for in a building business
In most building businesses, plant and premises are not what a buyer is paying for. The purchase is a flow of contracted work carrying a margin the buyer hopes to keep, a team that can estimate, win and deliver it, and the right to keep contracting, which here means a licence, a qualified individual behind it and the financial standing to hold it. Each can walk out with the owner or be eroded by one bad job. Where a builder has no contracted forward work and earnings cannot be maintained, the honest answer is often closer to asset backing than to any multiple of earnings.
Work in progress: what was earned, not what was billed
The first adjustment in almost every building valuation is to restate profit to the period in which it was earned. AASB 15, which replaced AASB 111 Construction Contracts, allows revenue to be recognised over time only where its criteria are met, measured by an input method (such as costs incurred against total expected cost) or an output method (such as milestones reached). A builder whose accounts simply follow progress claims can show a profit that is too high or too low depending on whether it is billing ahead of or behind the work. Valuers rebuild the position job by job, then look at direction of travel: whether forecast margin has held, faded or improved between the half-way mark and completion. The evidence a buyer or valuer asks for:
- ·A job-by-job WIP schedule at each balance date: contract value, costs to date, cost to complete, percentage complete, amount billed and the resulting over- or under-billing
- ·Forecast margin on each live job against its tender margin, and how the forecast has moved month by month
- ·Variations approved in writing, submitted but unapproved, and disputed
- ·Retentions aged by job, with defects liability end dates and the builder's own history of recovering them
- ·Payment claims served, payment schedules received and any security of payment adjudications in the last three years
- ·Completed jobs still inside warranty or defects periods, with defect lists and any rectification provision
- ·Closing against opening WIP for each of the last three years, so one year-end is not mistaken for the trend
Pipeline, fixed-price risk and how builder types price differently
A signed pipeline is what turns a past profit into a maintainable one. Valuation commentary separates signed contracts running twelve months or more with margin visible from verbal commitments, and treats an empty book as a reason to move down the range. On a fixed-price contract the builder carries any rise in labour, materials or subcontract prices after signing, plus variations it cannot recover, so the estimating record matters as much as the size of the backlog: ask how each completed job finished against its tender margin. One published broker guide from 2026 quotes roughly 2 to 3.5 times normalised EBITDA for residential volume builders, 1.5 to 3 times for residential custom builders, 3 to 5 times for smaller commercial builders, 3.5 to 6 times for larger commercial builders and 4 to 6 times for specialist subcontractors. The model changes the risk behind the number: custom builders and renovators depend on the owner's reputation, which is key person risk. Commercial builders depend on winning tenders and carry project concentration, performance security and retention exposure. Specialist subcontractors often depend on a few head contractors, so those head contractors' solvency becomes part of the valuation.
The licence, financial capacity and insurance: who actually holds them
In building, the right to trade is held by a person and an entity, not the business as a going concern. In Queensland a company's nominee must be a director, secretary or employee who holds a licence in the same class, and the Queensland Building and Construction Commission must be told within 14 days if the nominee stops acting. In NSW a company licence needs a nominated qualified supervisor, Building Commission NSW must be told within 7 days if there is none, and the licence may be cancelled if the gap runs past 30 days without consent. In Victoria a company is registered as a building practitioner only if at least one director holds a current registration. If the owner is that individual and leaves at settlement, the company's ability to contract can be at risk within weeks, so a named, qualified replacement and a handover period are conditions of price, not afterthoughts. An asset buyer must be licensed in its own right; a share buyer keeps the company's licence, while the nominee and financial tests hold, but inherits its history, including defect claims not yet made.
Financial capacity is a second gate. In Queensland, minimum financial requirements are a licence condition for most licensees: a current ratio of at least 1:1, net tangible assets of at least zero, and working capital adequate for turnover, with a maximum revenue limit. In NSW a residential builder needs a certificate of eligibility before it can obtain home building compensation insurance from icare HBCF. It is assessed on financial performance, equity exposed to the building operations, technical capability and claims history, sets a maximum contract price and a limit on open jobs, and is granted for between 12 months and 3 years. A restated balance sheet that weakens these tests can shrink the work the business may take on, which is a limit on earnings, not a compliance detail.
Security of payment, retentions and the insolvency record
Security of payment legislation is state and territory based, for example the Building and Construction Industry Security of Payment Act 1999 (NSW), the Building and Construction Industry Security of Payment Act 2002 (Vic) and the Building Industry Fairness (Security of Payment) Act 2017 (Qld). They give contractors statutory rights to claim progress payments and take a disputed claim to adjudication, and they are still being reformed: Victoria's Act was substantially amended from 15 April 2026 by the Building Legislation Amendment (Fairer Payments on Jobsites and Other Matters) Act 2025, widening what can be claimed and adding rights to claim release of retention money and bonds. The rights are worth something only if the builder uses them well, and they are no substitute for a solvent customer. How retention money is protected varies by state and project.
ASIC's statistics recorded more than 3,400 construction companies entering external administration or having a controller appointed for the first time in 2025-26, about one in four of the roughly 14,000 across all industries, more than any other industry, and slightly fewer than the year before. ASIC cautions that these are counts of formal appointments, not a measure of how many businesses fail, and the series has no denominator, so it gives no insolvency rate on its own. Its tabulation of external administrators' reports for 2024-25 is more useful to a valuer. In 2,361 initial reports on construction companies, where administrators can nominate several causes, inadequate cash flow or high cash use appeared in 1,330, poor strategic management in 1,241, poor financial control including lack of records in 945, and poor management of accounts receivable in 437 (about 19 per cent of construction reports, against about 13 per cent across all industries). In 1,946 reports (about 82 per cent) the estimated dividend to unsecured creditors was nil. Those are the failure modes a valuation tests directly: cash conversion, debtor collection, record quality and real job margin. An unpaid claim or retention owed by a failed customer is often a write-off unless a trust or security applies, so customer concentration belongs in the price.
A worked example: from reported profit to a supportable range
Consider a hypothetical residential builder: a company with annual turnover of $6.0 million building custom homes and renovations, where the owner is also the licensed nominee and site supervisor. Reported EBITDA is $540,000. The owner's recorded pay is $50,000 against a market cost of $140,000 for a licensed supervisor and project manager to replace them, which takes off $90,000. Restating three live jobs from billings to percentage of completion shows the company had billed ahead of the work at year end, which, net of the opening position, moves $110,000 of profit out of the year. A disputed variation recovered during the year was a one-off gain of $60,000. Normalised EBITDA is therefore $540,000 less $90,000, $110,000 and $60,000, which is $280,000. A signed order book covering most of next year at margins in line with completed jobs supports a mid-band position, so take an assumed multiple of 2.5 times for illustration, inside the band quoted earlier for smaller residential builders, with 2.0 and 3.0 times as a sensitivity range. That gives $700,000 at 2.5 times, $560,000 at 2.0 and $840,000 at 3.0. The buyer then deducts items the multiple does not capture: $40,000 because $200,000 of retentions are expected to be recovered at only 80 per cent, based on the builder's own history, and $35,000 for estimated rectification on completed homes still inside their warranty periods that is not provided for in the accounts. Those items total $75,000, so the supportable range is $485,000 to $765,000, with $625,000 at the assumed multiple. If the owner will not stay for a handover, or licence capacity rests on the owner's personal guarantees, a buyer will push towards the bottom of that range or below it.
What a defensible building business valuation file contains
The file behind a supportable range typically contains:
- ·Three to five years of financial statements plus year-to-date trading, stating for each year whether revenue was recognised on billings or percentage of completion
- ·A job-by-job WIP schedule at each balance date, reconciled to the accounts, with profit restated by year
- ·A completed-job review comparing tender, forecast and final margin
- ·The contracted order book by client, contract type (lump sum, cost-plus or schedule of rates), value, timing and forecast margin
- ·Retentions and receivables aged by contract and debtor, with recovery history, customer concentration and any disputed variations or claims in adjudication
- ·Licence details for the entity and its nominee, any financial capacity assessment or home warranty eligibility certificate, and the plan if the nominee leaves
- ·Defect, warranty and insurance claims history, and warranty periods still running
- ·A normalisation schedule with evidence for each adjustment, above all the owner's market wage, one-off jobs and the WIP restatement
- ·Published multiples treated as guide figures, with sensitivity analysis across the supportable range
When the number has consequences
A formal valuation becomes worth commissioning once the number has consequences someone else can test: selling a building business, where a buyer will rebuild the WIP schedule and ask who holds the licence; a partner or shareholder exit; a family law property settlement; or a capital gains tax event, including small business CGT concession claims under Division 152 of the ITAA 1997, where eligibility can turn on market values and the $6 million maximum net asset value test. The market value standard is the willing but not anxious buyer and seller of Spencer v Commonwealth (1907), and the ATO's guidance on the subject is titled "Market valuation for tax purposes". Reports follow the guidelines of APES 225 Valuation Services. Oliver Group prepares independent valuations only. It is not a tax agent and does not give tax, legal or financial advice, so your accountant and lawyer apply the valuation. Oliver Group's fees are set by the annual turnover of the business: a Small Business Valuation is $1,495 + GST for turnover under $2 million, a Medium Business Valuation is $2,495 + GST for turnover between $2 million and $10 million, and a Large Business / Start-Up Valuation is $3,495 + GST for turnover over $10 million or for a start-up. A small-business draft is delivered in 2 business days and a medium-business draft in 3 business days; the delivery date for a Large Business / Start-Up Valuation is agreed before commencement. Delivery time starts once payment and all required information have been received. The fee is fixed in writing before work begins and never depends on the concluded value.