Illustrative composite. Hypothetical illustration. This is not a completed transaction, client case, appraisal, lender approval or market comparable. The builder amounts, earnings, timing, pricing factors, deal terms, and tax placeholder are author-chosen assumptions.
What does the financial snapshot assume?
Use the valuation hub for the broader framework. This example examines builder exposure and cash timing before interpreting a new-construction earnings case.
Assume a twelve-month period ending September 30, 2026. Total revenue is $6,000,000. Builder group A supplies $2,700,000 and group B supplies $1,500,000 in the hypothetical ledger.
| Operating input | Assumed amount | Basis |
|---|---|---|
| Book EBITDA | $480,000 | Owner compensation already expensed |
| Owner compensation | $150,000 | Added back once in the recast |
| Hypothetical nonrecurring cost | $40,000 | Assumed support and nonrecurrence |
| Replacement roles | $200,000 | Total recurring management and estimating |
| Total receivables at period end | $1,200,000 | Separate from annual revenue |
| Remaining modeled contract amount | $2,400,000 | Subject to actual rights and scope review |
These are not facts about real builders. No named customer, default allegation, or actual transaction is represented.
How do three concentration measures differ?
The two modeled builder groups supply $4,200,000 revenue. Their combined revenue share is 70%: $4,200,000 divided by $6,000,000. Revenue outside those groups is $1,800,000.
Assume their receivables are $540,000 and $420,000. Combined receivables of $960,000 are 80% of the $1,200,000 total.
Assume their remaining contract amounts are $1,100,000 and $900,000. The combined $2,000,000 is about 83.3% of the $2,400,000 modeled total.
| Measure | Two-group amount | Total denominator | Combined share |
|---|---|---|---|
| Annual revenue | $4,200,000 | $6,000,000 | 70% |
| Period-end receivables | $960,000 | $1,200,000 | 80% |
| Remaining modeled contracts | $2,000,000 | $2,400,000 | About 83.3% |
The builder-concentration definition explains the wider issue. The shares answer different questions; none supplies an automatic price discount.
Group related entities consistently and avoid counting the same job or receipt twice. Actual contracts also need scope, cancellation, assignment, payment, and completion review.
What does a collection-delay test change?
Assume opening cash of $300,000 and two modeled months. Month 1 has $700,000 receipts and $650,000 total payments. Month 2 has $750,000 receipts and $680,000 payments.
Base ending cash is $350,000 in month 1 and $420,000 in month 2. Now move one selected $240,000 receipt from month 1 to month 2.
| Scenario | Month 1 receipts | Month 1 ending cash | Month 2 receipts | Month 2 ending cash |
|---|---|---|---|---|
| Base | $700,000 | $350,000 | $750,000 | $420,000 |
| Selected receipt delayed | $460,000 | $110,000 | $990,000 | $420,000 |
Both scenarios receive $1,450,000 over the two months. The stress exposes a temporary cash reduction, not a new credit loss or changed total revenue.
A real plan would test payment dates within each month as well. A positive month-end balance cannot prove that every earlier payment is funded.
The working-capital guide addresses the broader balance and timing review. Keep an actual loss assumption separate from this timing test.
How does normalization preserve necessary estimating and management?
Start with $480,000 book EBITDA. Add $150,000 owner pay and the hypothetical $40,000 nonrecurring cost to obtain $670,000 before replacement.
Deduct the modeled $200,000 recurring replacement-role cost. The resulting hired-role operating case is $470,000.
The replacement covers work assumed to leave with the owner, including estimating, builder coordination, management, and financial control. Do not reverse pay and leave those duties unfunded.
The add-back guide explains why support and the starting basis matter. The QoE guide develops the financial evidence review.
Customer concentration and a delayed receipt do not automatically become earnings deductions. Identify their actual effect before changing the recast.
Which records support real concentration and contract review?
IRS Publication 583 describes supporting sales, receipts, and expense records. Match invoices, counterparties, job amounts, and collections to the same entity and period.
IRS Publication 538 explains tax accounting timing. It does not appraise backlog or determine whether a particular receivable is collectible.
The SBA existing-business guidance identifies contracts and financial statements as acquisition-review inputs. It does not prove that the target's builder agreements transfer.
Review pay applications, retainage, disputes, cancellation, assignment, and customer consent with appropriate specialists. A signed remaining contract amount is different from a hoped-for award or renewal.
The new-construction sale guide addresses the broader business model. This illustration supplies a specific denominator and timing test rather than repeating that guide.
What price range follows from the stated factors?
For sensitivity only, choose factors of 2.2, 2.7, and 3.2 times $470,000. They are arbitrary hypothetical inputs, not sourced multiples or an empirically measured builder discount.
| Assumed factor | Calculation | Illustrative business price |
|---|---|---|
| 2.2 | $470,000 × 2.2 | $1,034,000 |
| 2.7 | $470,000 × 2.7 | $1,269,000 |
| 3.2 | $470,000 × 3.2 | $1,504,000 |
The modeled range is $1,034,000–$1,504,000. It shows factor sensitivity rather than a likely asking price, appraisal, or buyer commitment.
Assume a debt-free, cash-free business scope, agreed normal working-capital treatment, no property, and defined operating assets. Changes to that basis require a fresh reconciliation.
The cash-delay test may identify added liquidity needs. It does not dictate which factor a real buyer should use.
How does the midpoint translate into structure and seller cash?
Take $1,269,000 as a hypothetical proposal. Assume $1,019,000 cash at closing, $150,000 fixed seller debt, and $100,000 held under a defined claims arrangement.
The components total $1,269,000. The note's terms and held amount's release rights remain separate reviews rather than immediate cash.
Assume $310,000 seller debt payoff, $59,000 fees, and a $230,000 tax-planning placeholder. Modeled immediate net cash is $420,000: $1,019,000 less $310,000, $59,000, and $230,000.
The tax amount is not a calculation or implied rate. Actual basis, allocation, entities, consideration, timing, and seller circumstances need adviser review.
No note payment or held-fund release is guaranteed. Keep those amounts distinct from the $420,000 modeled immediate cash.
Which lender threshold uses a different denominator?
Current SBA policy uses defined Business Purchase Price for its specified mandatory acquisition QoE trigger. Check the category and stated exceptions. Revenue does not supply that basis. An independent lender-purpose report has a distinct required scope.
The $6,000,000 revenue does not prove that trigger. Under this example's hypothetical $1,269,000 business-price basis and no property, that amount is below $3 million.
That arithmetic does not waive other diligence, valuation, credit analysis, or lender requirements. The actual category and price definition must be documented.
Which steps would make the exposure review concrete?
- Reconcile actual builder groups, revenues, receivables, and remaining contracts.
- Verify contract rights and distinct denominator definitions.
- Test actual collection timing and needed operating liquidity.
- Substantiate earnings and replacement-role costs.
- Use reliable valuation evidence and review structure and proceeds with advisers.
Keep the hypothetical stress separate from verified customer facts. A selected delay is not an allegation that any builder will default.
What is the transferable lesson?
Two large customers can dominate cash or remaining work more than their revenue share suggests. Measure each exposure on its own basis and preserve cash timing separately from loss assumptions.
A useful concentration review shows the evidence and consequences. It does not replace them with a guessed percentage or automatic valuation adjustment.