The general contracting sub-sector casts a tremendous net over a variety of trades within the construction industry in Knoxville. General contractors focus on everything from interior design to disaster renovations.
Mergers & Acquisitions activity is on the rise in the construction sector for businesses who were able to withstand the COVID-19 impact. Timing is critical when selling a construction business in Knoxville, and if you think you may be ready to take that step, the timing could not be better.
Several factors are considered when strategizing an exit, but the very first step is getting a professional business valuation. While only a true business broker can provide you with a business valuation to know what your construction business in Knoxville is worth, these are some of the commonly used formulas for determining value:
- 20%-25% of annual sales + inventory
- 1-2x SDE + inventory
- 2-3x EBITDA
When reviewing these formulas, you may discover that the total worth of your business is not where you would like it to be. That is ok! We work with dozens of business owners in maximizing the value of their business prior to sale. Even if you think you are still a few years away from selling, we recommend taking some of these 5 steps now to build value within your company to help ensure that when you do decide to sell, you can secure the best price possible for business.
Marketing is important to the success of any business, but in our digital age, internet marketing is crucial. Nearly 85% of consumers use the internet to find local service providers, and if you don’t have a presence on the web, you are not even on your prospect’s radar.
The first step is to develop a website and claim all social media pages, including pages on sites such as Angie’s List and Yelp. Due to some less-than-stellar general contracting firms, some consumers have a hard time trusting construction businesses. Claiming pages on review sites and directing satisfied clients to those pages to leave reviews will build trust in your community and set you apart as a trusted business in Knoxville.
A strong marketing campaign also includes email communications, Google AdWords campaigns, direct mail, and social media updates.
To ensure a top sales price, you will want to make sure your equipment is at its maximum value prior to the valuation. Buyers will seek to understand future capital expenditures, and if the business requires an extensive amount of capital expenditures this can negatively affect the business. While this may be expensive, the investment will be worth it when the deal closes and benefits the company while you operate.
We recommend spending a little more now (or over time) to ensure your equipment is always on schedule for routine maintenance, that repairs are being done, and equipment is being swapped out when needed.
The best way to preserve your equipment is to spread the cost of maintenance over the lifespan of the unit rather than cramming in a long list of repairs when you are preparing to sell. Equipment value is so important in the construction industry, and not only will it increase the sales price of your business, but the impressive equipment will attract more buyers.
One of the most overlooked value boosters in any business is having a strong management team in place. Consider this: when the owner of a business is heavily involved in all facets of the company — including client relationships, sales, or operations — it can be extremely difficult for an owner to transition this to the new owner as they step into the business.
Buyers often view this situation as high-risk due to the potential upheaval of the owner leaving the company and the near impossibility of a seamless transition. For example, if the owner manages most of the large accounts, it can be risky for a new buyer to take over since the customers’ main (or only) relationship is with the former owner.
If you recognize this problem within your own construction business, do not worry – we see this a lot, and it can be fixed. The solution to this issue is to build your management team. Once you have identified your management team, begin to transition your responsibilities to them so that when the new owner comes on board, the transition is smooth.
The beauty of owning a construction business in Knoxville is that it is easy to build a base of repeat clients. You may have helped a client rebuild a deck, and they were so satisfied with your work that they remember you when they need new lighting installed. Doing good work will generate future work for your business and build a “word of mouth” marketing campaign.
Unfortunately, most people have had a negative experience with a general contractor. Because of this, before choosing someone they have never worked with, they may ask friends or neighbors for a recommendation. Once you have established a few repeat clients, you can market your various service offerings to them and offer specials to generate new jobs.
It’s a well-known fact that our society places a higher value on environmentally friendly products and services, but here is something you may not know. Millennials are the next generation of home-buyers, this demographic is currently the largest group in the United States, and part of the millennial value system is taking care of the planet.
That being said, it would serve your business well to offer eco-friendly options to your clients. Sometimes greener options cost more money, but the younger generations are willing to pay it for the sake of the planet. Offering green supplies also gives you a great new marketing point and will help build your reputation as an ethical business.
As the owner of a construction business, you understand the importance of staying up to date with what is going on in your industry in Knoxville and beyond. The construction industry in the United States is massive and constantly adapting to new technology, demand, and trends within a domestic and global market. If you are considering selling a construction business in Knoxville, we are here to help. Contact us today for a confidential, no-obligation consultation.